Develop Situational Analysis (SA) skills to avoid big drawdowns

If you want to make money in the stock market you must develop good Situational Awareness (SA). 

SA allows you to be aggressive during good times and change your setups and tactics depending on market situation.

Situational Awareness (SA) is a US Air Force term coined during Vietnam war. It means pilot should always be proactively aware of their surroundings and other planes in their vicinity and accordingly adjust their flight paths.
 

SA is a higher level skills and once you develop it you will avoid drawdowns and be always 3 steps ahead of impending market moves. 

Developing Situational Analysis skill

Is about trying to gauge the conditions under which market is operating.

First thing in the morning spend few minutes developing Situational Awareness. Write it down.

Make it a habit. It takes six weeks for a habit to become part of you.

Look at questions on market like :

Where are we in longer term multi year trend.

Where are we in current bull or bearish phase (at start or near top)

What is driving this move

What is the predominant theme (growth, turnaround, value, junk)

What are the breadth trends telling us...

What is the likely 5 day scenario from here

How should I position myself accordingly.

How aggressive should I be in chasing breakout.

Should I wait for a short setup to develop...

Should I tighten stop...

Should I go in capital protection mode...

These kind of Situational Awareness you need to develop as part of your trading skills development.

Only way to do it is to do it daily. First few days you might be bad at it, but if you persist and do it for 6 weeks or more, it will become part of you. Instinctively you will do it first thing in the morning.

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