Entering Without A Setup ...

Swan Noir · May 15, 2010

RN,

This may sound simplistic (it may even be simplistic) but I have been viewing the setups I use primarily to define my entry, using a stop to enter and placing my "stop loss" (bad term but commonly used) at the point where price would tell me I was wrong.

You seem to be saying that if you can define the point where you would be wrong and like the markets' behavior you might enter immediately and consider the fact that defining your "out point" was enough to view it as a setup. I'm not so much concerned with the semantics but you do seem to be saying that the 5% of my trades I make this way are setup trades as well because they meet this single criteria.

Are there traders reading this that have entered fast moving markets with stops of 4 or 5 ticks knowing that it might take two or three entrees to get in for a ride -- if you get in at all?

Markets seem to be in re-occurring crisis mode. I do not want to be stuck in my mode if the markets are in another mode. The Ghosts' comments about being able to stay with the winners are always important but maybe more important now than ever before. My rhetoric matches his but unfortunately as I review my trades (particularly my most profitable trades) I am simply leaving way, way too much on the table.

Since we all run the risk of central bank intervention and other even more creative government interventions whipsawing our best trades and inflicting serious losses on a given day it is crucial to be making some of our trades pay off well enough to absorb the inevitable losses I think we will all face in coming months yet still have a healthy bottom line.

We are through the looking glass and a failure to recognize the "new reality" is dangerous. I know I need to change ... just not quite sure what that entails.

Quote from Redneck trader:

Other than succinctly identifying where we would be wrong (and obviously exiting there) â what more does a sound set up requireâ¦ reallyâ¦.[/b]

I would respond nothingâ¦

RN [/B]

Stockbug · May 15, 2010

My personal opinion is not setup makes you money but your correct thinking. Trader that is losing money,and have no definite exit price is just hoping that stock will return. When he is doing paper money he is afraid to lose them. All these is simple mankind psychology. l also always try to fight with my "hopes" and "fears". Sometimes l win. Sometimes - not

When you are doing money you should hope that you will do more. If losing - just cut them, take your lose instead of it taking you

. "Fear" to be taken one day by "hope" that it will return. To make setup working on you, you should places correct stop loss considering what market is doing. After doing that you need to place correct target for your set up. You should always consider market and stock action so that you was able to re-target. Of course, it is very difficult or ,better to say, impossible to buy lows and sell highs, but we should tend to do this.

l also do momentum trades, but the problem is that sometimes in each stock that is falling or growing you see possibility "for quick money" and as result - you lose.

You MUST be disciplined in every style and do you trades according to your rules that work for you. Never break your rules.
95% of traders lose not because they have no enough experience, they simply lose because they have no rules or they just don't follow them. If you follow your rules and continue losing you are always able to find the problem and fix it.

Don't fear and don't hope. Create rules when you enter and exit stock. Be disciplined enough to follow them. Be cleaver enough to fix your rules to adjust them to current market conditions if they are not perfect. IF you are able to do all of these l think there is no barrier to become very profitable trader

Redneck · May 16, 2010

Stockbug

Very nice post Sir....

Quote from Swan Noir:

RN,

This may sound simplistic (it may even be simplistic) but I have been viewing the setups I use primarily to define my entry, using a stop to enter and placing my "stop loss" (bad term but commonly used) at the point where price would tell me I was wrong.

You seem to be saying that if you can define the point where you would be wrong and like the markets' behavior you might enter immediately and consider the fact that defining your "out point" was enough to view it as a setup. I'm not so much concerned with the semantics but you do seem to be saying that the 5% of my trades I make this way are setup trades as well because they meet this single criteria.

SN

KISS always Sir

Essentially yes â know where Iâm wrong and trade what I see

My opinion the amount of importance placed on entries is way â way overrated Sir (and to a certain extent the more importance a trader places on them â the more apt they are to hang onto it when they should be exiting â I did at one point)

What I was saying is it appears you are using your instinct/ gut/ right brain (assessing the whole picture then reacting accordingly) about 5% of the timeâ¦

And I was suggesting you may want to build more reliance on this aspect

Are there traders reading this that have entered fast moving markets with stops of 4 or 5 ticks knowing that it might take two or three entrees to get in for a ride -- if you get in at all?

Markets seem to be in re-occurring crisis mode. I do not want to be stuck in my mode if the markets are in another mode. The Ghosts' comments about being able to stay with the winners are always important but maybe more important now than ever before. My rhetoric matches his but unfortunately as I review my trades (particularly my most profitable trades) I am simply leaving way, way too much on the table.

