A thought to ponder upon
Stock selection is not same as trade selection
Most people are after knowing the names of stocks which can give them returns.
Several businesses mushroom up on this idea, the whole industry of advisory is based on thisโฆstock selection.
But this is just a small part.
And that is why, it doesnโt work.
The real deal is trade selection.
This is where our framework comes into the picture.
Trade selection involves:
1. Knowing whether the stock that you have selected is trade ready or a potential setup.
2. Knowing what setup are you going to play.
3. Knowing the timeframe of your thesis and context.
4. Knowing what will trigger your entry and what will destroy the idea of entering.
5. Knowing when would you take the loss and move on.
6. Knowing what your trade is, a swing trade/positional trade of which timeframe.
7. Having a plan for entry/addition/part booking and exit.
8. Knowing how much to bet on that trade which is basically dependent upon the stop-loss distance from entry.
9. Knowing the natural breathing space in terms of price and even time. Natural breathing space is the space in which stock can fluctuate against you without hitting your stop-loss.
10. Last but not the least, knowing whether the setup you chose is optimum or sub optimal so that in case a better setup comes up, would you be ready to get out (even before stoploss is hit) and take a different trade. Remember, capital is always limited.
All this go into designing a trade. So many layered thoughts are involved while designing a trade or even during a trade.
But hey, majority of people are just interested in a stock name. That means nothing, absolutely nothing.
Stock selection is not same as trade selection
Most people are after knowing the names of stocks which can give them returns.
Several businesses mushroom up on this idea, the whole industry of advisory is based on thisโฆstock selection.
But this is just a small part.
And that is why, it doesnโt work.
The real deal is trade selection.
This is where our framework comes into the picture.
Trade selection involves:
1. Knowing whether the stock that you have selected is trade ready or a potential setup.
2. Knowing what setup are you going to play.
3. Knowing the timeframe of your thesis and context.
4. Knowing what will trigger your entry and what will destroy the idea of entering.
5. Knowing when would you take the loss and move on.
6. Knowing what your trade is, a swing trade/positional trade of which timeframe.
7. Having a plan for entry/addition/part booking and exit.
8. Knowing how much to bet on that trade which is basically dependent upon the stop-loss distance from entry.
9. Knowing the natural breathing space in terms of price and even time. Natural breathing space is the space in which stock can fluctuate against you without hitting your stop-loss.
10. Last but not the least, knowing whether the setup you chose is optimum or sub optimal so that in case a better setup comes up, would you be ready to get out (even before stoploss is hit) and take a different trade. Remember, capital is always limited.
All this go into designing a trade. So many layered thoughts are involved while designing a trade or even during a trade.
But hey, majority of people are just interested in a stock name. That means nothing, absolutely nothing.
