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# The Edge

### Introduction

It's no secret how winning traders win and take the profits from everyone else. The have an edge and they exploit that edge day in and day out. It's a number game. If you buy a can of beans for 30 cents and sell it for 40 cents you make a 10 cent profit. Do that 10,000,000 times and you've made \$1,000,000. Trading is the same. If you make (on average) \$50 for each trade you place then you execute 20,000 trades and you've made \$1,000,000. Simple isn't it?

This article explores how long it would take you to take a \$5,000 account and turn it into a \$100,000 trading the ES contract.

Have a look at the six scenarios in the table below: (download the spreadsheet from here: The Edge)

Scenario 1 2 3 4 5 6
Average Win Points 2.50 1.50 0.50 2.50 2.50 2.50
Average Loss Points 2.00 2.00 2.00 1.50 2.40 2.50
Cost per trade 0.10 0.10 0.10 0.10 0.10 0.10
Average P/L per trade 0.40 -0.60 -1.60 0.90 0.00 -0.10
Number of trades 100 100 100 50 100 100
Expected Profit (in points) 40.00 -60.00 -160.00 45.00 0.00 -10.00
Num contracts traded 2 2 4 6 2 2
Value per contract \$50 \$50 \$50 \$50 \$50 \$50
Total expected profit \$4,000 -\$6,000 -\$32,000 \$13,500 \$0 -\$1,000

Those who trade the ES will see that I've based the calculations here on the emini S&P futures contract. Take a look at the table and at scenario 1. The other scenarios use the same calculations but are based on different figures.

Under scenario 1 our average winning trade gives us 2.5 points and the average loosing trade is 2 points and our commissions are \$5 per round trip which costs us 0.1 points per trade. Given those figures we end up with an average expected return of 0.40 points per trade.

Now it's just a numbers game. If you place 100 trades then you would expect to receive a net 40 points (after commissions) and trading at 2 contracts per trade and a contract value of \$50 it means that you will make \$4,000 on average for every 100 trades that you execute.

If, as in scenario 4, you're making on average 0.9 points per trade then after 50 trades you will have netted \$13,500. Scenario 5 shows that even if you do have a slight edge it's still not good enough because commissions will take you down to breakeven in that situation.