Since we all run the risk of central bank intervention and other even more creative government interventions whipsawing our best trades and inflicting serious losses on a given day it is crucial to be making some of our trades pay off well enough to absorb the inevitable losses I think we will all face in coming months yet still have a healthy bottom line.

We are through the looking glass and a failure to recognize the "new reality" is dangerous. I know I need to change ... just not quite sure what that entails.

As to this entire post â a person could easily write a few volumes on it â and as it is never my intention to ever direct anotherâs threadâ¦ I'll throw out only a few things as fwiw

At times I use market orders, other times Iâll use limit (for both entering and exiting) â it just depends on the environment Iâm trading in â and how Iâm trading that day

btw I donât trade the same way every day â why because I am not a robot â I must always identify and appreciate the limitations I wake up with (mine and the market's) - and trade within them

And at times in a fast moving market â Iâll use the a break of the candle immediately preceding my entry as a stop, then like a beagle trail price till it stops doing what its doing and exit... (obviously how I have my charts set up, time of day, time frame Iâm trading, momentum, how âlong in the toothâ the move is, and overall sediment â are all important factors to consider when doing this)

------------------------------------------------------------------------------------------------------------------------------------------------------------

Yes the environment is changing â but then that is the one of the few constants of the market

Happy Sunday All
RN

NoDoji · May 16, 2010

Quote from Swan Noir:

Are there traders reading this that have entered fast moving markets with stops of 4 or 5 ticks knowing that it might take two or three entrees to get in for a ride -- if you get in at all?

The momentum trade ("I sold it simply because it was moving down") is not a "setup" for me; it's a condition that suddenly occurs and I react instinctively. With a setup I'm watching for a lower high in a down trend or higher low in an uptrend, or a reversal signal at a trend exhaustion zone. With this non-setup trade, price could start moving out of a zone I'd never even think about entering a trade, but suddenly market conditions have changed and I want a piece of it. I only take this trade to the short side and especially in a fast market because the law of inertia tells me that something in motion will not change its velocity until a stronger force acts upon it and it takes more force to overcome fear than greed.

My intention is always to place an initial stop just a few ticks away. If I'm stopped out, I'll often try again, but I'd say 90% of the time this type of trade is immediately profitable enough that I can lock the trade in at break-even.

Quote from Redneck trader:

And at times in a fast moving market â Iâll use the a break of the candle immediately preceding my entry as a stop, then like a beagle trail price till it stops doing what its doing and exit...

This is my exit management strategy as well, almost always out by way of a tightly trailed stop because pivots off a capitulation point are usually very strong. I think that's why they call the candle at that point a "hammer"

Nine_Ender · May 16, 2010

I'm fairly new to day trading and have a fairly low daily stop limit to deal with. I am good at identifying trends but have lost money mainly because I cut my winners far too easily.

So I came to the conclusion that I need to find good setups, better entry points, and let them run. Easier said then done, the best stepups are often more volatile stocks that can help stop me out if I'm wrong.

So on Friday I'm tracking BMO and it looks like a double top and the market futures are dropping. I take the plunge and sell 100 shares short. It bounces around a little, scares me on a slight uptick and I bail on a 1 cent gain. Almost immediately it drops 30 cents afterwards.

Anyone out there encounter similar issues and overcome them as a new day trader ? For example, in this situation, should I load up my exit position ( say 5 cents, or 10 cents ) ready to go ?

On the bigger picture, if you have a plan to short BMO or similar on market down days, what would you say are the best technical signals to indicate suitable entry points ?

NoDoji · May 16, 2010

Quote from Nine_Ender:

So on Friday I'm tracking BMO and it looks like a double top and the market futures are dropping. I take the plunge and sell 100 shares short. It bounces around a little, scares me on a slight uptick and I bail on a 1 cent gain. Almost immediately it drops 30 cents afterwards.

Anyone out there encounter similar issues and overcome them as a new day trader ? For example, in this situation, should I load up my exit position ( say 5 cents, or 10 cents ) ready to go ?

Yes, I encountered these issues and still struggling to overcome them 2 years later, but the good news is I'm much improved.

I'm guessing you shorted around 3pm off failed b/o through previous resistance (basically a double top).

