Entry Strategies and Methods

[Grey1]

I claim to be consistently profitable and I do believe any idiot can enter a trade, the clever bit is the exit. I have code in TS that illustrates this point nicely by generating a random directional entry and uses mm to exit. It is profitable across many markets. In addition, all of the systems I run live have far simpler entry than exit criteria.
I think the fact that some people are successful and claim to use astrology and all that b*ll*cks for their signals points to them being good money managers and it is my opinion that you can use just about any consistent entry criteria so long as it is discplind and consistent. It is all about knowing how to size your trade and knowing all your outs.

Quote " claim to be consistently profitable and I do believe any idiot can enter a trade, "

Risk analysis starts with entry and not exit so your comment any idiot can enter is not correct.


Quote "I have code in TS that illustrates this point nicely by generating a random directional entry and uses mm to exit. "

Nah there is more to it than a TS code buddy .. I advise you to read some of the discussions on this BB on risk managment.


Quote " I think the fact that some people are successful and claim to use astrology and all that b*ll*cks for their signals points to them being good money managers and it is my opinion that you can use just about any consistent entry criteria so long as it is discplind and consistent. It is all about knowing how to size your trade and knowing all your outs.[/QUOTE]"

Sizing your trade correctly ( money managment) is only useful if you already have an edge . other wise it is useless

 

[Splitlink]

Oh, c'mon, Grey. How many beginners bother with risk analysis?

Maybe they should do, there might be more who last the course. Maybe I'm not as deep into the subject as Grey, but I find it easier and more profitable than trying to figure out exits.

Split

 

[TWI]

Entry is far far more important than exit. Risk analysis starts with entry .

Do I read all over the Internet that exit is the key to trader's success ? yes i do .. but these people have zero understanding of risk analysis ..

It is amazing that I have been so lucky then. Thanks for pointing this out.

 

[Charlton]

Fx, lots of people have fabulous results in simulations, none of which are in the least pertinent to the results one achieves in real-world, real-time trading.

If Charlton thinks he can achieve a consistently profitable record trading by following the advice to trade with his "guts", then that's really all that matters. More power to him. But while he's thinking about it, he needs to have a substantial supply of large grains of salt at hand.

As for randomness, the markets are random to the same extent that human behavior is random. And, again, most people base their views on what they've read somewhere, not on what they've personally experienced over years.

--Db

Db

Correction - I have never said that I trade with my "guts" or intend to start doing so. Read my message 25 where you will see that I am an advocate of having a trading plan and adhering to it. This thread seems to have become a battle between entries and exits. I believe that strategies for both are essential.

If you enter with a good strategy then the chances are that you have the psychology to follow risk and money management and to exit using a good strategy. The two are not mutually exclusive, but should be mutually inclusive.

The purpose of starting the thread was to gather information on entry strategies. The point I made in message 25 is that once you are in a trade you are likely to have focus. You have a set of rules that are constrained by the circumstances of the market, the sector, the performance of your trade. These rules will govern whether you stay in the trade, trigger stops, sell etc.

When it comes to entries there is less focus. You have the whole market there, from which to pick your stocks. What I was trying to gather in this thread were ideas on how you can create focus at this point in the trade.

Yesterday, for example, I attended a free seminar where the speaker talked about the economic cycle and how different sectors faired at different points in that cycle. Having established that the current UK economic cycle is somewhere between the conclusion of the descending contraction and the start of an ascending expansion, he reckoned that the software sector was one to follow in the coming months. This is an example of providing focus within the entry strategy. My aim is to establish as much focus during this phase as during the exit phase of a trade

 

[dbphoenix]

Db

Correction - I have never said that I trade with my "guts" or intend to start doing so. Read my message 25 where you will see that I am an advocate of having a trading plan and adhering to it. This thread seems to have become a battle between entries and exits. I believe that strategies for both are essential.

