Entry Strategies and Methods

[Charlton]

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.

 

[techst]

Well as I use CFD's for trading I would only be looking at the top FTSE350. Position trading still requires stocks to have solid volume and this makes good liquidity. I watch about a hundred stocks using a watchlist that I've made using Excel. You'll also want to trade stocks that print nice clean candlesticks and this is really a sign of a stock that trades actively, there are probably only 60 stocks on the UK listing that are wholy suitable for swing and position trading in my opinion. But I list these stocks in the sectors and industry groups so I can view what sectors are in favour and what sectors look ready to move.

Starting a list in Excel will require looking though the FTSE350 looking at stocks from a long term view of maybe a 5 year chart, checking for basing patterns and stocks breaking into new highs. You can add these details to a column labeled Weekly Notes. And then move closer on the chart to 6months to a year noting every interesting under a Daily Notes Column. I pick the top 5-6 in each sector by market cap and make sure the chart looks clean and tradeable.

I'll then use a rating system for each stock. Once or twice a week I'll scan through them and give them an A or B rating. For example, a rating of B maybe be a stock that's going through a normal reaction and needs to find support before it becomes an A rating, So I'm watching it and waiting for a return of strength if I wanted to trade long. An A rating would be a stock that looks like it's gonna breakout or begin to rise again after a normal correction/reaction. I would be looking for strong volume and a close near it's high if it's the first move after the correction.

I found Elders work in his book Come into my Trading Room very useful and if you take this book apart by studying it and writing notes you will basically have a framework for a trading strategy. You may of course want to try other ideas and methods and it's only a suggestion. For more information on my style of entry check out the Swing and Position Trading thread. These are just ideas that work for me and I thought i'd share them with you.

 

[Charlton]

Thanks techst for the useful and practical advice. I have Elder's book and agree it is very handy. I will certainly look at the Swing and Position Trading Thread and, possibly, the CFD thread

 

[MaximusDollarus]

Four Criteria...

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.

There are four initial criteria that I predominantly use when looking for candidates. They're simple and easy to use, but in no way indicate that the stock will be successful. After a stock meets these four criteria then it becomes a personal decision, i.e...is the capital expenditure at a level you are okay with; when will earnings be released; is there looming economic decisions to be made regarding the stock; is there drastic news; etc...

The four criteria that I suggest are:

- What is the current trend of the stock (is is going up or down)
- What part of the current trend is it trading at (support or resistance)
- It should be NEAR the 20MA
- Small range candle (or if you are not using candlesticks, then it should be a day of indifference, meaing that the difference between the high and low of the day should preferably be low or low enough for you to be comfortable with because the lower the difference the lower the relative risk involved with the trade if you are using stop-losses and the greater the difference then the greater the risk)

After I find stocks that meet those four initial criteria then I proceed with the rest of my decision making steps, but if I do not have a stock candidate that meets all four then I simply do not proceed with the purchase (unless the reason for me getting in is purely speculatory and has nothing to do with technical analysis). Everyone has different strategies, but I thought I'd share the steps I go through that has been pretty successful for me. Of course, the major issue related to any successful trading strategy is centered around consistency, which demands discipline and emotional control.

Hope this helps.

 

[timsk]

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.

Hi Charlton,
Welcome to T2W!
You've received some thought provoking responses to your question about entry criteria and which stocks to monitor. While these factors are clearly very important, I beg to differ with your assertion quoted above, that they are harder - or less easy - than deciding where to exit a position. Some traders will argue that enter a long or short position in any instrument, your chances of a successful trade are roughly 50/50, leaving aside spread, slippage and costs etc. Once you're in a trade, it's how you manage it thereafter that matters. Central to this, is when and where you exit. I wager that every single trader on these boards with more than 6 months experience has exited a trade with a small profit, only to watch the underlying run and run. "If only I'd stayed in, I'd be up by XXX% by now!" Conversely, these same people (and I am one of them) will have held on to a losing trade for far too long in the hope that it will turn around. Invariably it doesn't and the resulting loss is much greater than it need have been. Great traders, so I understand, place far greater emphasis on trade management, i.e. stop placement and exit criteria, than they do on trade entry. To put it another way, suppose I had a bundle of dosh to place with trader A or trader B. I know nothing about either of them but, nonetheless, I have to decide between them. All I'm told about them is that trader A has a brilliant entry strategy but is pants at trade management and exiting his positions. Trader B, on the other hand, is lousy at his entry but, once in a position, he manages it brilliantly and exits his positions with great skill. Trader A will probably lose money over time and trader B will probably make some. Trader B gets my vote every time.
Tim.

