An edge is a trading strategy with positive expectation. More precisely, it is a trading strategy whose expectation exceeds the risk free return. (If you can't do better than the risk free return you should put your money in treasury bills and do something else with your time.) "Strict discipline" is vague. Getting tied up and whipped won't make you trade any better. If you mean "follow the trading strategy that you have previously determined gives you an edge", well, yeah, you should do that but that isn't the edge itself. Money management is necessary but isn't an edge in itself. The best risk management applied to a strategy with no edge simply means you'll lose money more slowly.
Win percentage is completely irrelevant. I prefer a lower win percentage, profit factor being same. It's about the average p/l % for your winners and losers.
Excellent edge! You'll generally collect the premium, and if you get really lucky two or three analysts might downgrade the stock, resulting in assignment at a bargain basement level, just in time for a run to new 52-week highs. Alternatively, you can wait for stocks in a long strong uptrend with short interest above 10% to open gapped up and just buy them. The profitability of this setup is directly proportional to the number of ET posts whining about how overvalued the stock is A riskier play is to wait for these same stocks to open gapped down based on analyst downgrades and buy them. You may have to take a bit of heat on the trade, but before you know it price will be making those new 52-week highs! The profitability of this setup is directly proportional to the number of analyst downgrades that precede the gap. One analyst downgrade will likely only result in a small gap down, so you won't get nearly the bargain entry price that, say, three analyst downgrades would produce. Good stock list for beginners: LULU (short interest 14%), NFLX (short interest 20%), OPEN (short interest 25%), TZOO (short interest 34%)
" I'm having a hard time understanding what exactly an edge is since a lot of what I read says no strategy is better than 50/50 in the long run." -CheckM8t "Edge is a slight statistical advantage over a random behavior" i.e. it does not have to be long term and traders are not investors.
You probably read one of those psych trading books by Van Tharp, I read it too, it said random entry makes money. Here is the reason the author can get away with lies: it can't be disproved. If it is science, no author would claim 2+2=5. But in trading, many authors would talk about cup-and-handle, acending wedge, head-and-shoulders, 3 black soldiers...... random entry makes money? if it does, why are you selling books?
I know it sounds simplistic but edge is just basically buying low and selling high. However you go about doing that is your edge.