The approach
Discipline over prediction.
Most traders lose by breaking their own rules, not by picking the wrong stocks. Sedgefield² is a rules-first approach: every trade has a stop, a size limit and a reason, or it doesn't happen.
i.The framework
The Sedgefield framework, in plain words.
The Sedgefield framework begins with the business, not the chart. It looks for companies where small changes in revenue can produce large changes in profit: scalable cost structures, clean balance sheets, and a defensible position that is hard to copy.
It then asks two questions of every idea. What does the market believe that is wrong? And what will make the market change its mind? Without a written answer to both, there is no trade.
Only then does the discipline begin: the trend must agree, the asymmetry must be there, and the size is set by the loss one is willing to accept.
ii.The rules
Written in advance. Applied without exception.
- I
A stop on every trade
No position without a predefined exit. The maximum loss is known before entry, and stops only move toward safety, never away.
- II
Size limits
The amount at risk on any one trade is a small, fixed fraction of the portfolio. Single positions, sectors and total open risk each have their own ceiling.
- III
Two-to-one, at minimum
The potential reward must be at least twice the potential loss, after costs. Three-to-one is the aim.
- IV
Patience
An idea sits on a watchlist before it can become a plan. A plan passes every rule, then waits out a cooling-off period before it is approved.
- V
Review every trade
Each closed trade is reviewed: was the plan followed? The measure that matters is discipline, not the win rate.
iii.The review
The number that matters is discipline, not the win rate.
Every closed trade is placed in one of four boxes. A loss taken according to plan is a good outcome. A win that came from breaking a rule is not: it is luck, and it teaches the wrong lesson.
Followed the rules · Won
Good trade
The process worked and the market agreed.
Followed the rules · Lost
Good loss
The loss was planned, sized and accepted. This is a success.
Broke a rule · Won
Lucky
The most dangerous outcome. It teaches the wrong lesson.
Broke a rule · Lost
Broke rules
The outcome the whole approach exists to prevent.