If you’re a regular follower of my blog, you know I’ve written articles discussing “sniper” and “crocodile” trading and the benefits of this trading style. In today’s lesson, I am going to help you understand what this trading style is all about, and I’m going to show you exactly what it means to wait patiently like a crocodile for the ‘perfect’ trade entry to come to you. This trading approach is really the keystone that holds together my entire trading philosophy, and if you master it you will be one giant step closer to becoming a successful trader. Let’s get started…
So, what is this trade entry ‘trick’ Nial and why should I use it?
Glad you asked. The main idea of this trick is that when you see a price action trade signal or a trend, you don’t just jump in right away at market price, instead you do what most of the other traders are not doing, you wait for a pullback, retrace or a rest in the market. What exactly does this do and how can it help you improve your trading results?
There are essentially three very significant ways that this trade entry trick can significantly improve your trading results:
1) By waiting for a better entry, it allows you to get a tighter stop loss on a trade which in turn allows you to potentially make more profit on a trade by increasing your risk reward. This means you can trade a bigger position size (more contracts or lots) without risking more money.
2) By waiting for a more optimal, or conservative entry on a trade, we can decrease the probability of getting stopped out for a loss because our stop loss is placed in a safer location , thereby giving the trade more room to breathe. Now, instead of a losing trade you potentially have a winning trade, and instead of losing 1R you’ve profited 2 or 3R or even more…that’s a major difference in your trading account value.
3) This trade entry trick also allows you to wait for a better entry on those trades that you are just not 100% confident in and would maybe prefer to risk less on. It can allow you to get a better stop placement as we talked about above, and if you just really want to be more conservative and let the market come to you on a trade, the trick gives you this option. By waiting for a better entry and getting a safer stop loss placement on a trade you are essentially reducing the risk of a stop out and thus reducing the risk in general on the trade, and on a trade you aren’t totally sure about this can often be the best option.
Note: This trading trick of waiting for an optimal entry on a trade might mean that you miss a trade sometimes, but this should not worry you because that is what sniper trading is all about; we are waiting patiently for the ‘easy’ targets to simply ‘walk into our sights’, rather than shooting at everything that moves. Over time, this approach should increase your win rate and will build your confidence in your ability to not only trade profitably but to remain patient and disciplined as well, and that is truly something to be proud of considering lack of discipline and patience is most traders’ downfall.
Also, before we get into the chart examples, I’d like to make a point of noting that this trading ‘trick’ is really more about focusing on an ideal entry point on a trade, rather than on tighter stops. Most of the time, a normal stop loss distance should be used as the market needs room to breathe. Tighter stops should only be used on setups you feel very confident about and ideally after you’ve gained some solid screen time and trading experience.
The trade entry ‘trick’ in action
- Waiting for the optimum entry point on a trade we are 100% confident in
When you have a strong view on a particular price action trade setup and you would like to get the best entry possible so that you can increase the potential profit on a trade, the trade entry trick is your most potent weapon. Remember, to ensure optimum entries you have to be fine with potentially missing out on a trade from time to time, you have to accept this as part of being a highly-skilled price action trading ‘sniper’.
In the chart example below, we can see how the trade entry trick can increase the risk reward on a trade by allowing you to get a tighter stop loss and thus trade a larger position size. In the daily spot Gold chart below, we can see an obvious fakey with pin bar combo setup formed on October 15th. The ‘trick’ entry would have been at the key support level through 1272.75 which is also very close to the 50% level of the pin bar. Note that waiting for this retrace entry at the key support level would have allowed you to get a tighter stop loss on the trade and a 4R profit as a result. A ‘normal’ entry on this trade setup, near the pin bar high with stop loss near the pin bar low would have netted you no more than 2R profit. So you can see by waiting for the more optimal entry on this setup we could have at least doubled our profit on this trade…
- Using the trade entry trick to avoid getting stopped out prematurely
Another excellent way to take advantage of the trade entry trick is using it to help you avoid getting stopped out on a trade before it moves in your favor. By waiting for a more conservative entry (a better entry), we are being less aggressive because we are being more patient and using more discipline in waiting for an optimal entry. The net effect of this patience is allowing us to have more breathing room on a trade by shifting our stop loss further away. This use of the trick is not about reducing your stop loss distance, indeed you will keep the same stop loss distance as a ‘normal’ market entry, instead, you’re getting a SAFER stop loss placement and getting more breathing room on your trade, thereby increasing the probability of being on-board when the market moves in your favor.
