Anatomy of a trade
Markets
The 3 E’s of a good trade
3 Steps to a good trade
Paraphrasing Colin Powell: every successful military engagement requires 1) clear goal, 2) proper logistics, and 3) a well defined exit strategy.
Similarly, in investing we need
- Entry
- Execution
- Exit
Entry
- Entry thesis
- WHY are you getting into the position?
- Ensure all of the elements of the logic chain are complete
- What are other market participants thinking? How are you viewing the situation differently?
Execution
- Tactics for putting on this trade/investment
- Proper tickers
- Cash vs options vs etc..
- Market vs limit orders
- etc…
Exit
- Never walk into a trade if you don’t know how you’re going to get out
- Plan your exit before you enter
- Connect your exit to your entry thesis
- Don’t fall into the disposition effect (holding losers until they break even) or other psychological biases