As you probably already know, trade entries are very important in determining whether you succeed or fail as a trader. One good trade entry can make or break your month in the market. Yet, traders tend to take trade entries for granted by assuming they are the ‘easy part of trading’ and putting little thought into getting the best trade entries possible.
A better trade entry can significantly improve the risk reward potential of a trade as well as get you a better stop loss placement which can decrease your chances of getting stopped out of a big move in the market.
What are some things you can do to improve your trade entries? Today’s lesson will outline 4 tips for making better trade entries that can help you improve your trading results if you practice them consistently.
Using limit orders to get better prices
A limit order is a pending order that you place above or below the current market price, depending on which direction you’re trading. If you’re trading long, you place a limit buy entry below the current market price, then, IF price rotates down into your limit buy order, you will get filled long. If you’re trading short, you place a limit sell entry above the current market price, then, IF price moves higher into your limit sell order.
Limit orders give you the power to get into a trade at a price of your choosing. The only ‘catch’ is, you may not get filled at all on the trade, but if you do get filled you know you got a good entry price and a better stop loss placement than if you had just entered at market or on a stop entry.
One good example of using limit orders to get a better entry price is discussed in my article on ‘the trade entry trick’. The trade entry ‘trick’ is essentially entering a price action signal on an approximate 50% retrace, i.e. entering on a limit order as price retraces to the 50% level of a pin bar for example. This gets you a better entry because it significantly improves the risk reward profile of a trade by allowing you to place a tighter (smaller distance) stop loss, making it more likely that you’ll make 2R or more on a trade.
The other big advantage to getting a better entry via a limit order 50% retrace (trade entry trick) is that it gives you more flexibility in your stop loss placement. You can either take the trade with a tighter stop loss as we discussed above, or you can use a normal distance stop loss (in the example of a pin bar, a normal stop loss distance would be the full length of the pin bar from high to low). As I discussed in my trade entry trick article linked to in the previous paragraph, using a normal stop loss distance with a limit entry order on a pin bar for example, allows you more ‘breathing room’ in the trade.
Remember; limit orders allow you to ‘let the market come to you’ by only entering if the market retraces to a price of your choosing. You have to be prepared to miss the trade, but as we discussed above, the advantages of a better risk reward profile on the trade and increased flexibility in stop loss placement are nothing to sneeze at.
Set up trades at the end of each day
Analyzing the markets and setting up trades at the New York close, is a very easy and effective way to improve you trade entries. Doing so, removes the noise and mental confusion that comes with trying to trade from intraday charts. Monitoring your trades just once or twice a day also helps you avoid the temptation of fiddling with your trades unnecessarily as well as the psychological ups and downs that come with day trading.
The daily chart time frame carries more ‘weight’ (relevancy) than its lower time frame counter-parts. So, just the very act of focusing on daily charts is going to significantly improve your trade entries. Think of the daily chart as a sort of natural ‘filter’ for bad trade entries, since it filters out the noise and irrelevancy of the lower time frame price movement and as a result, the signals on the daily chart are more reliable.
Note: When I say “lower time frames”, I am mainly referring to those intra-day time frames under the 1 hour chart.
Wait for confluence using the T.L.S principle
90% of the trades I take use the ‘TLS’ model. T.LS. stands for Trend, Level, Signal, in other words; Find the TREND / market bias, find the key LEVELS, and look for a trade SIGNAL, when you have all three of these or even two of these points in alignment, you have the ‘perfect storm’ in terms of a trading opportunity.
Let’s look at some examples of trades that had T.L.S. confluence…
The chart example below shows us a clear T.L.S scenario to enter the market from. Note the market bias / TREND was clearly bullish, we had a clear key LEVEL through 1.6660 area and then a clear pin bar buy SIGNAL formed in alignment with the trend and the level.
The chart example below shows another clear example of using T.L.S. confluence to enter the market. Again, we had an up TREND / bullish market bias, a clear key LEVEL and then a clear pin bar buy SIGNAL formed in-line with the uptrend and the level. Thus, we had a highly-confluent price action entry signal.
The last chart example we are looking at shows a clear example of using the T.L.S. principle in a down trending market. Note the clear down TREND that was in place prior to the formation of the signal, as well as the clear key LEVEL. Then once we got a clear pin bar sell SIGNAL at the intersection of the trend and the level, we had an obvious and high-probability trade entry on our hands…
Have a simple trading checklist and use it religiously
It’s not just about finding a trade and placing it, it’s about actually finding the right trades and then having confidence to pull the trigger. A simple checklist / plan will assist you in filtering good signals from bad signals, and will also hold you accountable.
A simple checklist might consist of several images / drawings showing your ideal trade setup and chart conditions with some basic wording such as “Locate signal (insert signal type), find nearest key level, find trend, if chart conditions are confluent / in alignment then consider trade. If correct money management parameters can be applied, i.e. if your risk reward makes sense on the trade, set up orders and place trade. It’s a personal and customizable plan designed for you and your personality.
Of course, if you have not yet mastered a trading method, you will not be able to get good entries into the market. Thus, the first step is taking some time to get proper training on an effective trading strategy such as the price action trading strategies I teach in my course and members area.