If you enter with a good strategy then the chances are that you have the psychology to follow risk and money management and to exit using a good strategy. The two are not mutually exclusive, but should be mutually inclusive.

The purpose of starting the thread was to gather information on entry strategies. The point I made in message 25 is that once you are in a trade you are likely to have focus. You have a set of rules that are constrained by the circumstances of the market, the sector, the performance of your trade. These rules will govern whether you stay in the trade, trigger stops, sell etc.

When it comes to entries there is less focus. You have the whole market there, from which to pick your stocks. What I was trying to gather in this thread were ideas on how you can create focus at this point in the trade.

Yesterday, for example, I attended a free seminar where the speaker talked about the economic cycle and how different sectors faired at different points in that cycle. Having established that the current UK economic cycle is somewhere between the conclusion of the descending contraction and the start of an ascending expansion, he reckoned that the software sector was one to follow in the coming months. This is an example of providing focus within the entry strategy. My aim is to establish as much focus during this phase as during the exit phase of a trade

You are exactly right, Charlton. But note that I did not say that you traded with your guts. That comment was made by someone who characterized his own trading that way, implying that this was an approach which you might find attractive. I said that if you wanted to trade that way, it was up to you, but that I didn't think it was such a good idea.

You are on the right course, and it's unfortunate that the thread became sidetracked so quickly into this entry/exit nonsense.

As to how to select stocks, perhaps you'd do better to start another thread, but I doubt it. If what was said in that seminar makes sense to you (and any of it would have to be verified through your own experience), then consider beginning with the market as a whole, whatever that market might be, then drilling down to the individual stocks you want to trade or invest in.

For example, if you begin with the major US markets such as the S&P, look next at the sectors, then the subsectors, if you want to go that far (you can trade, for example, ETFs, and never go past the sectors). If you want to go even farther, you can drill down into more than 200 individual industry groups, and farther still into their individual stock components.

There's a lot to play with here:

http://bigcharts.marketwatch.com/industry/bigcharts-com/

Click the sectors on the left and/or Show All Industries to get all the industry groups. This should keep you busy for the next few months. (You may also do it backwards, scanning for breakouts or whatever, then working your way back through sister stocks, industry groups, sectors; depends in part on whether you use indicators, which can be useful for scanning purposes.)

You may have noticed already that if the entry is right, you are in profit almost immediately, making the management issue a far simpler one. Those who cast about looking for a profit have more trouble finding one, and managing the trade becomes a matter of managing the emotions.

--Db

 

[Charlton]

You are exactly right, Charlton. But note that I did not say that you traded with your guts. That comment was made by someone who characterized his own trading that way, implying that this was an approach which you might find attractive. I said that if you wanted to trade that way, it was up to you, but that I didn't think it was such a good idea.

You are on the right course, and it's unfortunate that the thread became sidetracked so quickly into this entry/exit nonsense.

As to how to select stocks, perhaps you'd do better to start another thread, but I doubt it. If what was said in that seminar makes sense to you (and any of it would have to be verified through your own experience), then consider beginning with the market as a whole, whatever that market might be, then drilling down to the individual stocks you want to trade or invest in.

For example, if you begin with the major US markets such as the S&P, look next at the sectors, then the subsectors, if you want to go that far (you can trade, for example, ETFs, and never go past the sectors). If you want to go even farther, you can drill down into more than 200 individual industry groups, and farther still into their individual stock components.

There's a lot to play with here:

http://bigcharts.marketwatch.com/industry/bigcharts-com/

Click the sectors on the left and/or Show All Industries to get all the industry groups. This should keep you busy for the next few months. (You may also do it backwards, scanning for breakouts or whatever, then working your way back through sister stocks, industry groups, sectors; depends in part on whether you use indicators, which can be useful for scanning purposes.)

You may have noticed already that if the entry is right, you are in profit almost immediately, making the management issue a far simpler one. Those who cast about looking for a profit have more trouble finding one, and managing the trade becomes a matter of managing the emotions.

