In today’s episode, you’ll discover the brutal truths about trading entries that nobody tells you.
So tune in right now…
Hey, hey, what’s up my friend? In today’s episode, I want to talk about trading entries – the brutal truth that nobody talks about.
Often traders get too fixated on their entries thinking that that’s the only way to become a winning trader. But let me share with you some truths about your entries that nobody talks about.
Truth #1: Breakouts may fail
I don’t care how good your breakout trading setup looks, or whether the market was in a range for six months and formed a tight volatility contraction pattern looking like it’s getting ready to break out.
It could very well breakout but reverse immediately and end up being a false breakout. That’s highly possible. Don’t rule the possibility where breakouts may fail, no matter how good it looks.
Truth #2: Pullbacks may never come
The market could be in an uptrend, trending higher and you’re waiting for a pullback because you don’t want to chase the markets. But guess what?
The pullback may never come and the stock could continue to rally another 100% higher without you because you were waiting for a pullback. That could happen pretty often especially if the market is in a strong uptrend.
Truth #3: Pullbacks may become reversals
Let’s say you’re looking to buy a stock and you’re waiting for a pullback towards the 50-period moving average. And when the price retraces towards that 50-period moving average, “Bam!” One piece of bad news hits the market and the price slices through the 50 MA and the pullback ends up becoming the reversal.
And the worst thing of all is that you went long on the 50 MA only to get caught on the downswing. Yes, that could happen as well.
Truth #4: Confirmation may be too late
Maybe you’re waiting for all the stars to align, for all the technical analysis to align with the fundamental analysis or even with sentiment analysis.
You could be waiting for the chart to be bullish three days in a row, waiting for fundamentals to be rosy waiting for sentiment analysis to be bullish.
The problem is, by the time all the stars align that’s when there’s no one left to buy and that’s when the market collapses. Again, you’re caught on the wrong side of the move. That’s when confirmation may be too late.
There’s no way to nail your trading entries 100% all the time
At this point, it might seem like there’s no way to nail your trading entries. And you’re absolutely right.
But here’s the good news, you don’t need perfect entries to make it as a trader. Take for example, a system like trend following has a winning rate of about 30% to 40%. But it still produces so much profits in the hedge fund industry, millions, if not billions of dollars.
Why is that a trading system with such a poor entry and poor winning rate, but still manages to make so much money?
And the reason is this, yes, your entry might suck, you might have a 40% winning rate. But if your average winners are larger than your average losers, you can still make money in the long run even with a poor entry.
For example, let’s say you have a trading system that makes money 40% of the time, but each time you win, you win $3 and each time you lose, you lose $1. You can see that in the long run, you’ll still make money.
Trading entries are not everything
So don’t get too fixated on your entries. Yes, they are important but not they’re not essential for you to make it as a trader. They’re just one part of the equation.
Don’t neglect other parts of the equation which includes risk management to make sure that you don’t blow up your account just because of a few losing trades.
Don’t neglect your trade management for situations like:
- What if the market moves in your favour?
- How would you exit your winning trades?
- Will you be using a trailing stop loss or will you be using a fixed target?
- What if the market moves against you?
- Where’s your stop loss at?
- At what level on the chart will you call it quits, exit the trade to protect your account to live for another day?
These are all important questions you must also answer besides your trading entries.
With that said, let’s do a quick recap…
- Breakouts may fail
- Pullbacks may never come
- Pullbacks might become reversals
- Confirmation might be too late
- But the good news is again, you don’t need perfect entries to make it as a trader
With that said, I wish you good luck and good trading. I will talk to you soon.