So once you determine the overall market tilt through Market Monitor, the next question is what stocks to buy or short sell. When making this decision one must select proper trading vehicle. In a market where you have choice of 8000 plus stock vehicles, your vehicle selection determines your returns. For example say two traders Trader A and Trader B did 10 trades in a year and trader A chose the Dow Jones 30 stocks as his universe to trade and trader B chose 30 stocks based on earnings momentum. Now if both followed exactly same set of entry and exit rules and risk management rules, the trader B is likely to make more money. Vehicle selection is extremely critical in determining your returns.
The vehicle selection strategy should chose vehicles (or stocks to trade) with high likelihood of going up. 95% of your effort should be in finding stock likely to go up a lot. If you can find characteristics of stocks with high probability of going up and chose those stocks for trading, any simple entry, exit and risk management rule will suffice. If you chose stocks with low probability of going up, no matter what entry, exit and risk management rules, chart patterns, indicators, real time data sources, trading psychology, candlesticks method, charting methods, etc. you use , you will not make much money. If you chose a company with high probability of going up no matter what your entry criteria, your chance of success will be high. Rest all is all about tactics.
So understanding what are some of the vehicle selection strategies I use and why is more critical than the actual mechanics of trading. The edge is in right vehicle selection more
Daily Trading Plan - Part 1