Trader Q&A

“Plans That Pay” Part 2 – 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.

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

This week we will be detailing #2 “The Entry”

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

3) The trade itself- once the position is filled, monitoring – Part 3

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

Part 2

 “The Entry” – where’s the best, most profitable place to enter the trade

The Strategy Criteria

Remembering each good strategy should work at least 85-90% of the time.

Once the signal is there and all the criteria has been met, taking the trade at a specific price can make a difference. 

Many traders I have come across just jump in and do not refine the exact entry price and that can be OK if they are taking longer-term trade or swing trading. But for day trading a few ticks or pips can make a difference in being stopped out too soon or have an affect on the profits made.

Exact Entry Point

If you are day trading and are not defining the exact entry point you might consider looking at this modification and test it for the results.

Here is an example of what you can consider: If you are entering on a three-minute chart and the bars are averaging lets’ say 1 point then consider looking at a smaller time frame or setting a rule that the entry should be midpoint or less if going long. Looking at a 25-tick chart or anything less than the 3-minute can help with the entry.

Placing the trade in the system can also help to keep you disciplined to whatever rules you maybe setting for the entry and allow you to track and measure more accurately what results you uncover. Note that as you are testing these entries keeping track of the results is very important. Noting what happens each time you enter will eventually give you the right answer for the proper spot to be locked into your overall plan.

Tracking

Each time any strategy is modified noting the results is vital. Noticing an anomaly in the results defines the proper entry.  Lets’ say you took 5 trades you worked to enter on the midpoint of a 3 minute bar watching a 25 tick chart. The results show 3 out of the 5 trades never got filled but if you had placed the trade just one tick above the mid-point you would have been filled on all 5. Now you have the new entry point and the timing is more successful. 

Now you could be saying this is a bit too much and fine-tuning to this level is ridiculous but I have to say that every high-end trader I have seen successful has a trading plan this refined. So doing this with put you in good company.

Also high-end traders trade from their intellect NOT their emotions and they accomplish this with details and precision in their strategy and implementation of the trade. 

So notice:

·        Where you enter

·        What the results are

·        How many trades work and don’t work

·        What happens as the trade moves (even if you don’t get filled)

·        Modify and track as you change

·        Define with as much precision as possible

Market Conditions

Another thing to notice at the time of the trade entry is the other market conditions.  What’s happening at the same time you are entering in your market?

Lets’ say you are trading the S&P your intention is to go long and you have defined your precise entry and it works 90-95% of the time and all of a sudden it stops working….note if there were other things happening….like the Dow or NASDAQ moving down as you were going long the S&P. Some markets are leaders and some are followers and they tend to change day to day. Noticing if yours is a leader or follower may give you the edge you need in making your decisions.

The Psychology

You might be questioning what does the plan and this level of detailed definition, have to do how your mind deals with the trade? Well it’s simple, the more you can define and detail your approach the less chance emotion has to influence the trade.  The reason is with all the parts in place there are no questions. Questions like: Should I enter here?  Is it going up or down? Will I be right?

There is no room for emotions, so the more you can define the better chance you have to trade without emotions.

Defining the trade specifics eliminates reactions to such emotional fears as:

·        I’m afraid I’ll be wrong

·        I’m afraid I won’t be right

·        I’m afraid I’ll miss out.

·        I’m afraid to get in.

And more…….So the main point is to DEFINE as much as you can on all parts of your trade.

Next week we will cover:

Part 3 “The Trade”- once the position is filled, monitoring

In the meantime Great Trading!