Trading Basics: Evolution of a Trader

HOW IS THE TIMING?

For each trade, ask yourself if you entered too early, too late, or hit it spot on. That is often easy to assess when trading chart patterns since the breakout is where price changes from moving sideways to trending. The breakout is the perfect entry price.

However, other types of entries will work as well. Throwbacks or pullbacks, for example, offer another chance to enter the trade at a good price. I also mentioned a shelf—a flat area on the right bottom of a double bottom—as another entry possibility. In fact, many acceptable entry positions can occur during each trade, providing your trading plan allows for them.

Early Entry

Let us review early entry first. Do you consistently enter trades too early, meaning you think the stock is going to breakout upward so you buy before that happens? On those trades, did you make more money, or did the failure rate increase?

In other words, you can evaluate your results two ways: higher profit or increased risk. If a stock is going to reach 10, then the sooner (lower price) you buy in, the better. If you buy in sooner, then a stop loss order might be closer to the optimum buy price, but that could increase the risk of failure (if the stock trips the stop because the stop is so close). Of course, if the stock does not hit 10 then you could be in trouble. If you buy before confirmation (before the breakout from a chart pattern) and the pattern fails to confirm, then the trade could post a loss.

• Did you enter the trade too ...