--Db

Db

Fair enough - I re-read your message and apologise for mis-reading its meaning the first time. Thanks for your advice - sector analysis is not necessarily a route I would take. It was an example which sprung to mind as a result of the seminar. As for indicators I can see that they may be useful for "generalised" scanning, but I am not keen on using them for entries/exits because they are one-level removed from the price and volume. I prefer to use patterns, trendlines etc. I concur wholeheartedly with your last remark

Charlton

 

[dbphoenix]

Db

Fair enough - I re-read your message and apologise for mis-reading its meaning the first time. Thanks for your advice - sector analysis is not necessarily a route I would take. It was an example which sprung to mind as a result of the seminar. As for indicators I can see that they may be useful for "generalised" scanning, but I am not keen on using them for entries/exits because they are one-level removed from the price and volume. I prefer to use patterns, trendlines etc. I concur wholeheartedly with your last remark

Charlton

So you're looking for some means of finding stocks to consider without using fundamental analysis, sector analysis, or scanning via changes in indicators?

--Db

 

[Charlton]

So you're looking for some means of finding stocks to consider without using fundamental analysis, sector analysis, or scanning via changes in indicators?

--Db

Db
I am open to all suggestions - that was the purpose of starting the thread. I was trying to establish a number of ways to focus in on a restricted list of stocks that can be followed up using TA for specific entry criteria.

I think that this initial filtering can use techniques different to those used for the precise entry signals, management of the trade and exits. Thus the methods you suggested using fundamentals and gradually focussing on sectors, industry groups and stocks have great attraction, because you are immediately reducing the population under investigation in a series of steps. This coupled with the ideas I got in the seminar yesterday about looking at which sectors do well at certain times in the economic cycle are interesting e.g. software stocks do well in early rising markets as companies look to invest, banks do well in later stages of falling markets as companies look to borrow

Again I do not dismiss the use of indicators for this initial process. They are attractive because it is easy to automate their measurement to provide lists of potential buys. Some level of automation is imperative at this stage to reduce the number of stocks examined. Therefore I am interested in getting views on ways to automate fundamental analysis to provide potential candidate lists.

I am interested in any views and methods people have for getting candidate lists for entry.

Once in a trade I am not so interested in fundamentals or indicators, because I think price revealed in the price bar patterns, trend-lines, volume analysis and Level 2 are more indicative of what will happen. That is why I made my initial assertion that, once in a trade, it seems easier to manage it and exit it, because you have more precise rules to follow.
As you said in your earlier message "if the entry is right, you are in profit almost immediately, making the management issue a far simpler one. Those who cast about looking for a profit have more trouble finding one, and managing the trade becomes a matter of managing the emotions"


Charlton

 

[dbphoenix]

Well, I'm still not clear on just what it is you're going for. If what I've suggested is off the mark, then I suppose you could look for news, morning gaps, most active, new highs. But the experienced trader will already be aware of those stocks which are most likely to gap, be active, hit new highs, if not be in them already. So I don't know what good any of this will do you.

Then there's the distinct possibility that I have no idea what you're going for, but there's also the distinct possibility that somebody else might.

Good luck.

--Db

 

[fxmarkets]

well i read it and concluded that it must be a site or service that does the job and puts forward , hot stocks to watch. then pull em up and trade them. just how it came through to me.

