Author: Chris Hood
Yesterday was a drill – waiting for the perfect entry.
I must admit, even with my specialized indicators, the market was difficult to read.
Given the recent trends in the market, I knew there would be some reaction to Jerome Powell’s congressional testimony.
Investors really didn’t like what they heard.
The market started falling and just never recovered.
As SPX ground lower, we made a tidy profit on puts in the Trade Command room. However, there were multiple situations where I refrained from entering a trade because one or more conditions weren’t met.
That was the lesson of the day – the importance of confirmation.
Here are the key points.
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When technical traders enter directional positions, they seek a specific entry based on their preferred indicators.
Once the triggers are met, they’ll place the trade.
A fundamental problem in working out your trading approach is how early you get in on the move.
Timing is everything with options. Just a few minutes can mean the difference between making hundreds – even thousands – of dollars.
But there’s a flip side to that.
Those who get in too early often lose the trade.
A head-fake rally that fizzles immediately or a false break-out below support.
In your journey to become a trader, you’ll need to work out for yourself just how much confirmation you’ll need that your signals are correct.
There’s no perfect way.
Balance is necessary.
In the end, the only thing that truly matters is that you’re consistently profitable.
As I’ve said, I tend to err on the side of caution. I prefer to take the entry or exit signal in context and, thus, sometimes miss the early part of the move.
However, my win rate is higher than a more aggressive trader.
It just fits my personality.
One system I employ is allocating capital based on the strength of an entry signal.
For example, I may put a 1/3 position on a risky set-up and use a tight stop loss. If the trade works, then I’ll scale in with the remainder.
Similarly, a moderate set-up would get a 2/3 position and the strongest, my total allocation.
I recognize that not all entry signals are created equal and trade accordingly.
It all comes down to finding out what works best for you.
This method has served me well over the years, and I hope it helps your profits grow.
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