Define the idea.
What is the catalyst, and which evidence supports your interpretation?
RISK & DISCIPLINE
Defined parameters.
Consistent review.
A trading thesis should specify its evidence, allocation assumptions and exit conditions. Momentum’s approach connects those parameters to a record that can be reviewed as information changes.
The plan matters.
Before the outcome.
A defined process makes the assumptions and risk parameters behind a trade available for review, whatever the outcome.
Know the boundaries.
What would invalidate the thesis? Consider allocation, exit conditions and reasons to pause.
Review what changed.
Return to the original reasoning. Separate a change in the thesis from a change in the price.
A framework can support discipline; it cannot remove market risk. Any outcome remains uncertain, and losses are possible.
THE COMPLETE DECISION
A defined basis for each decision.
The investment thesis.
Describe the setup in clear terms. Make it specific enough that another person could understand the evidence and the conditions behind it.
Conditions for reassessment.
Write down the conditions that would change the view. A useful plan leaves room to pause, reassess or let an idea go.
A documented review.
Keep the original reasoning alongside what followed. Look at the quality of the process as well as the result.
A REPEATABLE APPROACH
Evaluate the process as well as the outcome.
Return to the information and assumptions available when the decision was made. That record provides a consistent basis for review.
Preparation
What do we know, and what are we assuming?
Boundaries
What conditions would change the decision?
Review
What did the process make visible—and what did it miss?