how important is the entry and how complicated does it need to be?

G

Gordon Gekko

i am constantly wondering how good an entry needs to be. i'm sure you all have heard before, things like:

-the entry should only be about 10% of your system.

-even the best traders aren't right much more than 50-60% of the time.

i can't really disagree with any of this too much. many of us here already know you can make money being right 30% of the time or less. it all depends on your system.

my question really is...for profitable traders, is it their entry that makes them profitable, or how they trade their entry? i always have to think it is how they trade it.

i'm starting to think you could take any entry and find a way to manage it profitably. am i wrong?

is the right entry the key? or are entries nothing but a structure by which you can manage a trade with rules?

the majority here is going to say that the entry doesn't matter, but at the same time, the guys here who make money don't want to reveal what their entry is! that's what i don't understand. why isn't everyone revealing their entry if it isn't really important?

another thing...people say to KEEP IT SIMPLE. i really want to keep my trading simple. but why is everyone making complicated systems? look at all the posts here. whenever an entry is discussed it is not something simple. what is something simple that can be used?

are programs like tradestation even needed? or is it just a tool to overcomplicate the trading process?

these are the questions i'm thinking lately....any response to any of them would be appreciated.
 
Most of my trading is momentum scalping. Entering the trade at the proper price is crucial. If I want to take out the ask on IBM and try to make a quick 25 cents as the futures make a pop up, I need to get that advertised price. If I'm too late and he moves the offer up 15 cents, most of my potential profit is gone and now I'd have to take lower odds to enter the trade.

With opening orders, I have no control over my entry other than that I only want the stock above or below a certain price. But I have no idea where I'll get filled. My profitability is going to be decided by how good I can manage the trade once I'm in.

The case has been made that you could trade a system that generates random entrys and still make money through good position sizing and trade management.

I agree that overall, entry is not the most imporant thing in trading, it's how you manage things once you are in, mostly the risk. But for certain strategies, entry is hugely important.
 
You can look at just about any intraday graph that doesn't have a strong trend (50/50 you might enter the right way) and you will see that, if you enter at any given point, there is usually a point at which you can profit at some later point with various levels of stop losses.

Any trade is calculated off the formula:

(exit - entry) = profit [long position]

(entry - exit) = profit [short position]

You could say that, in a short trade, you are exiting before you enter, but that is just academic.

Needless to say, both are important, since the two are needed to calculate a profit or loss. I think what is most important is trade management. Knowing where you are in your trade, why you took the trade and what things have changed since you took the trade.

The market is dynamic -- so the reasons why we take a trade are usually not the same reasons why we stay in the market. Once in the market, we must assess what the market is willing to give us, what the trend is doing and how best to protect our profits while somehow finding away to let them run without sacrificing more profits. Likewise, cutting losses is important, but not at the expense of cutting a potential profit. It is all about probabilities.

I've seen people have their stop loss hit after being in a long position and they immediately went back into a long position thinking that the market had now bottomed. Well, if you get stopped out of a long or short position, what possible sense could there be to re-enter that position right away? You're just churning and racking up commissions at that point.

aphie
 
I think entries are overhyped, especially by people giving seminars and writting newsletters. Entries are very easy, but I've never made money on an entry or lost money on one either. It's always been on the exit. Anyway, great topic for a thread, sorry I will be out of town all week and wont be able to post much to it.

Brandon
 
I think my father covered it pretty well in his book.......

but it depends on the timeframe too

Really short time frame's tend to have very high probability, low reward trades.

These have VERY important entries.

The longer term timeframe's have much lower probability, but higher reward trades. Entry isn't anywhere near at critical.


This is one of the reasons my father suggests writing out your objectives before even starting.

Robert Tharp
 
Originally posted by rtharp
I think my father covered it pretty well in his book.......

but it depends on the timeframe too

Really short time frame's tend to have very high probability, low reward trades.

These have VERY important entries.

The longer term timeframe's have much lower probability, but higher reward trades. Entry isn't anywhere near at critical.


This is one of the reasons my father suggests writing out your objectives before even starting.

