My Entry vs My Stop vs My Exit

[walterw]

I want to start this thread in order to bring some light on the RRR issue I did start on some other thread.... I hope we can all interact and help in this true enigmatic topic...

Where is my Entry in relationship with my stop... and where is my entry in relationship with my exit...


Obviously that relationships should give me my RRR.... BUT its not just a RRR math... its a STRATEGY....

Let me start with the "type" of entry a succesfull trader should use : confirmed entry vs anticipatory entry... if you "wait" for confirmation on your entry... (lets say crosovers, etc...) most probably you are going to be to far from your stop... so you got a bad RRR from your stop... if you "anticipate" in a key area that happens to be very near (tight) to your stop... then your entry its getting more Happy... on the other side... is there any technical room for my target ? can I expect a good move on this trade ? or is it to near to a S&R level that will stall my trade ?

Anticipatory action on key areas with very small stops vs large potencial moves makes trading a very diferent experience... Waiting for confirmations.... by by by by your oportunity just took the train... thats why some traders got divorced from indicators... because they thought that indicators where to be used as "confirmation tools" to take a trade... well WRONG. Indicators are VERY USEFULL to give you a road map for you to "anticipate" whats gona happen... and trading should not take place on the "confirmation" arena but radder on the "anticipation" one... so areas make a great job on the anticipation job... and they can be clearly derived from technical indicators or x levels like mp levels, pivots etc...

Do you want to have a good RRR ? well dont be a "confirmed trader"... be an "anticipated trader".... Later I will share some charts, before I would like to hear some feedback... cheers, Walter.

[ant]

	Quote:	walterw
	... and trading should not take place on the "confirmation" arena but radder on the "anticipation" one...

Walter, I totally agree with this. Although confirmation reduces risk, it also usually results in much of the opportunity passing the trader by. It always comes down to a trade-off between risk and reward. But in trading, I think it would be tough to be profitable in the long run if one requires too much confirmation before entering a trade. As you pointed out, key areas are excellent for anticipating trades. Assuming the risk/reward (i.e., entry and stop loss placement) is good, a trader should just enter the trade near a key area and then monitor the trade. A trader can then look for confirmation while they are in a trade, otherwise they can simply exit the trade for a small loss. One can always re-enter if the opportunity still exists. Sometimes too much emphasis is placed on the entry and not on the trading itself when one is actually in a trade. This is the way I trade too, so I'm looking forward to this thread.

[Soultrader]

Nice one Walter. I use two approaches in trading. I am mainly a anticipated trader because I rely heavily on key price levels that I identify. So my order goes in as soon as tape tells me to. To me I consider this an aggressive approach.

On the other hand, I am a confirmation trader when I use a countertrend trading strategy. I like to play safe instead of trying to catch a falling knife. Thus, I wait for additional confirmation like higher lows or new TICK high's. This is a more conservative approach.

In my trading, entry is everything to me. I scale out on all my positions: half positions at either +10 or +20 (depending on tape). Exiting is the easier part of my trading because I usually exit at pivots or known S&R levels. The only drawback behind my style is... I'm a Ichiro. I can hit singles and doubles across the board, but its rare when Im in a homerun trade.

[torero]

Prices either confirm one direction or another or neither. I trade on confirmation to reduce risk unless the S/R is a major one like on monthly or weekly charts. I let prices tell me when I should get in and get out, not S/R as my primary signal. Many times, I've left money on the table anticipating an S/R would stop prices, but end up breaking through and stay broken. Price first, S/R second is my rule of thumb. S/R are there but it's just another line unless prices react to it. But I do anticipate the targets by looking for S/R as possible exit points. This anticipatory guess is to calculate my RRR only.

For entries, I need confirmation to get in, like higher high/low or lower high/low. Without this, market may continue and my entry will be way off and no nearest support in sight to set my stop. If I don't have a stop, I don't take a trade. I need to let the market find me a support first before I can use it as a stop (talking about long entries here). True the entry and stop distance is far but the risk of anticipate is what many players do like "catch the falling knife" in smaller scales. I stopped doing that after finding out the bleeding from the cuts were too excessive.

One last thing, anticipating is also going against the momentum, this is something I cannot allow myself to get into. I can never anticipate where the downmove will stop. Even at S/R there is a tendency for prices to overshoot it then reverse so the stop is useless because it may get hit. Best thing is to wait for it to form and go with the momentum. Momentum is what get you into profit quickly and many times stay in profit.

[ant]

This is an interesting thread indeed. I think Soultrader, Torero, and I may be saying the same thing, just differently, especially about how we use S/R. Let me quote a couple of paragraphs from Mind over Markets, page 37, which summarizes my belief about confirmation and how I strive to trade, but I'm not quite there yet.

