What is a good entry? | Forex Factory

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What is a good entry?

  • #1
  • First Post: Oct 30, 2013 6:59am Oct 30, 2013 6:59am
Here is how I define it:

A good entry allows you to get out at break-even when you are wrong about the immediate direction of the trade.

*immediate: depends on what time frame you are trading on, but I would say within the next 5-7 candles.

How would you define a good entry?
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  • #2
  • Oct 30, 2013 7:20am Oct 30, 2013 7:20am
More interesting: How do you define good exit?

Quote
A good entry allows you to get out at break-even when you are wrong about the immediate direction of the trade.

So how is that supposed to work? Do you have negative spread?
  • #3
  • Oct 30, 2013 7:31am Oct 30, 2013 7:31am
my entry is exactly that,if my timing is perfect then my ideal entry will have no drawdown apart from the opening spread,the momentum would immediately take me positive .allowing a b/e trade if the lead candle does not come.my maximum risk is always 7.5 pips but my exit is unless trapped 4 pips,2 pips for drift and the spread.the remaining 3.5 pips are only used if my entry is imperfect and im in late.once price breaks any of these conditions my trade is not valid and im wrong.
  • #4
  • Oct 30, 2013 7:33am Oct 30, 2013 7:33am
A good entry is where you put in a position and the market doesn't come back to question that position for a very long time (days or even weeks).

A good exit is one that uses a hedge position to expand your hedge and put your equity further inprofit without rducing your balance.
You win, you lose. All else is history. The future does not exist.
  • #5
  • Oct 30, 2013 7:42am Oct 30, 2013 7:42am
Quoting Kilian19
More interesting: How do you define good exit? {quote} So how is that supposed to work? Do you have negative spread?
Coming from the perspective where, as long as you take care of the losses, the profits will take care of themselves.

I think fading moves is the closest you can get to trading like an institution. And I don't mean just fade any move without prior research - fade the moves according to the context, or more specifically fade the counter-trend moves (which depends on what time frame you are trading on).

If you are talking about protective exits, personally I believe that once price moves beyond your entry and closes beyond it by say a significant amount of pips (I would say 8-10 for 5 min charts, and extrapolate out for larger time frames), you should immediately set your TP to break-even because the market just proved your entry wrong. And if you entry was indeed a good entry, getting out at breakeven should NOT be an issue.

When it comes to profit-taking exits, I am looking at fib extensions for targets, but basically some simple EW analysis can get you your targets and they work pretty well in impulsive moves.
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  • #6
  • Oct 30, 2013 7:44am Oct 30, 2013 7:44am
Quoting The Rhodie
A good entry is where you put in a position and the market doesn't come back to question that position for a very long time (days or even weeks). A good exit is one that uses a hedge position to expand your hedge and put your equity further inprofit without rducing your balance.
I think that's a PERFECT entry - those happen but are really rare to come by. But yes, I agree with your general premise for a good entry.

Your idea for good exit makes no sense though. You should get out and reduce your delta(exposure). Hedging just gives your Broker profit.
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  • #7
  • Oct 30, 2013 7:49am Oct 30, 2013 7:49am
Quoting diceman555
my entry is exactly that,if my timing is perfect then my ideal entry will have no drawdown apart from the opening spread,the momentum would immediately take me positive .allowing a b/e trade if the lead candle does not come.my maximum risk is always 7.5 pips but my exit is unless trapped 4 pips,2 pips for drift and the spread.the remaining 3.5 pips are only used if my entry is imperfect and im in late.once price breaks any of these conditions my trade is not valid and im wrong.
Depends on how you look at it, I think our trading methods/ styles are different but our premises are similar. You are more of a momentum trader whereas I focus on exhaustion type of moves to get into the market.

