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20 Rules For
Effective Trade Execution
Execution can be the weakest link in an otherwise great
market strategy. After all, it's a lot easier to find good
stocks than to trade them for a profit. So how do we enter the
market at just the right time and capture the big moves we see
on our charts?
Here are 20 rules for effective trade execution. Try these out
the next time you're getting ready to pull the trigger.
1. Seek favorable conditions for trade entry, or stay out of the
market until they appear. Bad execution ruins a perfect setup.
2. Watch the tape before you trade. Look for evidence to confirm
your opinion. Time, crowd and trend must support the reversal,
breakout or fade you're expecting to happen.
3. Choose to execute or to stand aside. Staying out of the
market is an aggressive way to trade. All opportunities carry
risk, and even perfect setups lead to very bad positions.
4. Filter the trade through your personal plan. Ditch it if it
doesn't meet your risk tolerance.
5. Stay on the sidelines and wait for the opportunity to
develop. There's a perfect moment you're trying to trade.
6. Decide how long you want to be in the market before you
execute. Don't daytrade an investment or invest in a swing
trade.
7. Take positions with the market flow, not against it. It's
more fun to surf the waves than to get eaten by the sharks.
8. Avoid the open. They see you coming, sucker.
9. Stand apart from the crowd. Its emotions often signal
opportunity in the opposite direction. Profit rarely follows the
herd.
10. Maintain an open mind and let the market show its hand
before you trade it.
11. Keep your hands off the keyboard until you're ready to act.
Don't trust your fingers until they move faster than your brain,
but still hit the right notes.
12. Stand aside when confusion reigns and the crowd lacks
direction.
13. Take overnight positions before trading the intraday
markets. Longer holding periods reduce the risk of a bad
execution.
14. Lower your position size until you show a track record. Work
methodically through each analysis, and never be in a hurry.
15. Trade a swing strategy in range-bound markets and a momentum
strategy in trending markets.
16. An excellent entry on a mediocre position makes more money
than a bad entry on a good position.
17. Step in front of the crowd on pullbacks and stand behind
them on breakouts. Be ready to move against them when conditions
favor a reversal.
18. Find the breaking point where the crowd will lose control,
give up or show exuberance. Then execute the trade just before
they do.
19. Use market orders to get in fast when you can watch the
market. Place limit orders when you have a life outside of the
markets.
20. Focus on execution, not technology. Fast terminals make a
good trader better, but they won't help a loser.
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