Tell me in a few clear, practical steps how to enter and exit a good trade.

          Lee  from Clearstep, OH


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.

  1. Find a potential trade that you have confirmed and you believe will work.

  2. 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.

  3. Define how much you want the trade. This will determine where you enter.

  4. Enter an immediate buy at the ask price, if you really want the trade.

  5. 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.

  6. 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.

  7. When you get in, set a market stop at a price that gives your trade room to move without prematurely stopping out.

    1. IMPORTANT: Your market stop should define EXACTLY how much you are willing to lose on the trade.

  8. 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.

  9. 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.

  10. 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 …

Trader Ed