Another caveat: Getting into a good entry should be frustrating most of the times because you will see price approach your entry numerous times and then fail somewhere around it, look like it is turning BUT then eventually hit your entry. Once you sense that frustration and impatience coming in, you are on your way to getting a good entry.
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  • #8
  • Oct 30, 2013 7:59am Oct 30, 2013 7:59am
For example a recent entry on GBP/USD:

Attached Image (click to enlarge)
Click to Enlarge Name: GBPUSD.png Size: 38 KB


I would consider this a good entry because if price moves beyond my entry and proves me wrong, I can very likely get out at breakeven.

Attached Image (click to enlarge)
Click to Enlarge Name: GBPUSD1.png Size: 46 KB
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  • #9
  • Oct 30, 2013 8:02am Oct 30, 2013 8:02am
Quote
What is a good entry?
..is when for some given SL and TP you have positive expectancy.

Quote
How do you define good exit?
You have already paid spread+commission so a good (or perfect) exit is where none of possible R:R trades opened at that price have positive expectancy. .. more humble approach: a good exit is when at least one opposite side setup with given SL and TP have positive expectancy.
  • #10
  • Oct 30, 2013 8:05am Oct 30, 2013 8:05am
In my opinion, a mediocre entry allows you to get out at breakeven. Of course, we always prefer a breakeven trade to a losing trade, but the way most traders view breakeven trading isn't beneficial to their accounts - it's harmful. Allow me to explain using the following situations:

1. The trade initially goes in your favor. A trader enters the market following his/her system rules. Price moves in our favor... look at those profits! At this point, we think it's a great idea (for some reason that will never make sense to me) to "secure" our risk by moving to B/E. The trade suddenly reverses, hits our breakeven, we get out risk free, and the market again reverses, this time continuing up in our favor.

2. The trade initially goes against you. This move is generally taken by novice traders and is never logical. In this instance, we move our take profit to breakeven because we have lost faith in our entry but still keep our stop-loss in place. We hope the trade at least goes high enough to hit breakeven. During the times when price does in fact hit our b/e take profit, we are relieved... until we see price continue trading in the direction that we guessed it would travel. Then we feel cheated. This situation only is a product of what I have written in bold below.

The B/E move doesn't make sense, because it's an attempt to compensate for a lack of self-confidence in our system or the lack of a successful system. If you have a strategy that you know has a statistical edge, you should be placing only a stop loss and a take profit as your strategy dictates. The alternative to that is using a system in which trades will never turn against all the way to our entry.

So, a good entry for me is one that has a high probability of a) not going against me and b) reversing on me all the way to breakeven. When price does go up a bit and then falls back down to my entry, I do not bail. I wait, because I know price will likely go where I think it will go. My stop loss invalidates my setup, not my entry into the market.

A good exit for me is the place where I think price will go. Once it's there, it's there. If the market presents signs that tell me it's time to get out earlier than my original exit, I get out.

Hope this makes sense!
  • #11
  • Oct 30, 2013 8:34am Oct 30, 2013 8:34am
Quoting GuidetoForex
In my opinion, a mediocre entry allows you to get out at breakeven. Of course, we always prefer a breakeven trade to a losing trade, but the way most traders view breakeven trading isn't beneficial to their accounts - it's harmful. Allow me to explain using the following situations: 1. The trade initially goes in your favor. A trader enters the market following his/her system rules. Price moves in our favor... look at those profits! At this point, we think it's a great idea (for some reason that will never make sense to me) to \"secure\" our risk...
I agree with your first example. Moving your stop to BE is never a good idea if you have a good entry. Price can easily test your entry a first times before actually heading down.

