Monthly Archives: March 2014

Trade Management is More Important than Trade Entry

Over a series of trades your trade management decisions will have greater impact upon your P&L than will your entry.

Almost daily I get emails asking why a certain trade didn’t work. Almost every time, the trader is missing the point. Trades don’t always work. Our profit and loss comes not from any one particular trade, but rather from a series of trades. If you find yourself in a trade which is not working, reduce risk or exit entirely and reassess. Use your trade management skills to minimise the loss. And work to ensure that OVER TIME your combination of win% and win/loss size ratio produces profits.

Let’s look at a trade:

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Structural Entries Allow For Imperfection

If a trade is scratched or stopped out and the premise remains valid, you should consider re-entry.

Of course, that’s easier said than done.

You’ve just taken a loss. It’s hard to get back in and risk further funds.

But here’s the thing…

Given the uncertainty of price movement, it’s unreasonable to expect that you’ll get a perfect entry every time.

Often you’ve got to work that entry.

Scale out! Scale back in!

Stop out! Re-enter!

We’ve talked about re-entry a few times in the past.

See here in particular (and all the other articles that this one links to) – http://www.yourtradingcoach.com/trading-process-and-strategy/The-Psychology-of-Re-Entry/

And here – http://www.yourtradingcoach.com/trading-process-and-strategy/Would-Re-Entry-Improve-Your-Edge/

In the first article we linked to above, it was stated that the ability to re-enter stopped out trades is ONLY possible when you have:

  1. a positive expectancy strategy,
  2. belief in the strategy,
  3. appropriate skill for trading the strategy,
  4. belief in your ability to trade the strategy,
  5. loss is small enough to not cause any concern,
  6. loss is pre-accepted, and
  7. you have truly understood and accepted the longer-term nature of this game (profiting over a series of trades rather than each individual trade).


I’d like to suggest one additional factor that can significantly add to your confidence in re-entering a trade.

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The Psychology of Re-Entry

Here's some great email Q&A:

Question:

I had a question around re entry, staying alert and the psychology around it.

How does one stay mentally alert and focused when stalking for re-entry opportunities when: say the 1st entry resulted in a 1:1 for the 1st contract and a break even stop for the 2nd?

Also, in the above scenario, since some money was made (albeit small), the fear of re-entry causing both contracts to be stopped out and hence a net loss is also very real.

Reply:

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