If this is where you shorted, your stop was probably 58.61. Your stop is your price of admission to the trade. It's what you agree to pay for a likely larger return (assuming you have an edge, which on this trade I believe you did, mainly because of the overall market environment at that point and the failed b/o).

Off the day's pivot low, you have price leaving slightly higher lows, with the last higher low being .16 above the one before it. Add .16 to the last higher low and you get 58.27. This is an initial target zone. If you're scalping then maybe you just target .10-.20 from your entry, but if you want to learn let winners run you target a price level that makes sense based on previous action.

Once price nears your target, size up the "feel" of how it got there. Did it fall off pretty quick? Then consider dropping your target price and trailing a tight stop when your initial target is reached. I often do this. Or if you trade more than 1 lot, take off half at target and see if the rest runs further.

You have to trust the trade and accept your cost of admission. Once a trade makes a decent move in my favor, I'll usually move my stop to break even. You can always get back in and no reason to let a winner become a loser.

I think I traded POT around the same time Friday. I shorted, with a .27 cent stop, and my target (which amused my trading roomies) was "somewhere lower". It was one of those late day setups that really could go either way but the market seemed so weak I took the short side.

It moves a few ticks my way, then reversed to stop me out, moved a bit above previous resistance, then pulled back again. I jumped in short again, .20 cent stop. It moved .29 in my favor and I moved my stop to b/e. It eventually stopped me out b/e.

A few months ago I would've exited the second trade the moment my previous loss was erased, but I learned the hard way that you have to trust each trade and treat it as brand new. Don't let your P/L or a previous trade influence how you manage the next trade (unless you learned something new and important from the last trade).

So in this particular case, I took a net loss. But not long ago I had two losers and a scratch trade in crude oil and by treating my 4th trade as brand new and trusting my target I let the winner run almost to the pivot of the move, erased the previous losses and ended up significantly positive on the day

Something I do for at least an hour every day is, after the market's closed, pull up a chart (any chart, it doesn't matter) in the time frame you trade, move the chart off screen so all you see is the hard right edge from a little before the open. Now move the chart into view one bar at a time. Discuss the price action with yourself (don't worry everyone already knows day traders are nuts). Is the trend up or down? Did the bar that just closed out signal a possible high probability trade? If it did, where will you enter? Where will you place your stop, what will be your profit target?

Write all this down and reveal one bar at a time until your stop or profit is hit. (I also make a note of if price moves far enough in my favor for me to lock in the trade at break-even).

Do this until the end of the trading day is reached on the chart.

Once you do this enough times, you come to trust your best setups and it becomes easier and easier to let profits run.

duhmentor · May 16, 2010

Quote from NoDoji:

The momentum trade ("I sold it simply because it was moving down") is not a "setup" for me;

With this non-setup trade,

price could start moving out of a zone I'd never even think about entering a trade, but suddenly market conditions have changed and I want a piece of it. I only take this trade to the short side and especially in a fast market because the law of inertia tells me that something in motion will not change its velocity until a stronger force acts upon it and it takes more force to overcome fear than greed.

sound like a set-up to me

When you enter a trade, there has to be a reason behind you doing so.
It may be subconscious but itâs there. Find that reason and you have your set up.

Stockbug · May 16, 2010

If there is no definite setup in the stock that you are going to enter and if you are going to follow the trend , you should at least consider the average pullback on 1minute or find the nearest pullback on 1m chart and put your stop on it. Stop loss is usually calculated depending on the potential of the stock. If you think that stock is able to give you 20-30c you should take higher risk then 1c. But as to newcomer you should trade less volatile stocks then BMO.

Swan Noir · May 16, 2010

I like the points of view I am hearing. They have value to me. Thanks to all.

BTW, I trade only futures. Over 80% of my trades are 6E and NQ and the balance almost entirely other major currencies. I sleep on nothing. I am flat at days end. I intend to mix in gold and crude at some point but when that point is I am still unable to pinpoint.

piezoe · May 16, 2010

Quote from Swan Noir:

While 95% of my entries are stop orders related to a setup I like there are occasional trades like today just after 3 pm when I sold NQ simply because it was moving down. The few trades I do without a specific setup are lucrative for me.

My question is do some of you take trades this way regularly? Do some of you trade primarily this way? Talk to me.

I try to have the discipline to never do that because of the problem risky mentioned. There may be rare exceptions, but even if you end up sitting those out you will be ok in the long run if you maintain discipline, and that sometimes takes almost unbearable patience. Undisciplined trade entries have cost me a lot of money.