 

[dbphoenix]

Hi Charlton,
Welcome to T2W!
You've received some thought provoking responses to your question about entry criteria and which stocks to monitor. While these factors are clearly very important, I beg to differ with your assertion quoted above, that they are harder - or less easy - than deciding where to exit a position. Some traders will argue that enter a long or short position in any instrument, your chances of a successful trade are roughly 50/50, leaving aside spread, slippage and costs etc. Once you're in a trade, it's how you manage it thereafter that matters. Central to this, is when and where you exit. I wager that every single trader on these boards with more than 6 months experience has exited a trade with a small profit, only to watch the underlying run and run. "If only I'd stayed in, I'd be up by XXX% by now!" Conversely, these same people (and I am one of them) will have held on to a losing trade for far too long in the hope that it will turn around. Invariably it doesn't and the resulting loss is much greater than it need have been. Great traders, so I understand, place far greater emphasis on trade management, i.e. stop placement and exit criteria, than they do on trade entry. To put it another way, suppose I had a bundle of dosh to place with trader A or trader B. I know nothing about either of them but, nonetheless, I have to decide between them. All I'm told about them is that trader A has a brilliant entry strategy but is pants at trade management and exiting his positions. Trader B, on the other hand, is lousy at his entry but, once in a position, he manages it brilliantly and exits his positions with great skill. Trader A will probably lose money over time and trader B will probably make some. Trader B gets my vote every time.
Tim.

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

 

[Splitlink]

Getting the entry right is of prime importance to me. That means getting it within a reasonable risk distance to where I am putting my stop. If I find the share has moved too far away from that point before I spot it I don't chase it.
Split

 

[timsk]

Charlton,
Dbp makes a very valid point. I don't claim to be a consistently profitable trader and, therefore, anything I say should be taken with a large pinch of salt. That said, I was merely expressing a view first put forward in the 'Trading Plan Template', a document that Dbp appears to support.
Tim.

 

[dbphoenix]

Charlton,
Dbp makes a very valid point. I don't claim to be a consistently profitable trader and, therefore, anything I say should be taken with a large pinch of salt. That said, I was merely expressing a view first put forward in the 'Trading Plan Template', a document that Dbp appears to support.
Tim.

I naturally support the template as a whole since much of it is based on my work. However, the proposition that entry is less important than exit is naive.

The problems that you list in your post have to do with a lack of planning and with a failure to address a susceptibility to hope, not with the objective importance of entry. If someone creates a bad meal using the best equipment available, the fault is more likely with the cook.

--Db

 

[barjon]

Db

I think you're being a mite hard on timsk .

Accepting that entry is of primary importance, it is often the case that people will have a well-tested entry set-up but do not have an associated exit set-up or strategy - exits being left to "discretionary".

In this case entries are relatively straightforward and easy and it is the exit that determines the quantum of success.

Good trading

jon

 

[timsk]

I naturally support the template as a whole since much of it is based on my work. However, the proposition that entry is less important than exit is naive.

The problems that you list in your post have to do with a lack of planning and with a failure to address a susceptibility to hope, not with the objective importance of entry. If someone creates a bad meal using the best equipment available, the fault is more likely with the cook.

--Db

So . . .
If you had to choose between one of the two types of trader described in my first post, are you saying that you would favour trader A who makes strong entries but weak exits?
Tim.

 

[Disqplay]

I proceed to enter into stocks using the following breakdown in order to monitor the stock:

1) First using a scanning program web based or software based look for stocks that have reached a new yearly high
2) determine if that stock is in the top 20% of the best performing sectors in the market
3) Is the stock greatly lower than it's 5 year high
4) Is the stock at least 3 weeks away from reporting earnings
5) Does it trade with an average volume greater than 100,000 shares day
6) Due to the size of my account is it trading in the 3 to 10 dollar range.

