{"id":37419,"date":"2014-05-08T11:06:13","date_gmt":"2014-05-08T15:06:13","guid":{"rendered":"http:\/\/www.smbtraining.com\/blog\/?p=37419"},"modified":"2014-05-08T11:06:13","modified_gmt":"2014-05-08T15:06:13","slug":"the-distinction-between-an-idea-and-a-trade","status":"publish","type":"post","link":"https:\/\/www.smbtraining.com\/blog\/the-distinction-between-an-idea-and-a-trade","title":{"rendered":"The Distinction between an Idea and a Trade"},"content":{"rendered":"

\"smbtraders\"<\/p>\n

I was talking with a new trader in my office with our floor manager trying to get him on track.<\/p>\n

“How do you think you are doing?” I asked.<\/p>\n

The new trader said, “I think I am doing a better job of sensing what sectors will move next.”<\/p>\n

So this is good work but not the whole game as many think. \u00a0This is just the start of the game.<\/p>\n

Let’s say you think you see money rotation out of a sector.\u00a0 You conclude that sector will go down.\u00a0 That is an idea.\u00a0 That is just an idea.\u00a0 That is not a trade.<\/p>\n

A trade requires the following:<\/h3>\n

a) What stock(s) in the sector is best to short?<\/p>\n

b) What price offers an excellent risk\/reward for your short?<\/p>\n

c) Will the market take the entire sector higher even with money rotating out of this sector?<\/p>\n

d) How long will you hold your short?<\/p>\n

e) Is there a catalyst from price action that you can spot to improve your risk\/reward?<\/p>\n

f) Is there a pattern that you recognize for the trade opportunity that you have seen before?<\/p>\n

g) How much size should you take with the trade?<\/p>\n

h) How much are you willing to risk if you are wrong?<\/p>\n

i) Where will you lighten up if the trade works in your favor?<\/p>\n

j) What do you want to see with the price action to get you bigger in the trade?<\/p>\n

k) Will you hedge the position?<\/p>\n

l) Can you use options to express this trade better?<\/p>\n

m) Are there better trades worth your emotional, financial and intellectual capital?<\/p>\n

 <\/p>\n

Okay I will stop here though I suspect I can think of more questions.<\/p>\n

When you answer the questions above, and develop a trade plan then and only then are you now trading well.\u00a0 Before that your thoughts are just ideas with unprepared trades.<\/p>\n

 <\/p>\n

You can be better tomorrow than you are today!<\/em><\/p>\n

Mike Bellafiore is the Co-Founder of SMB Capital and SMBU, which provides trading education in stocks, options, forex and futures. Bella is the author of <\/span>One Good Trade<\/a><\/em> and <\/span>The PlayBook<\/a><\/em>.<\/span><\/p>\n

Learn the skills necessary to identify and manage trades like these in our 10 week mentoring program. Click on banner below for details on next session in May 2014.<\/strong><\/p>\n[useful_banner_manager banners=2 count=1]\n

No relevant positions<\/p>\n","protected":false},"excerpt":{"rendered":"

I was talking with a new trader in my office with our floor manager trying to get him on track. “How do you think you are doing?” I asked. The new trader said, “I think I am doing a better job of sensing what sectors will move next.” So this is good work but not the whole game as many … Read More<\/a><\/p>\n","protected":false},"author":144,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[456,1373,15],"tags":[422,55],"class_list":["post-37419","post","type-post","status-publish","format-standard","hentry","category-trader_development","category-trading-lesson","category-trading_theory","tag-idea","tag-trade","no-post-thumbnail"],"yoast_head":"\nThe Distinction between an Idea and a Trade | SMB Training<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.smbtraining.com\/blog\/the-distinction-between-an-idea-and-a-trade\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"The Distinction between an Idea and a Trade | SMB Training\" \/>\n<meta property=\"og:description\" content=\"I was talking with a new trader in my office with our floor manager trying to get him on track. “How do you think you are doing?” I asked. 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