Saturday, April 28, 2007

First Things First: Knowledge, Analysis, Trigger

Participating in the market can seem to be a daunting prospect for the non-professional. Having a simple system to help acclimate one to a whole new process can be helpful. When I want to learn anything new I employ a three step process. I describe the three steps as: Knowledge, Analysis, and Trigger (KAT). Here is how I go about that process to aid my development as a new investor and trading.


The obvious and most simple step in my KAT system is that one must first determine where one can gain knowledge. Will you use books from Benjamin Graham or Van Tharp’s Trade Your Way to Financial Freedom, or newspapers like the Wall Street Journal? Or perhaps you will rely exclusively on charts or company reports. Whatever the case, as a new investor or trader you must first figure out how and where you will gain your knowledge.


The second, and a more difficult step in the KAT system, is developing the ability to analyze the knowledge acquired. In other words, you must gain the ability to filter the useful from the useless. Then one must take the useful knowledge and determine what is actionable and what is not.

There are no shortcuts here at this step. The amount of information available is mind boggling and overwhelming. Without the development of a system of analysis to determine what knowledge you can use, the mere possession of that knowledge is worth nothing.


The third and most difficult final step in KAT is what I call the Trigger, as in pull the trigger. Once you have obtained your knowledge sources and once you have developed the ability to analyze what is useful, you must then develop the emotional ability to act on your analysis. This is why the trigger is the most difficult step to develop in KAT.

Acquiring knowledge and analyzing can be easily thought of as logical processes. Pulling the trigger and applying that knowledge and analysis is not. Taking ones knowledge and analysis and implementing it, is an affirmative (and emotional) declaration that you have the self confidence and belief to take action (or inaction) when other may disagree with your conclusion.

The decision to buy a stock (or sell it) is based on knowledge and analysis, but ultimately being able to implement that decision and pull the trigger comes down to emotional confidence in ones ability. If one does not have the ability to recognize and execute that which their knowledge and analysis dictates then mastery of the first two steps of KAT mean nothing

While all this may seem obvious, obvious information is not so obvious when you are unfamiliar with a subject. For those like me who are relatively new to investing and trading, discovering the obvious is a rewarding experience. That is why I think one must understand the above three important (but perhaps obvious) things when you begin to participate in the market.

Understanding that one must gain knowledge, develop the ability to analyze that knowledge, and maintain the emotional discipline to pull the trigger on that analysis is one of the most important and basics things I could understand. And I think you should too.

1 comment:

penny stocks said...

I have a web site where I give advise on penny stocks and stocks under five dollars. I have many many years of experience with these type of stocks. If their is anyone that is interested in these type of stocks you can check out my web site by just clicking penny stocks. I would like to take a moment to talk about low price stocks not classic penny stocks or stocks under one dollar the term most people most often think of when the word penny stock is used. Their are companies of really decent quality trading under five dollars’ but for every one company trading under five dollars that is of decent quality their are maybe ten of poor quality. So the really big difference between those investors that are tremendously successfull when it comes to investing in low price stocks and those investors that lose enormous amounts of money investing in stocks under five dollars’ is having a great deal of knowledge and experience when it comes to low price stocks’ or having a total lack of knowledge and experience when it comes to low price stocks. Finding quality stocks under five dollars requires a lot more research than finding a decent stock above ten dollars.