However, I think for the second point it really depends. You are assuming that we have a fixed SL:TP ratio, but what if the strategy is have a extreme stop at 40 pips or whatever amount is commensurate to the time frame you are trading (for sudden news related spikes) for instance and attempt to close out as many trades as possible at breakeven? This method might work better might it not? If only 5% of the trades go on to hit your extreme stop and 95% of the top you close out at breakeven, v.s. getting stopped out at 20 pips all the time when you are wrong. But ofcourse, depends on how much of an edge you have. If you can't get that good entry, all this talk is FLUFF.
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  • #12
  • Oct 30, 2013 8:37am Oct 30, 2013 8:37am
Good entries are those that do not end up in SL.
  • #13
  • Oct 30, 2013 8:55am Oct 30, 2013 8:55am
Quoting GuidetoForex
In my opinion, a mediocre entry allows you to get out at breakeven. Of course, we always prefer a breakeven trade to a losing trade, but the way most traders view breakeven trading isn't beneficial to their accounts - it's harmful. Allow me to explain using the following situations: 1. The trade initially goes in your favor. A trader enters the market following his/her system rules. Price moves in our favor... look at those profits! At this point, we think it's a great idea (for some reason that will never make sense to me) to \"secure\" our risk...
this makes perfect sense,but here lies the problem

your method of trading or system is yours and you know the boundaries of that method,but many method are very different.if i applied your logic (which is sound) to my developed method it would have disastrous effect,my positive outcome would turn to negative outcome over time.you see this trading is fickle ,thats why its so difficult to develop a positive trading method/system.just a minor adjustment or a needed minor adjustment is the difference between success and failure.
  • #14
  • Oct 30, 2013 9:10am Oct 30, 2013 9:10am
Quoting diceman555
{quote} this makes perfect sense,but here lies the problem your method of trading or system is yours and you know the boundaries of that method,but many method are very different.if i applied your logic (which is sound) to my developed method it would have disastrous effect,my positive outcome would turn to negative outcome over time.you see this trading is fickle ,thats why its so difficult to develop a positive trading method/system.just a minor adjustment or a needed minor adjustment is the difference between success and failure.
Yes! Fully agree with you.

It's easy to fall into the trap of "I'm going to let this run because even though it moved against me by X pips it didn't hit my stop-loss so I still may be right."

As a general rule of thumb, that kind of thinking doesn't work! The key is to find out what X is and close these trades at break-even and find another better entry later.

What I am saying is, there is likely to be this critical number (threshold) that separates a winning trade from a losing trade. Instead of putting stops there, consider changing TP to breakeven once this threshold is breached because more often than not, if your entry was good, it will hit break-even!
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  • #15
  • Oct 30, 2013 9:33am Oct 30, 2013 9:33am
Quoting shellsnail
{quote} Yes! Fully agree with you. It's easy to fall into the trap of \"I'm going to let this run because even though it moved against me by X pips it didn't hit my stop-loss so I still may be right.\" As a general rule of thumb, that kind of thinking doesn't work! The key is to find out what X is and close these trades at break-even and find another better entry later. What I am saying is, there is likely to be this critical number (threshold) that separates a winning trade from a losing trade. Instead of putting stops there, consider changing...
the thing is,lots of things make sense and can be applied with enhanced results.but if you develop a method of trading its unique ,you are aware of what elements can be enhanced to improve it further,you know the elements that cannot be changed.

this is the problem with taking a system from the trading systems section,quite clearly some are having long term positive outcome.but try and replicate there rules and your results more often than not are long term negative.it is often a very small piece of detail which has not been shown or in som cases the originator is unaware of it,but applies it naturally .

entry for some method are secondary to its overall success, whilst other method the entry is the key to its success,now put that into the pot with the money management and averaged RR ratio.its a complex set of elements that make up a positive outcome method.disturb 1 element and it fails,as i say fickle.

the entry of the algo and its speed are its key
  • #16
  • Oct 30, 2013 11:09am Oct 30, 2013 11:09am
Quoting GuidetoForex
we move our take profit to breakeven because we have lost faith in our entry but still keep our stop-loss in place. We hope the trade at least goes high enough to hit breakeven.... My stop loss invalidates my setup, not my entry into the market.
I fully agree with this couple of sentences. Traders who move SL to BE when price move a bit in their favor are not confident with their set up, stop loss placement and risk management in the first place.

Back to TS question. What is a good entry?

IMO you define a bias, whether you think price will fall or rally.

Then you look at possible area that when price hits it, it will change your bias, ie the level which if you took a trade you would put ur stop loss at.

