Selecting Suitable Entry Orders

Determining which kind of order to use for an entry would depend on the nature of the model that generates the entry signals, and the market logic that underpins it:

·         A limit order can be used to enter at or near the retracement level and when you are expecting the market to bounce from that retracement level.

·         If you require some kind of confirmation before entering the market, a stop order might be a good choice.

·         A market order is suitable when the timing provided by the system is critical.

Two types of orders – entry at open or at close, and entry on stop – appear through out the study of various patterns in this post

Strategies Used in Exit

Money Management Exit

A money management exit is usually implemented using a stop order. Such a stop closes out at a specified price below (if long), or above (if short) the price at which the trade was entered.

Trailing Exits

Typically, a trailing exit is implemented with a so called trailing stop. The purpose behind this type of exit is to look in some of the profits from a trade. As the market moves further in favour of the trade, the trailing stop can be moved up if you are going long – or down, if in a short position – which is why it is called a trailing stop.

Profit Target Exits

A profit target exit is generally implemented with a limit order placed to exit the position when the market has moved by a specified amount in favour of the trade. For example, if a profit target of Rs 1,000 is set on a long trade on the Nifty, a sell at limit order has been placed.

Time Based Exits 

Time-based exits involve getting out of the market on a market order after having held the trade for a fixed period of time, usually at the time of the market close the same day, or on next day’s open, or after two days at the market close, etc.

Finally, all these exit strategies are for you to decide based on your trading patterns. For those who do only intraday trade, some of these strategies might be little tedious to implement as the movement involved with intraday trade is very fast and one needs to take quick decisions based on his or her individual trades. However, even on intraday trade these basics can work out to be the best keeping in mind and applying at the right time.
Talking on a personal level, I myself do intraday trading most of the times and find it little difficult in times especially when the market movement is too fast. At this time based on individual trading experiences applying what suits best for trade is advisable.

Remember, your ultimate goal is to come out as a Winner!

Entries and Exits

In this post we will examine various entry and exit methods used in trading.

Types of Entry Orders

Stop Orders

A stop order is an order to buy or sell a security or script once the price of the security or script reaches a specified price, known as the stop price. When the specified price is reached, the stop order becomes a market order.
a stop order enters a market that is already moving in the direction of the trade. A buy or sell is triggered when the market rises above a buy stop, or falls below a sell stop order.

Importance: A stop order can confirm that the market is moving in a favourable direction at the time of entry. If a particular stop order entry happens to be a good one, movement will cause the trade to quickly become profitable.

A highly unpleasant situation can arise when the entry order gets past the stop and the market then begins to reverse! Because an order is entered on a stop, market entry occurs at a poor price.

Consider another case wherein prices begin to move rapidly in favour of a trade. Buying and selling in to such movement is like jumping on to a fast moving train and is likely to result in large amounts of slippage; the faster the move, the greater the slippage. Slippage is the difference between the price at which the stop is set and the price at which the order is actually filled. Slippage is plainly undesirable as it eats into the profit generated by a trade.

Limit Orders

A limit order is an order to buy or to sell at a specified, or better, price. For a buy limit order to be filled the market must move below the limit price; for a sell order, the market must move above the limit price.

Importance 

The advantage of a limit order is that there is no slippage, and entry takes at a favourable and known price.
Consider this; the market never trades below X-1 points and moves in the desired direction considerably, whereas your limit order to buy is a X points.

Market Orders

A market order is a simple order to buy or sell at the current market price.

Importance

Once placed, a market order is the fastest to get executed. Another advantage is guaranteed execution; after a market order has been placed, entry into the trade will definitely take place.

The problem with the market order is that of possible slippage. However, in contrast to a stop order, slippage can go either way – sometimes in the trade’s favour, sometimes against it, depending on the market movement.

Short – term Price Patterns

Short – term Price Patterns

A short-term price pattern is an analysis of recent price action in terms of:

1.      Previous closes;

2.      Previous opens;

3.      Range size; and

4.      Moves off the open.

Price patterns attempt to qualify market action so as to test for a significant directional movement. Price patterns allow us to take large amounts of information about the market and condense it into workable units. Market action can thus be tested. The tendencies found within the testing period can then be used as a partial basis for taking real action in the market.

Many people reject the notion that market activity is repeatable or ordered, because they feel that patterns occur purely randomly. They believe that present trading conditions are much too unlike anything that happened in the past to make any type of valid comparison. The market has no memory and every situation is unique. There is a fallacy in this way of thinking. Every day and every market situation is indeed unique, however, there are common patterns which may be generalised, just as every person is unique, however, and generalities exist for all human. Everyone may not have the same likes and dislikes, but everyone has likes and dislikes.

Just like everyone has unique brain powers, however, we generalise them as A, A+ & B, B+ etc.
This example can be understood more deeply on my other blog which is all about individual soul, how they are all unique and how they have been provided by unlimited powers, how they can accomplish anything they want in life and how they can create all their dreams into physical reality through proper manifestations of their desires.

If you find this above paragraph interesting then visit the blog www.deep-mindcontrol.blogspot.com  to check it yourself and start applying it to your trading as well... To give you a clue, I do follow the same.
All right, coming back to price patterns again, price patterns evolve through the engine of greed and fear. The crowd’s emotions act in a predictable manner and are captured as chart patterns. This herd behaviour translates into directional movement that, in turn, translates into common, repeated and predictable elements.
Price patterns provide a complete, powerful method to locate opportunity regardless of market conditions. Since markets can not move upward to infinity, or downward below zero, well-marked patterns evolve within each time frame. An intelligent trader needs to recognize the various separate stages of the market’s evolution, learn the well-marked pattern cycle, and develop and discover the hidden language of price patterns.

There is no pattern, relationship, or indicator that will always turn out right. The best we can do is to aim at a high degree of accuracy as a limit. All patterns will have their losing episodes. When these come about, the disciplined trader will take his or her loss in stride and exit the trade. There is, to my mind, no other way to trade if you want to be successful over the long term.

And always remember Murphy’s Law: “Anything that can go wrong will go wrong” 

Our job is to make sure that we get out of the best under both circumstances and come out as a Winner!