Confidence Level Trading based on structure provides the greatest level of comfort and confidence, for there is obvious proof on which to base a decision. The more information we have in our favor, the more comfortable we are with a trade. Unfortunately, visible information and opportunity are inversely related. The more structural information present, the less an opportunity still exists. Thus, if a trader waits for too much information, chances are good that the real opportunity has been missed. If all the evidence is present and visible, then you are far from the first to have acted on it and probably have poort trade location.... Seasoned traders with a whole-market understanding, on the other hand, trade using logic and time and then monitor for additional information (structure) necessary to increase confidence in the trade.

Trade Location Later recognition leads to later entry and exit, which in turn leads to less desirable trade location. For example, range extension (structure) confirms that other timeframe buyers have entered the market. But when did they enter the market? If we rely solely on structure, we do not realize the other timeframe buyer's point of entry until the point of range extension, that is, when price is on the day's high. In many cases, it is possible to know that buyers are assuming control before the actual structural confirmation (range extension)...

Walter, sorry for hijacking your thread. I hope my comments are relevant to the type of feedback you were asking for. I'm looking forward to seeing your charts and learning more about how you enter (anticipate) a trade.

[walterw]

Great feedback Guys ¡¡¡ thanks ant for those quotes, very good stuff on confirmation vs anticipation... for torero : it is obvious that you need some basic level of confirmation... when I say confirmation, I mean a great level of facts on the table that made us loose the best spot to get in the market... now I would refer to PRE-CONFIRMATION , it is a hint that this or that will happen... and I will react previously (anticipation) on this premise so I can have a competitive entry... we dont want to get stabbed with a knife or hitted by a train... we are talking of being "wise" in anticipating our technical argument... if our argument WILL work then where is the best spot to get in ... any way if my argument was going to FAIL... then I prefer to loose less... many times we get confirmed just to find out our trade (technical argument) was going to fail... it would be better to fail (anyway) in the smallest risk... thats what this "anticipation" can do for us..

[walterw]

I will present one of my basic aproaches to trading... non different to the ones presented here on this site... I call it: Happy M Trade just about any tradeable instrument is plagued all over with M`s , this formation responds to a major concept related to the psicology of the masses, but we dont need to get in to deep on does details, just open any chart, start spotting M`s and you will find hundreds of them... now M`s by them selfs dont mean nothing... but M`s at key levels they do mean a lot... I became obsesive with RRR some time ago and started to find the best way to really have a ultra competitive RRR on my trades.... I thought this : I am not a good analyst, I dont have good setups well lets try being a good RRR `ist and find a simple or maybe stupid setup that will at least have an extraordinary RRR... so M`s came on the way ... and they DO THE JOB ... this M`s formations have the virtude of giving a terrific RRR on trades... even if you get cooked 50 % of the times still you can survive thanks to the RRR in this pattern. I attach a theoretical explanation, I do trade the anticipatory pattern, first the theory later the charts... cheers Walter.

[torero]

Nice explanation with good VA. It's true that I need confirmation to take the short in the chart given. Why? Because I don't have a clue where my stop is or should be in the chart when the second top is not even finished yet. As mentioned earlier, I'm a freak with stop losses, so I have to see it to calculate the R/R. If I don't see the nearest top and I have to guess, then I'd rather stay on sidelines until the confirmation is shown. I assume you have an idea where your stops are, so I'd like to find how you use it.

[scalptrader]

I used to trade this M pattern years ago. Its a reliable pattern, and works on any compression. Its basically a double top formation, you are looking for a trend to reverse, and the best variation is when the first peak is "just violated by a few ticks". This method used to be the bread and butter of many floor trades in the 80's.

To make this yous bread and butter do the following exercise:

1. On mini's, (or any symbol), intraday, look for peaks which are the highest high for a minimum 1 hour before and 1 hour after it was formed. (very important time factor)

2. Look for a violation of this peak, by just a few ticks. (less than Vn) Your confirmation is any bar that closes below its own mid range (price action confirmation) after violation is made.

3. Stop loss, or reverse, is about 1 to 2 points above the peak depending on the market. Move it to top of the entry bar after the low was taken out and soon after to breakeven.

4. Works for stocks and forex.

5. Daily bars use 3 days on each side for time factor.

Exits, let the profits run!

This is purely a price action based method, and will give you better than 70% odds of hitting at least break even. Great for discretionary trader here. It happens a few time every week on the mini's and there are many opportunities in stocks and forex markets too! Filter them with 4 bar RSI in extremes, even better but less trades.

I left it semi complete but the core of the concept is here!

There is no luck in this game, just pure sweat and blood.

[torero]

Great contribution, scalp. One question: any volume we should be looking out for? About using tick charts?