Broker to Trading

A trade consists of a number of steps, which can be defined as preparation, entry, management and exit. Entry is a step which can be fraught, as it commits the trader to the market, management and exit. Before preparation really is education and practice, and these steps can make entry less fraught. Entry by rules can take some of the emotional element out of it, but the trader may wish to enter based on inspection of the chart, looking for good potential trades. For these kinds of trades, entry technique becomes important, in a way it may not be for a strict rule following approach.

One way to approach entry by observation is to look for a pattern forming and go with the pattern, which may not work out. This is a kind of trade which can define a place to set a stop-loss, management and exit by pattern formation, either the expected pattern or something else. If the trader is trading on the short term chart, then entry may be something which happens frequently and thus is based on the apparent potential for a directional move, even if it is short in duration. This kind of trading like pattern trading can be effectively rule based and unemotional. However for a typical trade which is placed after charting analysis and is in effect open ended, the entry becomes more of a challenge. In fact the trader may not know when to enter, as it simply is not apparent from the chart and may enter for all sorts of reasons, including just to get into the market.

An argument can be made that there is not 'good' time to enter, but the difference between this kind of trade and others can be that rule based trades can be defined as not working out, while more free form trades are open ended in terms of what working out is. This issue can be a reason for letting a robots trade, since following a rule is like letting a robot trade, while an open ended trade is not like letting a robot trade. From this perspective then an open ended trade can be seen as potentially more human centered. The problem is that the market can quickly turn on such a trade. In fact it may typically be the case that once entered, the trade moves against the traded position. This may be partly because traders may enter at support or resistance, or when a common retracement is about to happen. It may work out in the end, but the trader may need to stick with an adverse move for a while.

Part of the 'secret' of trading is to know when a retracement is too deep. One way to gauge this is to look to value levels and see what a retracement may be happening. For example, has the Forex pair cut through a big figure and has it reached halfway and is it bouncing off it. The point of this is to provide continued rationales for sticking with a trade or exiting it. However the reality may be that emotions overwhelm rational considerations, bringing the trader back to following a rule from the beginning next time and perhaps finding that this restricts them too much.

So for a less rule based trade, and one not following signals, what entry techniques can be used. One way is to focus on patterns such as trends and perhaps their more complicated but related cousins, ranges. Trends can have a clear beginning, middle and end, which may involve 'geometrical' patterns. Trends can also turn into ranges, but not necessarily immediately after they end. Trends may happen for reasons apparently unrelated to the market, for example because of events in the Equity market. A trend beginning may consist of a quiet period following by increase in volatility which starts to evidence the structure which will define the trend. Because a trend beginning can look like other things, then the trader may wish to wait. However, trend middles can have structured retracements and may reverse and trend ends can be something which the trader does not want to get stuck in. If the trader is hunting for trades to get in on based on what other traders are doing, they may well get into a trend too late in its formation or may get into a range which is turning into a directional moves. This is one reason why trades based on value levels may be worth considering, with the caveat that the tendency to respect value levels in complex ways means that these trades can work out to be volatile.

One type of Forex trade which has entry issues, is news trading. If the trader is trading on the news release, then an entry needs to be positioned close to the news release (within a minute or so). Such a trade can be taken out by volatility, but then news trading is based to some extent of getting a right trade meaning that trades which have a 'wrong' outcome can and do happen. So in essence for more open ended trade, entry can be based on the type of trade being considered and its expectations. This provides a rationale for taking the position and can guide the trade as it unfolds, including changing the trade if expectations do not bear out, or even exiting. However the point perhaps of a more open ended trade is that it allows for different scenarios, as long as the direction is right.