In the previous post we talked about what an edge is and how do we know if we have one?
If you are beyond that, it means you have crossed a big milestone, as most (90%) of people that I know, can't get past that.
But knowing about an edge is hardly sufficient to make it work. You also need to know how and when to execute trades in the context of that edge. We will not get much into all aspects of execution today, but focus more on the “Rules” for execution i.e the Trading Plan
Think of the following questions before you create a trade plan
What are the prerequisites for you to enter the trade - Meaning what are the the confirmatory elements that you need. It could be defined in terms of factors like - Price Range, Time of the Day, volume levels etc. any measurable variable
Would you wait for a confirmation on all variables or there is a prioritization among them, or weightage.
Would you enter all at once or would you scale in / pyramid into the position?
How much would go in the first tranche and the subsequent?
So you put the trade - and next
What would you do if
You don't get a fill
You get a partial fill
Where would you Stop Loss be?
Is it going to be dynamic or static?
Are you going to Exit in full size or you would scale out in parts?
How would you determine the scale out ratio?
What if the price reaches 90% to your target and does not move beyond? Would you wait for up your Stop loss or Cover?
What would be the buffer/variance where you will cover your trade even if it does not hit the target precisely.
On what basis would you cover or hold?
Having answers for all these questions, answers informed by data i.e. - ought to be your next milestone