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.