As in life, trade is based on a series of selection of financial instruments focused on three fundamental issues:
- The first issue is about the price, which someone in a particular time, is willing to pay to get a product, service or get an investment or to engage in a relationship.
- The second issue is about, the expectations who has after acquired, a product, a service, an investment, or any other relationship, during a time.
- And the third issue is related to the limit to which one is willing to maintain a product, a service, an investment, or any other relationship, in case it will produce negative results.
Whether is about a product, an investment, a relationship, and so on, the above-mentioned issues are always at the front line when making choices. Indeed, any choice requires answers to the questions, what is the value of a product, a service, or an investment, in other words, what is the price that someone has to pay for this product, service, or investment at a specific time period? Respectively what is the value of a relationship, in other words, what is the price someone at a specific time has to pay to get involved in a relationship?
In addition, what are the future expectations someone has for a product, a service, an investment, or a relationship? In other words, what are the expected benefits that a product can offer or what are the expected returns that an investment can have or, what satisfaction can a relationship bring to someone, over a period of time?
Finally, what is the maximum accepted tolerance limit if at some point of time the benefits, profits, or satisfaction that a product, service, investment, or relationship may offer, instead of being positive it become negative?
Those are crucial issues that if they cannot be investigated and clearly be defined in quantitative terms, then the decisions taken for selecting financial instruments contain plenty of weaknesses.
In trading, there are hundreds of trading systems that a trader can choose to follow in order to get a position in a financial instrument. What is vital is that those systems need to be able clearly to define at each specific time the Entry Price which is the price someone is willing to pay for trading a financial instrument, also to define the Target Price that indicates the expectations of a trader about the selection that he made, and set the Stop-Loss Price which is defined as the limit of negative results that may produce this selected instrument.
If these prices can be determined, then a trader can select any financial instrument and enjoy the risk he takes, the profits he gets and the satisfaction he feels when trading a financial instrument. Respectively an entity can enjoy his selection for a product or a relationship over a time.
In trading, these prices are defined - as discussed in previous articles - as part of the trading portfolio management mechanism cycle. In this mechanism, the prices to select a financial instrument are set as part of the cycle, in relation to other cycles:
- the Maximum Limit of Capital Loss
- the Optimal Trading Size
- Profit and Loss Ratio
- Checking Margin Requirements
If these cycles cannot be determined, then a trader, will be under constant pressure, will be confused, and lost.
Entry Price, Target Price, Stop Loss Price are the vital factors to select a financial instrument. And as they are determined by the cycles of the Mechanism of Trading Portfolio Management, allows a trader to follow a navigation path as successful trading portfolio managers do all around the globe.
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