With that level in mind, you wait for price to get as close as possible or when price is within the stop loss range your are comfortable with, say 20 pips, before you make your entry with the lots size which you are comfortable losing.
  • #17
  • Oct 30, 2013 11:14am Oct 30, 2013 11:14am
It looks like there is some hard hurdle that block people from understanding something important: BREAKEVER IS A LOSER!

None of this is about thinking, believing or agreeing. It's just maths. It's not by gathering enough people to agree that 1+1=3 that it will happen.

Let's take this example:
Quoting shellsnail
Instead of putting stops there, consider changing TP to breakeven once this threshold is breached because more often than not, if your entry was good, it will hit break-even!
In this scenario either I take a loss or I make no profit. How can this be profitable long term?
Taking a risk for no profit has a R:R of zero. The expectancy of the subset of those trades are E = winrate(R+1)-1 = winrate-1. You winrate is less than 100% therefore the expectancy of this subset of trades is negative. They MUST be eliminated from your plan! As simple as that.

When you set a SL on your trade you do it for a market reason. It can be support/resistance or volatility or stat. arb; it is driven by the market, following your rules, according to your experience and backtests. When you set the SL to BE you do it for a personal reasons. Market-wise your SL has nothing to do here. When it gets hit it doesn't prove your plan or your timing wrong.

I agree with what GuidetoForex wrote. Not at all for the psychological reasons but based on factual elements.

To tamper with the SL, adding on a loser or on a winner or partially closing either on a winner or on a loser almost never improve a system. In the few cases it does, the system is usually a loser that the improvement only turn into a slightly less losing system. Only very few winning systems will really be improved by this kind of practice. You have to seriously statistically test yours. Don't believe me! Do search and read my pdf instead. It is just maths. No wishful thinking.

As diceman555 said changing almost nothing to a system can wipe its edge.

To me a good entry is an entry which maximizes my expectancy and limits my DD. It is absolutely not related to the outcome of this very trade or the time it takes to relieve me on the green side.
No greed. No fear. Just maths.
  • #18
  • Oct 30, 2013 11:26am Oct 30, 2013 11:26am
Quoting PipMeUp
It's just maths. based on factual elements.
Yes... I think these are really the very basic things that every traders should understand.. Another one is scaling out of position Vs taking TP with all your lots size.. which is better. A homework for everyone
  • #19
  • Oct 30, 2013 2:12pm Oct 30, 2013 2:12pm
Quoting shellsnail
Here is how I define it: A good entry allows you to get out at break-even when you are wrong about the immediate direction of the trade. *immediate: depends on what time frame you are trading on, but I would say within the next 5-7 candles. How would you define a good entry?
Quoting shellsnail
For example a recent entry on GBP/USD: {image} I would consider this a good entry because if price moves beyond my entry and proves me wrong, I can very likely get out at breakeven. {image}
What if the market blasted through right after you entered, not allowing you to get anything close to BE on the trade and hitting your SL right away. Would that still have been a good entry?

If so, then the criteria you listed are incorrect as evidently an entry which afforded you zero change of BE was still a good entry.
If not, then how can you even apply that criteria when entering a trade in the present, since whether it's a good entry or not is wholly dependent on the future?
  • #20
  • Oct 30, 2013 3:27pm Oct 30, 2013 3:27pm
Quoting PipMeUp
It looks like there is some hard hurdle that block people from understanding something important: BREAKEVER IS A LOSER! None of this is about thinking, believing or agreeing. It's just maths. It's not by gathering enough people to agree that 1+1=3 that it will happen. Let's take this example: {quote} In this scenario either I take a loss or I make no profit. How can this be profitable long term? Taking a risk for no profit has a R:R of zero. The expectancy of the subset of those trades are E = winrate(R+1)-1 = winrate-1. You winrate is less than...
Excellent post PipMeUP

+1 to "To me a good entry is an entry which maximizes my expectancy and limits my DD."

That's the stuff beautiful smooth ascending equity curves are made of.
"To hold, you must first open your hand. Let go." - Lao Tzu
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