After finding canidates then review each one's charts for indicators that I like

1) Is the sma(5) volume increasing from below the sma(65)
2) has sma(5) crossed above sma(30)

If more than one stock meets these criteria then it is a crap shoot as to which one to choose but at least it is a start to get into the market. I also set a stop loss of 5% on my trade to insure if I guessed wrong I get stopped out but give it some wiggle room.

Anyway this is how I start hope it helps or gives you some ideas of your own.

 

[Tuffty]

timsk, Not sure how you know trader A is brilliant at entries since he seems to loose money. You must be managing his trades for him to know that perhaps they all go in the right direction initially. Personally I think entry and exit are part of a trade and therefore equally important. Just a thought....but would like to be proved wrong.

 

[fxmarkets]

hmm entry is vital in my view, the reason you are trading here at this level... why is it low risk relative to return probability? whats happened, whats happening now.

I think probably most start out as B because we simply lack knowledge ,experience, this sloppy B stage puts us through the pressure of a bigger number of trades going negative, for me, from that its been working at getting to A , with A and the understanding of why this is a great trade here, you put the probability of liquidating at a profit in your favour, personally my liquidation is dynamic, (isn't the market though ?) based on how far the market is stretching, I dont limit the upside, I let other people decide that,(this again relies on my reading of who is being forced and is it all done)

But if you detect or read a shift of change coming through with a great A entry even when the market turns you can take a profit because of a very good entry,which was correct according to your rule,method, but markets can change ,quickly, trader B will be holding negative from the off in those conditions, thinking, i'm a gonner again, hoping maybe.

I mean with trader A you could say, you in again , sloppy exit though , ok, take this golf ball, stand across the other side of the room at throw it at you sell order button until you manage to hit it, you'll take whatever when you hit the button with the ball, try and time it on a nice spike though mate. aint that fun.

Trader B however, would/should? have to be told dont touch any buttons until you find a great entry . the golf balls are in the drawer for when you do, if you want them.

 

[dbphoenix]

Db

I think you're being a mite hard on timsk .

Accepting that entry is of primary importance, it is often the case that people will have a well-tested entry set-up but do not have an associated exit set-up or strategy - exits being left to "discretionary".

In this case entries are relatively straightforward and easy and it is the exit that determines the quantum of success.

Good trading

jon

However, this is not to say, as timsk does, that "great traders" place greater emphasis on exits than entries. Not only is such a statement insupportable, it is, as I said earlier, naive.

Ordinarily I wouldn't have responded to any of this. However, the original question was asked by a beginner, and the responses are made without qualification. All beginners should take care to evaluate the messenger as well as the message since many messages are simply what one has read or heard, not what one has personally experienced. Even personal experience, however, may be largely irrelevant if the messenger is a part-time recreational trader who has yet to earn a consistent profit.

--Db

 

[timsk]

However, this is not to say, as timsk does, that "great traders" place greater emphasis on exits than entries. Not only is such a statement insupportable, it is, as I said earlier, naive.

Ordinarily I wouldn't have responded to any of this. However, the original question was asked by a beginner, and the responses are made without qualification. All beginners should take care to evaluate the messenger as well as the message since many messages are simply what one has read or heard, not what one has personally experienced. Even personal experience, however, may be largely irrelevant if the messenger is a part-time recreational trader who has yet to earn a consistent profit.

--Db

In order I and everyone else may be clear where you stand on this Dbp, unless you post to the contrary, I'll assume that if you had to opt for either trader A or B, you would elect trader A.
Tim.

 

[dbphoenix]

Making assumptions on such a basis may be part of what prevents you from determining what is true or untrue about trading.

I opt for Trader C.

--Db

 

[TWI]

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.

 

[timsk]

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.

twalker,
I know we're both male, but I don't care. I want your babies!
Thank you.

Tim.

 

[neil]

Smut?

twalker,
I know we're both male, but I don't care. I want your babies!
Thank you.

Tim.

Timsk - wash your mouth out :cheesy:

(Smut control centre)