Question:
How do you know when it’s the right price to enter a trade?
Ifeyinwa from Timingville
Answer:
Ifeyinwa, your question reaches to the most elemental aspect of actual trading—entry and exit points.
The answer to your question is not a direct or easy one, as every trade is unique, which means the “correct” entry and exit points are unique to a specific trade. This is not to say I cannot answer your question; I can and will.
In my opinion, no other factors determine the successful outcome of a trade more than entry and exit. I have fretted about this more times than you have probably traded, and, as well, lost a trade or two because I didn’t enter or exit correctly. You are not alone.
Every successful trader with a “system” or a strategy has his or her own methodology for determining entry and exit points, so defining these important elements for you is impossible, as I have no clue about your strategy. What I will do, though, is give you four strategic considerations to try out. Let’s assume you are trading equities long, not currencies or futures.
Every trader wants to get in at the lowest possible price and out at the highest, but as every trader knows, timing markets is, well, better left to a psychic reader. So, forget about timing to perfection and instead think about the possibilities below.
1. If you really want into a trade, place a buy order at the current day’s closing price.
2. If you want in, but are willing to miss the trade, place a buy order 5% -10% below the current day’s closing price. The percent depends on the price of the market you are trading and your strategy.
3. If you want the trade only on retracement (the market reverses to former lows), place a buy order at a former low, and then see what happens. Maybe you get it, maybe you don’t.
4. Place a buy order at a price you like in the after-hours market. This market has a way of often giving you what you want.
Keep in mind, these strategic possibilities work best combined with a refined strategy to which you adhere somewhat religiously, and your exit point is as important, if not more so, than the entry point.
Trade in the day; invest in your life …
