Granthara01.10.04The three questions to answer before any trade (preview of PART 20)

This is an educational check, not a trade signal or a promise of profit. Bharat Foods is illustrative, and the reader's ten shares remain held.

01.10.04 · The three questions to answer before any trade (preview of PART 20)

PreviouslyThe maximum loss of a position and the loss your finances can bear are different numbers.

Three answers before the button.

You know what a share is, what the market does, what it costs to trade, and how a loss can take away your next choice. Before you place another order, can you explain why you would make it, what would prove you wrong, and what you would do next?

An order is the last action. The decision must exist first.

Updated

3
questions that turn an impulse into a decision you can inspect
Part 01 · The One Principle That Precedes Everything
  1. 01.10.01 Asymmetry of loss: why −50% needs +100%
  2. 01.10.02 Survival as the first objective
  3. 01.10.03 What you can lose vs what you can afford to lose
  4. 01.10.04 The three questions to answer before any trade (preview of PART 20)
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Learn

First: why this, and why now?

Name the idea in plain words. ‘Bharat Foods went up yesterday’ says what the price did, not why it offers a sound reason to buy today. What do you think is happening, what evidence supports it, and why does your chosen time matter?

You need not have a sophisticated model yet. ‘I cannot say’ is a useful answer: it means you are not ready to call the order a reasoned trade. Part 20.01 will teach how to write a short thesis — a testable statement of what you expect and why.

Learn

Second: what would show I am wrong, and what can it cost?

Choose an observation that would challenge the idea. For a business claim, it might be evidence that the sales or cash flow you expected failed to arrive. For a planned price setup, it might be a level or condition that invalidates the setup. A lower price alone does not always prove the business idea wrong, but it does change what you can lose if you continue.

Then put the possible damage next to the money's job. Part 01.10.03 showed why a ₹5,000 market limit is not proof that you can bear a ₹5,000 loss. A planned exit is not a guarantee of the price received: a gap or thin market can fill worse. Part 20.04 will teach how exits are placed and how they can fail; Part 21 will turn loss limits into position size.

See it

Make each answer concrete

Tap a question to see what an answer needs and what an empty answer sounds like.

This is a preview. Part 20 will develop the thesis, entry, exit and objective in detail.

Try it

Which proposed answer best meets the ‘what would show I am wrong?’ question?

Learn

Third: what will I do next, in either outcome?

An entry is only the beginning. State the condition for acting, what would make you stop, and what you are trying to achieve. Include a time to review if nothing decisive happens. These are questions about a process, not a prediction of the next price.

For a possible additional Bharat Foods purchase, the honest draft could be: ‘I will look at the next reported results, not buy on the last price move. I will specify what result supports my idea, what contradicts it, and how much I could lose without touching money needed soon.’ No new purchase is being made in this example. It shows what a decision would have to contain.

If any answer is missing, pause. A skipped trade has no cost beyond the opportunity you might have missed; an unexplained trade can leave you unable to say why you entered or why you are still in it.

Try it

You can explain why you might buy, but losing the proposed amount would make an essential payment impossible. What is the useful next step?

Learn

Where Part 01 leaves you

Part 01 taught what you own, who stands on the other side of a trade, the rules and costs of participation, and the asymmetry that makes large losses hard to repair. Its final check is portable: why this, what would show me wrong and cost me, and what will I do next?

Part 02 starts with a different question: how does a market produce the price on your screen? Much later, Part 20 will turn these three rough answers into a detailed thesis, entry, exit and objective. The questions can guide you now; the machinery arrives in order.

Remember

Before any trade, answer why this idea now, what would show it wrong and what loss you can bear, and what you will do next in either outcome.

Everything this chapter has told you, in order

  1. 01.10.01The percentage on the way back is measured from a smaller base: down 50% requires up 100%.
  2. 01.10.02Survival means retaining the ability to meet obligations and make the next decision.
  3. 01.10.03The position's possible loss and your capacity to bear it are different numbers.
  4. 01.10.04An order is the last action; the reason, downside and next step must exist first.
Next
02.01.01 — Last traded price vs value vs worth

Next: how buyers and sellers make the price on your screen.