Getting From Analysis To Executing The Trade - Part Three

Submitted by Marco on 22 May, 2006 - 21:52

This is the third part of a three part series about getting from analysis to trade execution. The first step in my trading is to decide whether or not the trade is worthwhile. This step was outlined in part one. The second step of trade analysis was examined in part two. In this part we shall look at trade execution. I will also underline the importance of being 100 per cent confident when you execute your trading plan. These are basically the three steps that I undertake to enter in a trade no matter which market I trade, be it the forex market or the stock market.

Analyse the stock, determine if it worth while and then execute your trade on markets

If I've reached this step I have already discerned that the stock is worthwhile to trade and which direction the price is headed. I would have already decided on the entry point and the stop loss I would be setting. Now, the next action is to simply send your trade order online or give your broker a call to initiate the trade.

What's so hard about pressing a button Marco? I hear you ask. Well, if it isn't hard then fine, you're already on your way to trading the markets confidently. This part is for those who haven't built that confidence in trading.

After dong your analysis, you should be fully confident of your trade. If you aren't, my suggestion is that you stay out of the trade, or if you still want to have a piece of the action you could simply make a smaller order.

It’s all about psychology; being confident about your analysis before committing yourself to the trade by pressing that buy or sell button.

If you do enter a trade not being 100 per cent confident about your analysis, you would simply be undermining your future trading confidence. If the trade goes against you, your confidence would simply be shot. You would be more hesitant to make another trade and if you do make another trade you would have an over-protective mentality over your trade and exit too early or you may lose money and simply lose more confidence about your trading style. On the flip side, if the trade agrees with your analysis you would be looking at two consequences. You would be either encouraging bad habits and more finicky trades in future or you could be growing your confidence. It is rarely the latter.

Every trade you enter you must be sure about the premise with which you entered the trade. This is because if at anytime during the trade the initial premise (indicator or piece of news) that signaled for you to enter falls apart you would need to be aware of the consequences to the price of the underlying equity that you are trading.

Also being confident about your trade builds on further future confidence. If the trade goes to plan and is profitable, you know exactly why it went up. Even if the trade went against your plan – and you got stopped out, be glad that everything went to plan (and hopefully why you got stopped out). Hopefully this simple perspective about trade execution builds your confidence in your future trades.