- Decide what type of participant you’re going to be
- Investor or speculator?
- What markets to participate in? Needs to be consistent with the characteristics and time horizon of the type of participant you choose to be.
- Select a method of analysis
- Don’t jump back and forth among several methods in search of supporting evidence to justify holding onto a market position.
- Develop rules
- Define hard-and-fast rules on what constitutes an opportunity for you, what are the entry and exit points.
- Establish controls
- Define the exit criteria that will take you out of the market either at a profit or loss, e.g. price order, time stop, condition stop.
- Before you get into the market, you have to decide where (price) or when (time) or why (new information) you will no longer want the position.
- Your exit criteria creates a discrete event, ending the position and preventing the continuous process from going on and on.
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