Excerpt from the book What I Learned Losing a Million Dollars:
Analysis is simply that: analysis. It doesn't tell you what to do, or when to do it.
In order to translate your analysis into something more than mere commentary, you need to define what constitutes an opportunity for you. That's what rules do; they implement your analysis. Rules are hard-and-fast. Tools (i.e., methods of analysis) have some flexibility in how they are used. Fools have neither rules nor tools. You must develop parameters that will define opportunities and determine how and when you will act. How? By doing homework (i.e., research, testing, trial-and-error), and defining the parameters with rules. Your homework determines what parameters or conditions define an opportunity, and your rules are the "if ... , then ..." statements which implement your analysis. This means entry and exit points are derived after you have done your analysis.
If the opportunity-defining criteria aren't met, you don't act. This doesn't mean a particular trade or investment which you pass up won't turn out to be profitable. It might have been an acceptable and profitable trade based on someone else's rules. Remember, participating in the markets is about making decisions, and as Drucker reminds us, "There is no perfect decision. One always has to pay a price which might mean passing up an opportunity." You have to accept the fact that profitable situations will occur that you won't participate in. Don't worry about the ones you miss; they were someone else's. Your rules will only enable you to participate in some of the millions of possible opportunities, not all of them.