Discover The Secret Of A Flawless Trade Entry
I think most professional traders already know the secret of a perfect trade entry, but it's the newbies who insist on searching for the Holy Grail of trading. Well, you need look no further because the secret of a perfect trading entry is that there's simply no such thing as a perfect trading entry. Unfortunately, you're never going to find that perfect magical indicator that tells you when to get in and when to get out.
Once again, if you're still relatively new to trading, you need to realize that a perfect indicator simply does not exist.
Why is it that so many still continue to believe in such indicators?
According to Van Tharp who is himself a much respected trading guru, the reason lies in the fact that many novice traders believe that if they're actually involved in the selection and entry into a trade, they somehow have some measure of control over the market. He also goes on to compare this phenomenon with the behaviour of many people who play the national lottery. Of course the lottery players he's referring to are those who favour choosing numbers which are relevant to their personal lives, such as birthdays, anniversaries, and etc.
Why do so many lottery punters choose numbers from birth dates and etc? Simply because they believe whole heartedly that those are the best possible numbers. Of course, irrespective of what they want to believe, their combination of numbers stands the same chance as any number of combinations. Unfortunately, because there's an emotional connection, these punters have a tendency to feel as though they have a certain amount of control over the outcome. The same applies to traders and trade entry.
What you need to realise is, you are in total control of your circumstances when you enter into a trade. Only you can decide whether or not you should proceed or back away. On the other end of the scale, once you've actually entered into a trade, you have absolutely zero control over the way the market behaves.
Choosing when to exit a trade and how much you actually put into it will determine how much money you make from that trade. In other words, it's not about when you buy your stock.
Let's take a look at the following example:
Okay, so you're ready to buy some stock and by implementing the stock trading system you use, you know that you should buy the stock at per share, and that you should exit when they reach per share. In this example we'll look at two different scenarios. In the first one you have 00 and in the second you have ,000.
1. Buying at per share, your 00 gets you 100 shares which in turn means that when you sell at per share, you will have made 0 profit.
2. Buying at per share, your K gets you 1000 shares. In this case, when you exit at per share you'll be 00 richer.
So, as you can see in the example above, the amount of money you make is determined primarily by how much you invest initially, and not by your trade entry. This is in fact the very foundation of good trading money management.
Tags: stock trading system, trading entry, trading money management