Objectivity + Selection + Execution = Performance
Objectivity – Not influenced by personal feelings, interpretations, or prejudice. Based solely on facts, unbiased. When scanning the charts be they of broad market or individual instrument, check yourself to see if you have any sort of opinion. Ask yourself at every turn, what is the chart telling me? Use the chart to determine odds of winning. If market is down 3 days in a row, odds for new long are good, if down 5 days in a row, odds for long even better. Look at range of where your market has been over last 10 days. Are you in the upper third of this range, lower third, somewhere in the middle? If you are looking to get long a stock after it’s been up 5 days, you are allowing personal opinion to get in the way of the odds. Essentially you are not realizing that the deck is stacked against you and are thinking it’s going to work out just because you said so. Don’t let any one specific idea get so entrenched that you want it even when an objective analysis of the situation is telling you that the odds are low.
– What direction is the broad market headed?
– Is it doing a good job going there?
– Daily market profile analysis will answer these two questions.
Selection – An aggregate of things displayed for choice, purchase, use, etc. Any group from which a choice may be made. The act of making a choice from such a group. When we trade we have a choice of what to trade. Our entry is 90% of the battle. If we choose the right stock at the right time, then the trade takes care of itself. Lots of people will say that it’s all about the exit. While maximizing gains is due to good trade management, if you have poor trade selection and poor trade location, your management won’t matter. You will either get stopped out for a loss or your trade will not move with the market and cause you frustration.
– Does my trade fit into one of the patterns I trade? (more on this later).
– Have I made every effort to find all the negatives that would cause failure?
– Does my stock have adequate beta so that I will be well compensated for being right?
Execution – The style or manner of accomplishment of task. Once we have established objectivity and have done the homework of selection, our execution should then be effortless. We have determined our entry and have already assumed one of three possible outcomes. Yes, there are three. Win, lose, break even. We are comfortable with any of the three and know that over a long period of time trades will fall into one of these categories. We are confident in our “edge”, and know that over time if we continue to repeat the process we will have positive outcome.
– Am I ready before the market opens to take a signal and go?
– Are any possible entries or exits hitting levels premarket?
When alerts that I have set (you did set alerts, didn’t you?) go off, I’ll enter my orders without thinking twice about it. I’ve done my homework, and I trust my edge.