Working on the Entry.. Part 1
In the entry procedure, I have introduced two types of entries namely
Breakout type Entry.
Limit order Entry.
I have also said that we cannot say which one is better except in hindsight. So, how can we decide which type of entry to opt-in a given scenario? The answer to this question is simple. We know the market is uncertain and the risk that we are going to commit at the start of the trade is the only thing in our hands. So, we let the market tell which one gives better entry so that the initial risk is minimum.
Breakout type entry is the simplest one as we don’t have any mental tension once we decided to place the order at LWP. But it’s not always the best as we are entering after the market moved some distance in our trade direction and that increases the initial risk. Sometimes, the breakout entry will not give proper risk to reward ratio and hence we don’t enter but to our surprise, the market gives a killer movement in the direction we anticipated. Breakout entry is the simplest, but it comes at a price of increased initial risk.
If you want to succeed in trading, don’t keep the mindset which everyone else has because most of them fail in this business. Hard and fast rules will not work in trading. We need to improve our tactics to gain an edge over other traders to pull money from their account to our bank account.
Once you are comfortable in identifying proper setup areas, I strongly recommend you to work on your entry as there will be enough time for you to scratch the trade for a small profit or at least breakeven result if the trade hesitates to move in your trade direction which saves a lot of bucks in losing trades. I repeat you must identify proper setup areas before committing to this.
Once go back to our previous discussion about setup areas. Setup area or Wholesale area is the region where those traders who are fighting the high probable direction (trapped traders) gives up and place their exit orders which when triggered moves the market in our high probable direction.
In the breakout entry technique, we are entering when these trapped traders give up and the price starts to move in our favour, i.e., we are entering when market starts to move in our anticipated direction. But how about entering the trade when the price is showing weakness against the high probable direction that we anticipate from step 4 in the setup region that we have identified from step 6 even before out LWP is triggered? If you don’t know how it feels like, let me tell you, it feels so good… It drops the initial levels of risk in the trade to an absolute minimum. For a trader, this is a fantastic thing to have. But remember, as our LWP is not triggered yet, there is a chance of getting the stop to trigger when you work on the entry. But considering the minute initial risk for a multiple reward potential with higher probability, it’s a risk worth taking.
So how can we do that? What on earth will tell us that the market is not willing to move against our anticipated direction in the setup region?
This is where our Lower Timeframe comes handy. There are two scenarios which alert us to work entry in a lower time frame chart (1min. chart in my case).
Lower timeframe pattern entry trigger.
In this article, I discuss about Stall as I don’t want to confuse you with lot of stuff in a single article. 😀 Lets start it..
As the name clearly suggests, we will be looking for a stall in the setup region. Then we place a limit order nearer to our stop loss. That’s it. 😀
Here, we are entering not because the market is moving in our direction(like in Breakout entry). We are entering because the market is not moving against our direction in the wholesale region.
Don’t form a conclusion yet. It sounds simple but it is very very difficult to do in real-time. Try to answer the following questions before making a conclusion about this.
As price has not yet given a clearly tested stop-loss region, where will you place your stop-loss if the limit entry gets a fill?
How much time you want to see the stall on your chart to conform that price is not willing to move further against your bias?
The biggest question, how do you decide the price at which you want to place the limit entry order?
My answer might disappoint you, but I must say, no one knows. Your feel for the order flow and the price action and the type of setup you are looking for will guide you to take proper action. Your experience teaches us what to do. Have the guts to accept imperfection in entries and improve the process day by day. That is the only way.
At the early stages of my trading career, I tried to make some hard rules based on my observations to properly identify the stall. But the market had always shown a reason to fail my approach. Then I have given up running behind rules to work entry and accepted imperfection. Then on, the market started to show sympathy on me. 😀
I would like to see a minimum of 3 trading time frame candles stall in the setup region, i.e 15min in the setup region before placing a limit order. But as I said, it depends on the feel for the order-flow. Sometimes, I place entry order within 2 candle stall, sometimes, I place a limit entry order before the market reaches that price level if there is a valid support/resistance and clear weakness supporting my entry.
Look at the price action in the circled area. Price is showing clear weakness on approaching resistance which guides us to look for a TST setup( 5th rule). There was a stall at the resistance and we can place a limit order nearer to that resistance level, let us say at 8477 and it got a fill. LWP is 8472, stop is 8480, T1 is 8461. If a normal breakout type entry is taken, you will be risking 8 points for a profit of 11 points which is alright as per risk to reward perspective. ie. you will be risking 800 for a profit of 1100. In the entry we have worked with the stall, entry is at 8477. The risk now is 3 points for a reward of 16 points, i.e we are risking 300 for a profit of 1600 which is absolutely fantastic. Here, in the above chart, the trade hit the target, but imagine the scenario where the price is hesitating to move in your direction. You now have sufficient space to exit the trade for a small profit or at least for a breakeven result. This makes working the entry as hot as Megan Fox. 😉
Now you decide whether you need this in your strategy or not… If you ask me for a suggestion, learn it and include it in your plan. You can do it if you practice… 😀
P.S:- You must perfectly identify the setup areas before trying this in realtime. It needs practice and experience.