 

[barjon]

I need advice. I have read a fair bit about TA and it seems that exiting a stock is relatively easy - use stops, look at price, patterns or indicators. But it strikes me that the entry decision is much harder. With thousands of stocks to choose from I would like to know:

(a) How do you decide which ones to monitor
(b) How do you monitor them
(c) What entry signals are you looking for

I'm looking for advice on strategies, practical methods and tools - especially for UK stocks, EOD trading, positions 1 day upwards. I'm after simple practical methods to start me off, that I can build on later.

charlton


fwiw i just monitor most of the ftse100 stocks. i have an "a" list which is composed of those which (historically at least) move smoothly and a "b" list which covers the remainder and excludes those which (historically at least) jump about too much.

i scan all each day looking for trend continuations after swing low (high) and i move any that have made a potential swing low (high) to an "active" list which i monitor intraday for possible entry if my conditions are met.

hope this is the sort of thing you were looking for.

good trading

jon

 

[Charlton]

Sorry about any confusion

well i read it and concluded that it must be a site or service that does the job and puts forward , hot stocks to watch. then pull em up and trade them. just how it came through to me.

Db/barjon

Sorry if I am not making myself clear and Db - you are not off the mark at all. I was just responding to your question: "So you're looking for some means of finding stocks to consider without using fundamental analysis, sector analysis, or scanning via changes in indicators?" I was trying to say, in my clumsy way, that I am developing my entry strategy at present and am simply gathering ideas, without ruling out anything either using fundamentals or TA for the initial picking of a list of stocks. For the precise entry point, trade management and exits I only want to use TA.

fxmarkets - again sorry if I did not make it clear. I'm not interested in sites/services that do this, because I prefer to do the analysis myself. I find that more interesting and it means that I understand why I am in a trade and to manage it thereafter.

Thanks

Chalrton

 

[dbphoenix]

I'm still puzzled as to how you're going to find stocks without doing any sort of analysis or scanning. Perhaps others are equally puzzled, which would account for the lack of response.

But, good luck anyway.

--Db

 

[TheBramble]

Seems to be another case of a potentially worthwhile thread being taken off on a tangent for no obvious reason.

Charlton's first post on this thread contained a question asking us what we do to select from the 000s of stocks that are out there and what we use to alert us to trade setups we wish to be made aware of.

(a) How do you decide which ones to monitor
(b) How do you monitor them
(c) What entry signals are you looking for

What's so difficult to understand about that?

My own reluctance to answer was one of addressing the sheer scope any half-decent response would necessarily require. Others have their own reasons I'm sure for not responding, or responding in a way which doesn't appear to address the intent of your initial question.

So, in an effort not to even go one hundredth of the way to coming up with a half-decent response, but as a hint of an idea as to my particular methods, I'll submit the following.

(a) How do you decide which ones to monitor

Currencies I'll monitor whichever ones are being actively traded at the time. JPY is generally active during Asian market hours (obviously) and not too much of a slouch during the rest of the world day either.

Cable (GBP/USD) picks up about 05:30 GNT and is tradeable (normally) through to about 21:00 GMT.

Stocks - I look primarily at Nasdaq and I do a monthly review of stocks that meet my daily volume, stock price and daily range criteria. Typically maintaining a long-list of about 120 or so.

(b) How do you monitor them

I have a direct data feed into a proprietary scanner which alerts me on dynamic basis to those meeting my daily action criteria.

(c) What entry signals are you looking for

Daily action criteria - if the market is trending, I'll be looking for directional plays and those stocks operating near their significant (52wk normally) highs or lows. For ranging days, I'll be looking for pair trades and stocks operating near the upper or lower VWAP bands.

HTH

 

[Disqplay]

I look at earning reports and follow which ever stock report earning in say a given week of the quarter. If there earning a below targer there is usually a pull back on the stocks then using strictly TA and the watchlist of the stock from the picked week I decide which stocks to invest in for the rest of the quarter. This way there is a variaty of stocks and sectors covered and I very which week in the quarter to generate the list of stocks to follow semi annually.

Robert

I hope all your trades are better than break-even and may your portfolio grow

 

[Charlton]

Seems to be another case of a potentially worthwhile thread being taken off on a tangent for no obvious reason.

Charlton's first post on this thread contained a question asking us what we do to select from the 000s of stocks that are out there and what we use to alert us to trade setups we wish to be made aware of.



What's so difficult to understand about that?

