Nothing annoys me more than a good trade which was not entered due to hesitation.
So let me show you a good trade setup which I missed last night and share a little strategy that I SHOULD have used to help me pull the trigger.
I generally don’t like to use the word should, as it’s always easy to see in hindsight, but hesitation at entry is one of my ongoing problems. I’m well aware of it and well aware of what I need to do to manage it. This time, I fell into my old ‘lack of focus’ habit and missed a great opportunity.
The following chart is the British Pound fx currency futures (6B), 1 minute chart, from Jan 5th 2010. Spot forex traders should refer to GBP/USD if you wish to look at it on your own platform.
Point A occurred at 23:20 local time (08:20 ET, 13:20 GMT). Price rallied on reduced momentum into an area of overhead resistance. My analysis had identified this as a good area of opportunity for a counter-trend entry.
Candle A was the first to breach the area, although closed just short of my lower resistance zone boundary. I was anticipating a push a little higher intending to enter at about the midpoint of the zone in the vicinity of 1.6045. I watched the next three minutes continue to hold at the lower boundary of my resistance zone, waiting and waiting for that little push higher.
Of course, the push higher didn’t come and a rapid drop left me sitting on the sidelines angry at my poor performance.
What should I have done?
The best way to manage this that I’ve found is to simply get some orders into the system as soon as price gets to the setup zone.
I liked the setup in this example. I was confident that supply would once again overcome demand in this area and drive price lower. So the way I should have managed this was through bracketing price with both a limit order at 1.6045 and a stop entry order at 1.6035 as shown below.
The stop entry order would have been positioned to trigger on the break of the low of candle A, which first breached the resistance zone.
By doing this, I still allowed myself the opportunity to enter at the better price of 1.6045, but also ensured that I would still be in the trade at 1.6035 if price did not make it to my preferred level.
As one of the entries filled, I would have simply cancelled the other.
Of course, you must be happy with the stop entry price. In this case, it satisfied my risk:reward requirements (just), so I would have been happy with a 1.6035 entry.
So that’s the general concept… just get some trades onto the system. I’m not 100% committing to them. If price action then invalidates my trade premise I’ll cancel the orders. If price action leads to a better entry option, then I’ll move the orders. But the hardest part for me is just getting something onto the system, so I get that out of the way early.
Price is not always bracketed either, with the actual plan being adjusted as price action dictates. Sometimes I’ll just place a limit order; sometimes just a stop entry order. But I always aim to get something onto the system.
If unsure, I’ll place orders well away from the setup area where I’m sure it won’t inadvertently trigger. On the above chart, for example, I might simply place a limit order well above the resistance zone upper boundary, perhaps around 1.6060. With the hard part (order placement) now out of the way, and increased focus due to having a working order in the system, I now monitor price flow and adjust the entry order as necessary, either moving it closer to price if the setup is validated, or cancelling it if price fails to act in accordance with my expectations.
Of course, with only placing a limit entry order I’ll still miss some trades. But at least with the order in the system I’ll hopefully not be hesitating so much and can work that entry order closer to price, as price action unfolds.
For those of you who use clearly defined entry triggers rather than discretionary entries, this plan may still prove workable with some minor variation.
It doesn’t matter what trigger you use – a MA crossover, a pattern breakout, or whatever – if your suffer from hesitation once your trigger displays then try getting an order onto the system earlier as you see the trigger approaching. Then just move it to the correct point as the trigger occurs. Like me, you might find it psychologically easier to move an existing working order, than in placing an initial entry order.
As always, play around with this on a demo platform first to see if it’s something that works for you.
And please consider the risk of any additional working orders you may place in the system. Failure to cancel excess working orders may result in inadvertent fills – so maintain awareness of your current orders and do not exit your platform without first confirming they’re all gone. And have a plan for platform or internet failure. I always ensure that every working entry order has an attached stop loss order. At the very least though, have your broker’s phone number available for immediate assistance.