Trading Entries and Exits

Trading Entries and ExitsOne of the biggest weaknesses of individual traders is their ignorance of entry and exitpatterns. These patterns identify signals showing either strength or weakness. The entrypatterns are signals of strength and the exit patterns show signals of weakness. These patternscan be inverted for shorts (i.e., making money when a stock or future goes down in price). Forexample, instead of entering a bullish trade on a weak down bar right above the bullish trendline, one could enter a short trade on a weak up bar just under the bearish trend line.It is very important to look for trade entries and exits (or just to look at charts) near the end ofthe day's trade. This is because there is no way of knowing what the most-current bar will looklike earlier in the day.This is not an exhaustive list. There are other effective entry and exit patterns. Hopefully, thislist will help you get started thinking about other patterns.Entering a trade on a weak down bar just above a bullish trend lineThe optimum place to enter a trade, once a stock or future is trending, is when the price is nearits trend line. The risk is very low because the protective stop can be placed right below theentry and also under the trend line. Contrast this with buying at a new high and having to placeyour protective stop under the previous low.Bar 'A': This bar bounced off the bullish trend line andhad lower volume than the previous two bars. Twobars before, a very high volume down bar alsostopped at the trend line. An up bar the next dayconfirmed that the big volume on the previous dayhad a lot of buying inside it. The low volume at bar 'A'shows that the selling pressure has dissipated.Summary: Had you entered at the close of bar 'A' andsold at around 53 (after the two-day bearishturnaround) the profit would have been over 11% in alittle less than a month.

Entering a trade on a weak down bar during a tight sideways moveStocks alternate between trending and sideways moves.Entering during the sideways moves gives the possibilityfor gaining most of the resulting trend.Bar 'A' This bar had exceptionally low volume showingthat selling pressure had almost completely dissipated.If there is no interest, on the part of the insiders, for astock to move in one direction, then it will move in theopposite direction.Bar 'B': This bar closed near the day's low and took outthe gains of the two previous up bars. Had you soldnear the close, you would have gained 34% from bar 'A'.Entering a trade on a two-day bullish turnaround pattern just above a lowA two-day bullish turnaround has a down day followed by an up day. The up day must closeabove the high of the down day and have higher volume. Use this pattern in an appropriateplace, not in isolation. This example is at a low indicated by the two lows in October andDecember, at a similar price. Other examples ofappropriate use include just above a bullish trend lineor just above a mid point.Bar 'A': This is the second day of the two-day bullishturnaround. Both its volume and price are well abovethe previous down day.Bar 'B': If you sold on the second of two straight downdays (this pattern suggests you either exit or put yourprotective stops tight) would have resulted in a 10.5%gain. For more information please visit http://www.stock-compass.com