While to talking to a small group of traders about short term trading, I was recently asked: “Why do you call it constructing a trade”? I had to stop for a moment, and think about my answer. It was perfectly obvious to me, but the question itself prompted me to think about it a bit before replying. My answer was as follows:

A trade (properly configured), short term or otherwise, is made up of several elements.

The least of which is an entry, an emergency exit and a planned exit. Or in trading vernacular, entry price, stop price and target price. There are just about as many ways of deriving those three elements as there are traders. Also, if the trade goes well, there can also be a trailing stop to consider as well. In any case, a trade is made up of at least three (or more) component parts – or elements.

The Merriman Webster Dictionary’s primary definition of construction is: “to make or form by combining or arranging parts or elements: build; also: contrive, devise.”

So traders construct trades – whether they think of it that way or not – and I highly recommend thinking of it that was. Why? Because if you think about creating a trade as a construction project made up of several elements you are less likely to forget one of those element in the process – and that will help make you a better trader. All traders should desire to be better traders – it is a continuing process.

Our eBook See the Music of the Market can also help you be a better trader. You can get it at www.tradingbetweenthelines.com – currently at a very attractive 50% discount.

 

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