Trading should be boring… patiently waiting for only the best opportunities to profit using a disciplined methodology.
A simple process to limit emotion can be applied to all transactions, long or short, holding for minutes or even for months.
Employ and repeat…
Identify Trading Candidates
Execute Entry with Risk Control
Manage Your Position by moving protective stops when profitable
Maximize Market Moves with money management
Any and all opportunities need to be evaluated objectively to decide if they are worthy of capital considerations. Any trade is worth doing if a plan is securely in place.
A five-part trading checklist breaks down the key components of a potential trade.
- Cost – The cost of the trade needs to include the amount of money that will be allocated and also market liquidity for entry and exit.
- Risk – The level a loss will trigger closing out a position. Dollar and percentage loss need to be calculated.
- Reward – The trading objective is to exit with profit. Risk-to-reward ratio is an important metric for long-term success.
- Probability – Stock trades have a 50/50 chance of moving up or down, whereas option probability can be derived from a pricing model.
- Break-Even – A position can be more quickly profitable with lower break-even levels.
Having a trading plan is critical for financial and mental well being. Regardless of the trade trigger criteria, the number one focus needs to be on controlling risk.
Success today, tomorrow, next week, next month, next quarter, next year is dependent on a systematic, disciplined approach that can be repeated with consistency.
