Three Questions to Ask Before Entering a Trade

Reflecting on today’s market, I jotted down three questions that I should have considered before entering any trades.

  1. What do I think should happen?
  2. What supporting evidence (technical) do I have?
  3. If I am wrong, where do I exit?

The questions follow a sequence. First, you have a thesis of what you think should happen.

Then, a technical pattern or level is presented that supports your thesis.

Finally, you have a set level (or range) that if hit, invalidates your thesis and you exit the trade.

These three questions are partially inspired by Peter Reznicek’s “When What Should Happen Doesn’t” (WWSHD) concept. He discussed it in a recent interview.