Tell me in a few clear, practical steps how to enter and exit a good trade.
Lee from Clearstep, OH
Answer:
First off, Lee, a “good” trade is one that has already produced profit; otherwise, it is a trade with potential. In any case, I get your drift, so here are 10 practical steps for entering and exiting a trade. Keep in mind these are generic steps. What you actually do depends on your trading strategy.
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Find a potential trade that you have confirmed and you believe will work.
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Define the high and low parameters (10-day hi/lo average or the day’s high and low are two possibilities). This is your entry frame. As well, it tells you the immediate potential up side and the potential down side.
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Define how much you want the trade. This will determine where you enter.
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Enter an immediate buy at the ask price, if you really want the trade.
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Enter a buy at 5-10% above the defined low (depending on market price), if you want the trade but are willing to let it go.
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Enter a buy at the defined low, or below the defined low, if you want the trade only at the cheapest price, and you don’t care if you miss it.
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When you get in, set a market stop at a price that gives your trade room to move without prematurely stopping out.
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IMPORTANT: Your market stop should define EXACTLY how much you are willing to lose on the trade.
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As soon as your trade is profitable, move your market stop enough to trim your potential loss, but still leave your trade enough room to move.
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If your trade moves deeper into profit, change your market stop to a trailing percent or trailing dollar stop and let the trade run. As it runs, periodically tighten your stop to lock in more profit.
- Take your best gal or guy out to celebrate, or lick your wound and get ready to trade another day.
Trade in the day; invest in your life …