How to put a winning strategy together | stockbee

8/26/2008

How to put a winning strategy together

A reader asked how to put a winning strategy together.....
  • A overall mental model about how market operates and why.This is your base assumption about how the market operates and why. What forces affect the market. How do they interact. Why market and market participants behave in certain manner. Consciously or sub consciously you will have some model about this. If your current model is faulty, you need to replace it with right model based on research and market history.
  • A mental model about how moves on individual stocks operate and why.This can be a very simplistic model like that of technical analyst or more sophisticated based on proven market anomalies.
  • Given a understanding of market and stocks, you need the ability to formulate a strategy. Strategy selection in market will involve choosing a style like growth investing, value investing, contrarian investing, momentum investing, high frequency investing, statistical behavior based investing, etc.. This will form the essence of your vehicle selection strategy.
  • Once strategy is clear then you need to think of trading mix elements like entry, exit, stops, risk per position and overall risk.
  • Once all these elements are though through is when you look for trading tools like software and information and data sources.
  • The next step is scans, processes, tactics, and other details.

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