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Have you completed lesson 4’s action steps?
If not, complete those steps before reading on.
The Perfect Entry
Any trading strategy starts with a universe of securities from
which you can make your selection. It's often easy to pick the
universe of securities you are going to trade in but harder
to know that you’re picking the right ones.
There are many securities to potentially choose from and there
are a vast array of factors which can influence the price of
a security; So, where do you start? The answer lies in stock
screening. Stock screening is a basic stock trading strategy
that involves the trader screening the entire universe of securities
for potentially favourable investments.
Just like sifting through a bucket of sand trying to find pieces
of gold, the same approach is used to reduce your universe of
securities to a more favourable selection. After you have reduced
the universe of securities you can continue your filtering process,
until you find the most attractive candidate for trading.
This filtering process is best defined as strict set of rules.
But there is a problem. The problem is that there are as many
theories on buy-on-sell price points as there are investors
and traders around the world.
Your personal approach to entries should be simple, direct and
leave nothing to human judgment. This is contrary to what most
traders who buy stocks based on media reports, expert opinions,
rumors or “gut feel”. The good news is that by acting contrarily,
you will do what most traders never do: make a profit.
Most investors believe that the key to success is being able
to pick the winning trades. And this is why 99% of traders,
spend most of their time fidgeting with the entry. They are
looking for the holy grail. Remember, there is no Holy Grail.
Now don’t get me wrong, proper entry is important. Entry gets
you into the trade but it only contributes to 10% of the profits.
It would be as if you were building a home and spent most of
your time concentrating on the entry way and ignoring the foundation,
walls and roof. Your exit and money management (foundation,
walls and roof) will provide the other 90% of the profit.
Actually, it has been proven that with good exits and money
management, you can even profit on random entries into the market.
Take the following real-life example:
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Tom Basso designed a simple, random-entry trading system. ... We
determined the volatility of the market by a 10-day exponential
moving average of the average true range. Our initial stop
was three times that volatility reading. Once entry occurred
by a coin flip, the same three-times-volatility stop was trailed
from the close. However, the stop could only move in our favor.
Thus, the stop moved closer whenever the markets moved in our
favor or whenever volatility shrank. We also used a 1% risk
model for our position-sizing system. ...
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We ran it on 10 markets. And it was always, in each market,
either long or short depending upon a coin flip. ... It made
money 100% of the time when a simple 1% risk money management
system was added. ... The system had a (trade success) reliability
of 38%, which is about average for a trend-following system.
Source: Van K. Tharp, Trade
Your Way to Financial Freedom |
This best illustrates that although entry is important it is
probably the least most important aspect of designing a trading
plan. Moreover, most traders “spin their wheels” trying to get
in at the proper price, using stops, limits and every other
trick in the book even though this is not where the money is
made. The money is made by paying close attention to money
management (more on this in the next chapter). However, the
fact remains you still need some method of entry.
Just as many traders have before me, I too have spent countless
hours researching different entry signals looking for that elusive
Holy Grail. Would you like to know what I discovered? Quite
simply, it is easier to copycat your way to success than to
try to re-invent the wheel.
According to Anthony Robbins (The USA personal development guru
and lifestyle coach to presidents and famous actors) the way
to get the best health is to find the healthiest people we can
find and ask them what it is they are doing and thinking to
be so healthy. Similarly, the way to select your entry rules
is to copy a proven system!
That is how the smart (and rich) people do it.
Sure, you can waste months and spend thousands of dollars testing
different methods, but why put yourself through that?
Personally, I would rather be a “wealthy copycat” than a “broke
original thinker”.
For this reason (and to shortcut your way to trading success)
I have hand picked the best entry systems available for your
chosen market. Please, understand I am by no means saying that
without these entry systems you will fail, but instead I offer
you two choices:
1. You can design your own entry rules, back testing thousands
of variables yourself. This can take a lifetime in itself, just
look at Fibonacci or Gann who spent the majority of their life
perfecting their entry systems.
Or
2. You can purchase a ready made entry system that you literally
just drop into my step-by-step plan, confident in the fact that
someone else has done all the hard work for you.
Personally I think the choice is easy, but ultimately it is
you who must decide because I don’t what know your current time
and financial position is.
If you’ve decided option 2 suits you best then look at the proven
and tested entry rules that I have hand picked for you based
on the market you decided to trade. (If you do not remember
which market you chose, go back to the chapter 3 action steps).
These courses will not only educate you on the market you choose
but they also provide you with the exact entry rules that you
need to include in your trading plan. Click on the corresponding
market you selected and purchase your entry rules now:
- Stocks
- Forex
- Futures
- Options
- Commodities
If you’re still unsure what market to trade I recommend you
purchase Bill Polous’ course “Instant Profits”. Armed with
what Bill teaches you, you can then choose the market that makes
most sense to you.
Your next step is to document your new entry rules. Remember
a good set of entry rules are simple, direct and leave no room
for human judgment. Take the entry rules from your selected
program and write out exactly how you will enter a position.
YOU ARE ENTRY RULES:
After documenting your entry rules you just put yourself into
the top 5% of traders. Congratulations!! Over the next couple
of chapters, you will begin to move into the top 1%.
Let’s get your entry rules right.
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