Thursday, September 13, 2007

How to Solve Tough Trading Decisions

There are times when the decision to buy or sell a stock can be a very difficult one. Sometimes, there may be conflicting evidence for and against a decision occurring at the same time. This used to be a fairly frequent occurrence for me, and perhaps for you too. So let's have a look at the following quotation, which is, in my opinion, an intelligent way to solve this problem.

"My way is to divide half a sheet of paper by a line into two columns; writing over the one Pro, and over the other Con. Then during three or four days' consideration I put down under the different heads short hints of the different motives that at different times occur to me, for or against the measures.

When I have thus got them all together in one view, I endeavour to estimate their respective weights; and where I find two (one on each side) that seem equal, I strike them both out. If I find a reason pro equal to some two reasons con, I strike out the three. If I judge some two reasons con equal to some three reasons pro, I strike out the five; and thus proceeding I find at length where the balance lies; and if after a day or two of farther consideration, nothing new that is of importance occurs on either side I come to a determination accordingly.

And though the weight of reasons cannot be taken with the precision of algebraic quantities, yet when each is thus considered separately and comparatively, and the whole lies before me, I think I can judge better, and am less likely to make a rash step; and in fact I have found great advantage from this kind of equation in what may be called moral or prudential algebra."

So, who is responsible for this excellent quotation? You'd have to look at a rapidly depreciating 100 dollar bill to find out the answer.

Personally, rather than use a piece of paper, I write on a large white board with dry erase markers. I have found that this helps me tremendously in weighing the evidence for and against a decision, and helps me solve those extra difficult trading decisions.

Finally, you may have noticed a slight reduction to the frequency of new posts to this blog. This is mainly due to the fact that I have started a new day job, which consumes about 11 hours each day. I will continue posting as often as I can, and will have longer posts written on the weekends.



Good luck with your day job. I enjoy and greatly respect your technical analysis. I too will be able to post mostly on weekends.
Paul Wills

HeadlineCharts said...

Hi, let us know what your new job is and how it is going.

Danny Merkel said...

Hey Paul,

Thanks again for the comment. Being a doctor, I can imagine that you would be very busy. I know in Canada, there is a shortage of doctors, and some have to work very long hours. I think it is great that you are able to keep a blog going on the side.


Thanks for stopping by. I've updated my profile on this blog.

Hopefully, this job will earn me enough money to join the MTA, and finish level II and III. I know you have all three levels, so I'll let you know when I join.