nitro's aphorism: Good entries, patient exits, strict discipline on stops, keep costs down, go both long and short - BUT ABOVE ALL, YOU GOTTA DO SIZE. All good advice. But how? Starting at the beginning: How does one achieve a "good entry"? Michael
Good entries are so important for nitro because, as far as I understand, he is a scalper. For the rest of us, exits are even more important and the best entry is the one that also tells you when you should exit, that is when you are certainly wrong and perhaps should even reverse your position. Here is a good entry and a simple one: go short when the stochastics fail to become overbought in a narrow BB channel. Enter on a fast stochastics crossing the slow one. Exit when the stochastics show a bullish divergence or when the last high swing in the BB gets violated. Works well pretty often. That's a general idea, details are a matter of experience which is very important in this business. There are many good entries, but never take a position until you know when and where you should exit and if you cannot comfortably accept the risk of a failed entry.
Thanks for your thoughts Wally. Although entry is not so important in the long run to a position trader, it is frustrating to be whipsawed. Are there methods of entry that are "safer" than others?
IMHO, The entry is THE most important aspect of trading IN ANY TIME FRAME. Think about it, the WHOLE idea of an entry is such that the odds of it hitting a profit target or a trailing stop, etc, OUTWEIGHS the probability of your stoploss being hit - putting anything else before the entry is putting on the horse before the cart. Further, IMMEDIATE feedback is critical to the daytrader or scalper, in that he almost certainly wants to get out when the price action indicates that he has mis-approximated the odds. He quickly breaks even or takes a small loss, and continues to prowl the tape... I agree that the longer the time frame, the less important the entry. But, I sure as hell don't want to give an inch to the other guy on the other side of my trade (as opposed to someone who is just offsetting a previous trade) if he is taking the opposite side of my trade - I want to grab him by the balls until he panics or hits HIS STOPLOSS and has to help MY position by having to come back and offset his trades. nitro
A good vehicle to position trade is one that is expected to move well away from the entry, and has shown the same characteristic previously. If your method generates a specific number from which you should be long or short, then that number is both the entry and the exit. For this reason, I wait until nearly the close of the day I get an entry signal so that I am not whipsawed intraday. Following that, the stoploss or reversal is a close on the opposite side of the entry signal. If I have chosen the vehicle correctly, then I can expect a nice move away from the entry signal. Does price whipsaw sometimes, sure. But if you put your chart on close only, check how many times it truly does tend to close back and forth across your entry in the past. Maybe three times tops. For small losses relative to the profit you are waiting on. And most times, a well-chosen candidate will enter and close, and never look back. After all, you are taking advantage of oscillation, not flatline.
In short term trading, the most important mark of a good entry is immediate profitablity (relative to your time frame). The next best characteristics are a) how little time the market spends at or below your buying point prior to your entry, and b) how fast it runs in your direction afterwards -- both of which help to minimize the number of people you have to compete with in getting out of the trade. In other words, you want the trade to feel like you were the only person on the globe who was able to get in at that price. On the other hand, when it feels like there's enough time to call and convince your 3 best friends to get in at the same price as you did, better to dump the position before you hang up the phone
Your entry is only as good as your exit is and you really don't know how good it is until you close your trade. It is the exit that determines your profit. Of course, your entry should give you an edge, otherwise it makes no sense to enter, but if you do not know when to exit, especially when your entry failed, you are bound to go broke sooner or later. So my point is this: always know where to exit before you ever enter, then adjust your exit if the market moves in your favor. Have strict rules how to do it. Failure to adhere to these rules is a major reason why traders lose so often. I believe the most important aspect of trading is risk control which you do by disciplined exits. Entries are important, but I believe that they tend to be overestimated, unless of course you are a scalper. The greater your frequency of trading the greater should be your success rate (otherwise you will get killed by commissions and losses) and that you can accomplish only by choosing your entries very carefully. Just two cents of mine.
This is a very nice way to put it. It means you should enter on a quick retracement, but not a slow, U-shaped one, doesn't it? You should have told me a year ago!