Trader Q&A October 4th

“Plans That Pay” Part 3– The Entry

Trading Situation:

Dave has been trading for 4-5 years now & is still learning his strategies and fine tuning his trades. His profits don’t seem to be increasing and he is only winning slightly more than he is losing. Basically he is stagnant.

Trader Background: 

My situation is that I have what seems to be a good strategy. I win and lose, up and down and I can’t seem to get better. My trading is stagnant and not improving nor is my profitability. What can I do?

Coaching Feedback: 

In Part one, we discussed the importance of the trading plan and its completeness and we covered in detail the first of four areas related to the trade. In part 2 we covered the entry and various thing that can be done to fine tune and increase profitability.

Components of the trade:

1) Pre-entry or set-up criteria, the conditions that exist before you enter the trade

·        Market trend and conditions

·        Different time frames

·        Specific indicators

·        Trend affects on the trade

2) The Entry – where’s the best, most profitable place to enter

·        Strategy criteria – define as detailed as possible

·        Refining the entry with smaller timeframes

·        Placing the trade and order entry with precise targets of stop loss and profits

·        Tracking while in the trade

3) This week we will be detailing #3 “The Trade”

4) The exit – exiting, locking in cash, adapting to the market situation – Part 4

Part 3

“The Trade” – You maybe thinking once the trade is on, that all is set and nothing should be done until the stop or profit price is hit. This couldn’t be farther from the truth. NOW is the time where maximizing the profits come and can make the difference between a good trade and a great trade.

Just the combination of the strategy and the current market can change the outcome of the profits or losses. Remember when I mentioned there are, Perfect, OK and Bad market conditions that can impact the trade results?  Well, perfect is when all your set-up criteria are being met and the expectation of the trade is realized to the maximum. Documenting the market conditions and tracking the results can assist you in the future when you are looking to increase “size” for more profits in perfect market conditions.

NOTE: When you are looking to increase profitability in your trading it not only comes from staying in longer to get more ticks, pips or cents (which most traders rely on). It’s the ability to have the confidence in the set-up and market conditions that create the certainty to increase size.

OK market conditions are when some criteria are being met and the trade is working less than the perfect trade.  Here’s an example: Let’s say one of the criteria from your trade (trading the S&P minis) is that the Dow must be going in the same direction as the S&P for a perfect trade. But in the OK trade it starts with the Dow in the right direction and then it switches to the opposite. You may decide that if there are profits in that moment you lock them in and exit. So in the OK trade profits may be small or you can minimize the loss.

NOTE: A big key to successful trading is managing the losses.

Next we have the BAD trade and that’s when the market conditions are off and the trade just doesn’t work at all.  You could be in the trade and the conditions change in a heartbeat …….and they can do this or a news event happening and things shift. When in the trade and the shift happens suddenly, a fast exit is best, taking any profits possible.  If the set-up is there and the market conditions are off the key is to avoid entering at all. This can really save you money in the long run.   

Bottom line, while in the trade is to continually monitor what’s happening with the market conditions and document any thing that can fine-tune your reactions and make them more precise.

So notice:

·        Are all the set-up criteria being met

·        Determine the market conditions

·        Do they coincide with how you want to trade to go?

·        Be ready for any changes to the conditions

·        Be sure your using hard stops  

·        If conditions change from a “perfect” trade modify the trade for the best results possible 

·        Continually ask the question: ”What’s really happening?

The Psychology

In all the parts of the trade we have discussed your mind and emotions have the potential take over.

As an example the emotion of fear can influence each stage of the trade and can occur depending on your past reactions, results and references.

On the entry it’s the fear losing again or losing more money.  When in the trade and the market is constantly changing the fear of being wrong or not being right can take over.  Then trying to stay in a good trade can be a challenge when the subconscious mind reacts to a fear and the decision to exit pops before it should. Many traders will exit and of course the trade moves just the way they wanted it and they get upset they didn’t find the courage to stay in.

This issue can be handled by satisfying the uncertainty with certainty. The more certainty you can provide the easier it is to stay in the trade.

To create certainty a trader can use good questions that relate to the set-up criteria.  Questions like: Is the trade moving in the right direction? Are the other markets moving in the same direction? And basically re-visiting all the criteria you already have to get in checking if it’s continuing.

We haven’t discussed time or the length of time it takes for a trade to work.  If you track this over a good number of trades you will come up with a range.  Once the trade passes the average length of time it takes to work you might want to set a rule to exit with as much profit as possible.

The time in the trade is a direct result of movement and we know movement is created by momentum and momentum is created by volume.

This is a point that most don’t measure but can be a great asset over time.

Lets review:

·        Measure your results

·        Determine anomalies

·        Define market conditions in the Perfect, OK and Bad trade scenarios

·        Define the average length of time in the trade in all scenarios

Next week we will cover Part 4 “The Exit”

In the meantime Great Trading!