A trader scores four factors on a 0-10 scale: rate of change, daily support, intraday behavior, and sector volatility. Add them up to get a composite score that maps to risk grades. A 26 is B-risk, 20 is C-risk, 15 or below means don't trade.
The way I process my trades, any given moment in time, I am constantly weighting all the factors dynamically. Let's say the rate of change was amazing. We really started to accelerate. So maybe I'm going to give this a 9. Maybe the daily chart, we're actually panicking to some long-term support. That could also be like a 9. Maybe the intraday was a little bit steadier, but it's still good, just not as good as that daily chart. So the intraday is going to be a 6. This is actually in kind of a volatile sector. Maybe it's semiconductors these days and it's been kind of run up a lot. So boringness, it actually only gets it's a 2. In my head, what I'm doing is I'm kind of adding these up. This is a total of 26, and maybe I'm going to give this B risk. And maybe if this got a score of only 20, that would be C risk. Maybe if this got a score of 15, that's just no trade. And so what most people do is they're not weighing all the variables on a spectrum, and then they're just oversimplifying it and just saying, oh, if this turns, I'm buying, rather than saying, oh, we didn't meet all the requirements, this is a no trade.
