Market Strategy Health Check-Up

In such a scenario the one who fails to check their system and trades will end up making the other people rich! Well, nobody wants that. Regular health checkups help in keeping track of your health. Similarly, market participants ought to do a regular health check-up of their processes as well! Here is a three step-check to make sure your system stays as far away from the ICU as possible.

1. What are your goals?

Before committing your capital to the market and its moves, you should be absolutely clear about your goal. Do you have specific expenses that you’re looking to cover through your market gains (assuming you’re left with gains)? Or is the market your sole breadwinner? Is this money being set aside for education, or a house, or a car?

Are you exploring this as an alternate source of revenue or as a hobby? Is this purely for educational purposes or is it a viable revenue stream? Your goal will also depend on the amount of time that you can dedicate to the market. So think about what it is that you’re looking for, and then answer the next two questions.

2. What is your Time Horizon?

Are you an investor? If yes, then what is your time frame?

Are you a trader? And as a trader, do you look at intra-day moves, or are you catching the swing moves?

This is a very important question. If one is unclear about their time horizon in the market then the daily whipsaws could make the portfolio bleed, whereas holding on to stocks for too long could translate into higher opportunity costs. For someone who is in it for the long haul, the intermediate trends and corrections don’t matter. It is the primary trend that matters since these would act as investment vehicles that would generate handsome returns over 5-,8-,10-years.

On the contrary, if you’re a day trader, then your approach would be completely different. The time frame would be extremely short-term whereby daily volatility will also play a big part in the realization of the profits.

3. What is your Risk Appetite?

This is probably one of the most important lessons to learn in the market. And most often, this lesson is learned the hard way, after burning a lot of capital at the hands of experienced players. How much risk can you tolerate per trade? Are you aggressive or conservative as a trader/investor?

This also depends on individual personality types. Certain people are risk-averse while others are risk-tolerant. But in both scenarios, the trader/investor must be crystal clear about the extent of loss that can be endured in every position. This comes down to position sizing as well. How much capital will be allocated to every position? What is the maximum number of positions that will be held at any given point in time? These are all questions that one must have answers to in order to follow a successful strategy before diving into the research and execution part of the market.

The market seems friendlier once you have the answers to these questions. While the market can always spring up a surprise, a regular check-up of your market strategy will always keep you ahead of the curve.

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Thanks for reading and please let us know if you have any questions!

Allstarcharts Team