- Improper analysis, categorized as inadequate preparation or incorrect interpretation
- Improper entry (early or out of sync with market and sector action)
- Improper execution (inappropriate position size, failure to adhere to proper trading principles, e.g. momentum resumption)
- Failed exit, e.g. profit turns into a loss, failure to recognize ‘windfalls’, etc.
So what ‘rules’ must we have.
- Identify your edge (specific market, specific techniques)…if making money on the short (long) side isn’t working, why persist at that which isn’t making it happen? Strive to do more of what is working and less of what is not.
- Trade with the market. Intraday ‘tells’ are huge. If breadth is negative and the dollar is positive, going long equities is going to be tough sledding.
- See the market as it is. If we’re wrong, having missed the exit ramp, are we going to stay on the highway into the next state, or get off?
- Understand the market structure. Is the market trending, detrending, breaking out of consolidation, bouncing off support or resistance, consolidating?
- Know how volatility is behaving…rising, falling, at extremes.