by JESSE H. THOMPSON/Technical Analysis staff writer
A method or system for trading can be likened to a building in that its viability depends on its
foundation and structure. Ideally the cornerstones of this building will be purpose, preparation and
planning. That is, its important first to define the express purpose of a developing method, and then to
adequately prepare yourself to properly develop and implement your plan on a practical basis. The
framework of the building is composed of the specific parts of the plan.
DEFINING A PURPOSE for your blueprint, is not as simple as it immediately appears. The most
obvious and most commonly expressed purposes are either to pick tops and bottoms or to attempt to
measure the trend. But in actual practice, neither one is good enough from the investor's viewpoint. Many
an investor has been right on the market and has still gone broke. The reasons are many; one overtrades
or overleverages himself, fails to control risk when entering the market, gets out too soon, etc. So in
actual practice a trader should attempt to do more than simply pick tops or bottoms, or measure the trend.
A higher goal is to specifically limit losses, to allow profits to run,to protect accumulated profits, and
finally, to attempt to enhance the probabilities that all this can be accomplished.
This goal sounds so simple and straightforward. but anyone associated with today's investment markets
can attest that all of this is much easier spoken than accomplished.