Making Trading Decisions
The trading decision process has five dimensions: trade identification, selection, execution, monitoring, and evaluation.
- Trade identification is the art of finding potentially profitable trades.
- Trade selection is the imposition of additional screens on the set of potentially profitable trades to narrow the list. You want to select only the best trades, those you expect to be most profitable for a given level of risk.
- Trade execution occurs after a trade has been decided on, and the order is submitted and executed. This may require more attention for large orders whose execution could adversely impact market prices.
- Trade monitoring requires watching over open trades or positions to determine when to exit a losing position or add to, or exit, a winning position.
- Trade evaluation occurs after open trades have been closed. Traders assess why they entered and exited a trade and how well the trade worked in an attempt to learn from the experience.