My own reluctance to answer was one of addressing the sheer scope any half-decent response would necessarily require. Others have their own reasons I'm sure for not responding, or responding in a way which doesn't appear to address the intent of your initial question.





HTH

TheBramble - I'm glad I didn't confuse everyone ! Thanks for your response and its clarity. It gives me, and I hope others, some useful tips. Currently it is stocks that I trade and I have noted your tips on that.

Charlton

 

[Charlton]

I look at earning reports and follow which ever stock report earning in say a given week of the quarter. If there earning a below targer there is usually a pull back on the stocks then using strictly TA and the watchlist of the stock from the picked week I decide which stocks to invest in for the rest of the quarter. This way there is a variaty of stocks and sectors covered and I very which week in the quarter to generate the list of stocks to follow semi annually.

Robert

I hope all your trades are better than break-even and may your portfolio grow

Disqplay
I take it then that you are looking for stocks that are still basically strong, but where recent earnings have shown a down-turn ? Then you wait for the market to realise the underlying strength and to pull back on the price. Does this not require detailed analysis of fundamentals e.g. examining in detail the earnings reports, accounts etc to determine whether, in deed, there is this underlying strength or if there is real weakness accounting for the lower earnings. If so how many stocks might be involved in your analysis, which could potentially be quite time-consuming ? How deep do you go and how do you reduce the number on your watchlist to a resonable size to focus on using TA ?

 

[Kunal]

Charlton,
Basically, I look for stocks that have shown an increase in the last 3 of 4 months. From these I discard all stocks that are in potentially weak/seasonal sectors. From there on, it's pure discretion.
The only FA is quarterly profits.

 

[MaximusDollarus]

It is, to a large extent - contrary to what you read in your Van Tharp book, or whatever.

Seriously, if your method does not make money at a 1:1 risk:reward then you may as well toss a coin - unless you have a good reason why you think you pick up a lot of fat tails. Good exits, or trade management, or whatever you want to call it, can smooth out the equity curve at best.



Eh?

Simply put, boys...a good exit is only defined by whether or not you made money or only lost a little if the trade went against you. Greed can be the ultimate destroyer for many a traders and fear will keep them all from progressing.

 

[MaximusDollarus]

Entry AND Management

Are you a consistently profitable trader? If not, how did you come to "understand" all of this?

Charlton, focus on the entry. If you don't get that right, then you're unlikely to be able to hold on to what you have long enough to turn the corner and become a consistently profitable trader.

--Db

I've watched as you two have gone 'round and 'round about what is more important...the entry or the management of the trade. Guys...the simple answer to which one of these is most important is, "YES"!

Here's the thing...if you've missed a good entry point then WHY would you even consider getting into the trade? You've missed your opportunity so move on and find another setup! If, by chance, you still feel that the entry is there then the ENTIRE success of the trade depends on how well you manage it! A loss is not bad...in fact, I would say (and say very very comfortably) that really successful traders don't win, they MANAGE their losses effectively. Losing too much is tantamount to winning too much! A child could trade...hell, a MONKEY could trade...all it takes is the ability to pick a stock and buy it (or short it)! What makes us different from children or monkey-men is the ability to keep our losses small and/or our winners bigger!

My suggestion is to look for trades that have a bare minimum of a 1:2 (or even a 1:3) risk vs. reward ratio. Accepting anything less DEMANDS the talent and ability to manage the trade effectively.

Monkey-men enter trades, but traders know how to manage them. Then again, traders know when to enter a trade and monkey-men aren't sure what to do when they're in! By focusing mainly on the entry you are neglecting the biggest part of trading, which is the management. If you screw up the entry then you had better know how to get out at a surpreme area. Which is more important??? Truthfully, I could care less because I'm in this business to make money and I don't care if I'm right or not because my management skills are not defined by whether or not I got the premiere entry point, but rather by how much money I made or lost!!!