Robert Tharp
More...
yes, i love your father's book. it may even be my #1 favorite trading book. i think my problem is that i have too much information. i need to weed out my garden. hehe
 
Originally posted by Gordon Gekko

1.) ...is it their entry that makes them profitable, or how they trade their entry?

2.) i'm starting to think you could take any entry and find a way to manage it profitably. am i wrong?

3.) is the right entry the key? or are entries nothing but a structure by which you can manage a trade with rules?

4.) the guys here who make money don't want to reveal what their entry is! that's what i don't understand. why isn't everyone revealing their entry if it isn't really important?

5.) but why is everyone making complicated systems? look at all the posts here. whenever an entry is discussed it is not something simple. what is something simple that can be used?

6.) are programs like tradestation even needed? or is it just a tool to overcomplicate the trading process?
More...

1.) I trade every signal my system gives. It's an averages game for me. Few big winners must outweigh the loosers. Holding out for the big winners (read: exit) is the key to my system.

2.) I don't know about that. Maybe given an unlimited time-frame... Unless you consider "manage it profitably" to include taking small losses while trading within a profitable system.

3.) mutually exclusive. When using trailing stops entry directly effects the exit.

4.) personally, I don't see why anyone who has a system that works (I mean really works) would share it. I would no sooner hand you a $5 bill.

5.) See my "What's the catch" thread. Even a simple MA crossover system (always in long or short) shows a profit when backtested in Tradestation. IMO most traders lack the discipline to trade it successfully.

6.) For their complexity, hell if I know. But I feel that backtesting is absolutely crucial to a trading system.
 
I agree with the posters.
the shorter the time frame the more important the entry price, usually.

I like the question asked by this thread. BUT too often there is not enough emphasis placed on trade direction.

the following is valid for most types of trading, but not all.. anyway.

the entry has 3 parts :
direction, time, price .

the most important is direction.
timing is very important too. there is such a thing as being right on direction and too early (you get big drawdown or loss).
price is the last component imho. even in case of scalping described with IBM, the timing was the issue, not the price.

to properly balance and trigger an entry, you need to evaluate properly these 3 components. that can lead to complicated methods.

however, I believe the exit is much more important.
When, at times, I enter a position at the very same time than another trader, right next to me, same entry (direction, time and price), because I have a little more experience I usually end up with a profit and not the other one.

the exit is the meat of any trading method.

but since this thread is about entry, I'd like to add something.
if your method concentrates on the entry's components in the right priority order, it can become easier and easier.

an idea to make things easier for you :
consider you can't have the 3 components perfectly aligned each time. consider it just can't be done. then work around it.
concentrate on direction. to deal with timing and price : scale in.
(that is if your time frame is not too short to do that, obviously).

most traders concentrate on the entry.
most traders lose money.
OK, that's not surely related (but I believe it is part of it).
traders making money, are concentrating more on the exits (and that includes stops!).

tntneo
 
I agree that an exit strategy is more important than entry(IMO)..Your example of 2 traders entering at the same time but one making money and the other losing clearly points it out..

I think that once in a trade your emotions switch from a gung-ho/ positive feeling/hope in entry to a frieghtful feeling/not knowing( should I take my profits before they disapear or more likely what the fuck do i do now that the position is going agaisnt me). These feelings can play a major role in the way you exit a stock wether for a profit or a loss...Example, Why would someone blow a stop?? it is a rule that you've already established yet you blow it. Why?? Nothing to do with charts or entry...

scaling into a trade also helps with pricing, but also opens the door to something I think every trader should sway from and that's doublin' down or avg. down...

this is just my opinion/feelings....
 
Love this thread so far. And given the continuing prise of Robert's father's book, I should get a copy.

I am an advocate of what is now listed as Gordon's second point....any entry will do, just mange it properly.

As some of you have read, I have posted before that drawing a horizontal line on any chart at the current price and maintaining a long position above the line and a short position below it works.

Robert expounds upon his father's premise that the entry is less important as the time frame increases. I had not considered that re: my point above but it is true. My premise was based on my tendency to trade longer term, using daily charts. And using the close only. Using a 1 minute or very short time frame, one could easily get chopped for awhile. Although, the losses would be smaller because the range of the one minute bar is not as great. Ultimately the price would pull away from your line.

Regardless, the most important concept is...
 
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