Trading should never be an impulsive, uneducated, spur-of-the-moment decision. The trader's decision-making process is exactly that, a process. A process, which when done correctly, should yield positive results- financially and emotionally.
I have been utilizing the OODA method in my decision-making process, which I would like to share with you today. OODA stands for Observe, Orient, Decide, and Act.
The first step of observation includes educating yourself about the company in which you are hoping to invest into. Look at the fundamentals of the company and its history. Pay attention to its stock and what has happened to it in the past, in a historical context. Don't forget to consider the macro and micro-events of our economy, companies do not exist in a bubble, they are affected by various events taking place. The second step is to orient. Orient yourself with the trade signals. Consider your outlook on the time horizon, where has this stock been and where is it going?
Visual positive and negative outcomes. These visual rehearsals will help you not only during the orienting process but also during your entire trading career. Consider the ratio of cash in your portfolio. Is it at thirty percent? Look at your portfolio draw-down and investigate how much money you are willing to invest in this particular stock, based on the information you have collected above. Make your decision.
Be self-aware and consider how you will feel if the trade does not go your way. Identify a strategy that is appropriate for the current market, do you want to be bullish or bearish? Look at the probability of success and the return on your capital. Finally, act. Monitor your positions. Make sure you are keeping your trading journal so that you can circle back to it next time when you are in the observation phase and learn from your mistakes. Better yet, watch me and learn on mine.