In the chart example below, we can see another fakey / pin bar combo setup that formed recently, this time in the daily USDJPY chart. Note in the first chart, if you had entered at market with a ‘normal’ (impatient) entry, you’d definitely have gotten stopped out for a loss if you had your stop just below the pin bar low…
Now, let’s compare what happens when you use the trade trick entry to the normal entry in the chart above. In the chart below, we can see by waiting for an entry near the 50% retrace level of the pin bar and keeping our stop distance the same, we actually avoided the losing trade and turned it into a nice 2R winner:
Here’s another example from a pin bar signal that stopped many traders out in the Gold market back in early August of this year. Note that the market moved slightly below the pin bar low before rocketing up into what could have been a nice 3R or more winner for you if you had just waited for the more conservative retrace entry and kept your stop loss distance the same…
As you can see from the examples above, the idea with this trade entry ‘trick’ is that we are reading the price action in a market and when we find a trade setup and have a view on the market, we can then fine-tune our entry and this then gives us options for stop loss placement and targets. This is much different than just jumping in right away on our first observation of a price action signal or market bias. This is called pin-point accuracy sniper-trading and it’s the most powerful way to trade the market in my opinion.
- Using the trade entry trick when your belief in a trade is not 100%.
Sometimes, you will come across price action setups that you just aren’t 100% confident in but that still meet your trading plan criteria. For these types of setups you may elect to use the trade entry trick to play the trade more conservatively by waiting for an optimal entry. By doing so, you can give the trade more room to breathe by getting a better stop loss placement as we discussed above, and you will be letting the trade ‘come to you’ rather than entering too aggressively on a trade you don’t feel totally confident in.
In the example chart below, we can see a recent pin bar in the GBPJPY on the daily chart time frame. Note that this was not exactly the best pin bar signal because it was a bit small and its tail didn’t really protrude out from the surrounding price action. Still, the underlying bias was bullish in this market and certainly longer-term there was a clear up trend. Thus, this may have been a signal you were less than 100% confident on, so you could have used the trade entry trick to wait for a better entry which allowed you to shift down your stop loss and avoid market volatility more. The result was that if you had taken a normal entry near the pin bar close or high, with stop just below the low, you probably would have lost money on it, instead, using the trade entry trick the trade could have netted you a huge 4R winner, quite a difference:
- Using the trade entry trick to get better entries in trends
In a trending market, traders see the market moving aggressively up or down and often want to jump in a trade without waiting for a retrace. It is usually this not waiting for a pullback to enter that often results in traders buying near the high or selling near the low. Markets ebb and flow as they trend, so it only makes sense to look for an entry as the market retraces back to value, as it’s at that point that the market is most likely to resume the trend. If you enter when the market is extended, which is usually when most traders “feel good” about entering since the market looks “safe”, it’s at this point that the market has a higher-probability of retracing and stopping you out for a loss because you didn’t wait for the retrace.
Let’s look at an example of waiting for a retrace to a key ‘event area’ level (I discuss event areas more in my trading course) before entering an uptrend in the NZDJPY recently:
It is important to understand that every trader is different and different traders have their own motives for using different entry types. Some traders will use the trade entry trick because they refuse to take entries that are not “ideal”, they may miss some trades but they are emotionally OK with that because they understand the importance of getting the best entry and how it can lessen the chance of a premature stop out. Still, other traders might want to use the trade entry trick to get tighter stop losses so they can trade more contracts or lots per trade, note that does not mean they are risking more money per trade, it means they are trading a bigger position size with smaller stop loss distance, checkout this article on position sizing for more.
The main reason to use the trade entry trick I’ve discussed in today’s lesson is to get a better entry and to get better / safer stop loss placement, this allows you to avoid market volatility more and gives your trades the best possible chance at working out.
Also, it’s important to mention that a trader doesn’t always have to be uncertain or conservative in their view of a trade to enter on a retrace or pullback, this is just how some traders always trade and it’s part of their trading plan. It’s a tool to add to your trading toolbox, and a very effective one at that.
Keep in mind that the way we trade at Learn To Trade The Market is unique and we must apply discretion to each signal, because trading can’t be mechanical if you want to stand the test of time. You might choose to use the trade entry trick with a normal stop loss size or a tighter one, and you might elect to risk the normal $ amount or less, it’s up to you and discretion must be applied.
Over time, after learning the approach and screen time, a trader will start to develop their own unique style and entry methodologies to extract as much profit from the market whilst risking the least amount possible. These tweaked entries allow us to significantly improve our strike rate and overall risk reward, which ultimately should put more $ in our trading account. It’s not going to work for you if you don’t have plenty of knowledge on price action signals, reading charts and reading markets. My trading strategies are powerful, but you still need to know how to use them and how to manage your stops and targets. Your goal as one of my students is to put it all together and experiment and play different scenarios, it’s the only way you can truly learn this stuff, again it’s not mechanical and it’s not a perfect approach, every price action signal is unique and every entry, stop and target placement is unique. If you want to learn more about how I use price action to find optimal entries in the market, checkout my price action trading education course for more information.