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It's very common for us to spend tens of hours researching a purchase (a computer, or a high ebd digital camera) that costs
a few hundred dollars, but we often enter a trade position that costs thousands of dollars without understanding what we're getting into.
Trading by emotion is a sure way to lose money. Emotional trading is often triggered by a very ratinal analysis of underlying security.
The price moves just as a result of the aggregation of thousands of traders's actions.
We make money by knowing what majority of other traders think, not by knowing the rational price of the underlying security.
The following steps will help us make a better trading decision.
1. Find Candidate - Browse tikcer list.
2. Research - resons to buy/sell
1) Charts.
2) Fundmental.
3) Coming events.
4) Views of other traders.
5) Probabilities of possible scenarios.
3. Develop Strategy on the paper - the trend on charts (80%), and fundementals (20%).
1) Identify the pattern of price movement: within a range, over-bought, over-sold, uptrend, or downtrend.
2) Determine the type of trading: Swing trade (positions typically last two to six days) or day trade.
3) Set max amount to invest in the security (no more than 25% of total fund)
4) Estimate the best entry point (EMA 10, and EM20) and entry time . Invest only a portion of amount if the entry point is higher than the best one.
5) Set stop-limit percentage based on daily price fluctuation and moving average, or cost every down.
6) Set exit target - based on daily price fluctuation and the trend of moving average.
4. Adjust Strategy - adjust based premarket and early trading data and inputs from online communities.
5. Monitor progress - adjust strategy based on ongoing progress.
6. Execution
7. Identify bottom/top
1) Panic in market ofetn signals the bottom/top (the final push from dominant money managers).
2) Volume speaks.
3) Technical over bought/sold.
4) Technical resistance/support on charts.
5) Release of news.
8. Review - review for improvement (after closing).
1) On reasons to buy/sell.
2) On execution.
3) On emotional management.
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