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What is this "edge" that a trader should have?

An edge is simply a way that you can make money in the market.

A casino has an edge. It may only be a small percentage, but turnover makes it a big profit. A simple example is roulette.

In trading, an edge may simply be a probability. So, if you study a market and notice that a particular set-up works 60% of the time, then you have an edge. If you bet on it each time with sound money management, you should come out ahead.

Beginners never understand this. They look for a method where every trade makes a profit - the "holy grail".

Professionals know that the holy grail does not exist. All they can hope is that they can trade such that the sum of all their wins exceeds the sum of all their losses.

A professional poker player does the same. He knows the odds on every hand and only bets when the odds favour him. That does not mean he wins that hand, but if he plays enough hands, he will tend to win.

My edge in investing is the two models I have of the way markets tend to behave - the value model and the growth model. The rest is money management, patience and discipline.

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