Does timing of entry really matter, or just direction?

The key aspect here is that a trader must be able to predict market directionality across a given time horizon after an entry happens. The quality of an entry can be measured by the maximum favorable excursion (MFE) and maximum adverse excursion (MAE) values at different time horizons. Having a very bad entry means that MAE will be bigger than MFE on average, across all time horizons. Meaning that the expectation to lose is on average bigger than the expectation to profit. If the entry has a favorable average MFE/MAE then it means that the entry is suboptimal, since you need to stay on average a long time on the market before the market evolves in your favor. Being on the market is a dangerous thing as it creates risk exposure and having better entries ensures that you can be inside the market the least possible amount of time for the money you want to make. Maximizing the average MFE/MAE ensures that you will be trading in a much better manner, where your exits have better alignment with your entries.

One of the trading techniques I use involves the use of machine learning to obtain a prediction of MAE and MFE for every potential entry across several time horizons. This allows me to see how good an entry might be and only take it if I can exit a trade within a small time horizon for the money I want to make. There is no reason to hold onto a trade for 8 days to follow a trend with a sub-optimal entry if I can just pin point the place where 80% of the movement within those days will happen with a good accuracy. Of course, the above is much more complicated than I make it seem but the general point is that you should try to increase average MFE/MAE at small time horizons which will increase your overall trading system quality.

A good entry means less risk exposure, less time inside the market.

Nasir,

What you say makes a lot of sense to me.

Overall direction:
Jarratt Davis has helped me to understand FA a lot better. Getting a basic understanding of risk on/off, how to ascertain central banks’ primary agendas, the effect of sentiment, macroeconomics etc, and all of its probable impact on price behavior, is helping my overall analysis.

Previously I used strength indicators as a proxy for FA, to establish overall direction. They would tell me which currencies are strong/weak on the medium to longer timeframes, but not why. Then I would pair strong currencies against weak, and confirm the trends by looking at daily/weekly charts. So in that sense I used TA to gauge probable imminent direction, i.e. by assuming that these trends would stay in place until some kind of economic shift occurs.

However, now that I understand FA a little better, I’m starting to use it as well. I’m learning that the right kind of FA can give the trader insight and a significantly greater conviction about medium to longer term direction. In certain situations it can provide earlier clues about a direction change, whereas TA is always lagging, as it takes time for the trend change to become apparent. But nonetheless, the TA can be useful in confirming that the market agrees with the FA.

Timing of entries:
I see ‘price action’ as a form of TA, as it involves price charts. An understanding of PA/orderflow can help with timing. My basic strategy is to first look for pullbacks in the H4/D1 trends. For me, invariably the biggest problem is trying to guess how far back the pullback will be. Hence it’s important to keep my losses relatively small, as it may take several attempts to find the point where the trend will resume. I’ve been using S/D zones on H1 downward to time my entries and set SLs. So yes, timing comes down to TA; I agree that FA is ineffective here (unless perhaps one is trading news announcements, which I don’t).

One thing I learned a while ago was not to hold onto positions while price is moving against me. I can always exit, and then re-enter, when price is moving favorably once again, at the cost of only the spread.

Profit exits:
Rightly or wrongly, I assume that the trend will remain in place until the fundamental drivers change. I try to remain disciplined enough to ride the trend; if I lose my nerve and exit, then I look for a place to get back in again.


Of course that's merely my current approach, and there are a million other potential strategies. I mention it because it fits in with what you were saying: FA for direction, and TA for timing.

I’m still very new to FA, and also feeling my way where S/D is concerned. Hence I’m starting over as something of a complete newbie. I gave up on FX a while ago, but the possibility of understanding and using FA has persuaded me to give it another try. For me, the most important thing is having conviction about taking and holding trades, and I believe that the right kind of understanding of FA can help significantly with that.

Good luck, my friend, may the pips be with you.

David

Fallacy. You have probably failed to take into account that time can't go backward.

timing matters greatly. Use the moon phases and gann daily swings.

I came to the conclusion a few years ago now that for me, the biggest edge I could possibly generate in this game is reading fundamental biases and trading consistently in that direction. In my opinion most people overthink FA - they try to be too fancy, too clever, when it's actually quite straightforward. GDP expands --- more people working --- higher demand for goods and services --- monetary policy must tighten to control inflation. GDP contracts --- people out of work --- policy loosens to stimulate growth again. That's pretty much all you need to know - watch those 3 indicators for a while, learn how they affect each other, learn how central banks respond to them to achieve their objectives, and forget everything else. When it 'clicks' into place you just need a VERY basic TA method which lets you build positions in that direction.

I follow Jarratt Davis too - his top level approach to FA mirrors what I have been trying to do for a long time. He explains it very clearly and I have learned a lot from him, but don't take his word for gospel - he is human like the rest of us, sometimes he is right and sometimes he is wrong. He may be an excellent trader and great teacher, and Barclay's hedge fund index has handed him an incredibly powerful marketing tool, but when all is said and done he is just another forex 'guru' luring people toward his paid private service. Everyone has an agenda, don't lose sight of that.


Happy holidays and good trading for 2015

Good points, many thanks for your wise words of caution.

Growth --> Employment --> Inflation --> Interest rates --> Appreciation of currency

QE is of course another potential game changer.

Rest assured that I don't put any trader or educator on a pedestal. Nobody is right about everything. Hence I see education as a process of acquiring knowledge from a variety of (preferably conflicting) sources, and then proving (or disproving) ideas and theories to my own satisfaction. I tend to take what I can and move on, believing that it's not the educator's responsibility to teach me how to put all of the pieces together profitably; that's something I must do for myself.

FWIW, Jarratt has simplified the process of understanding fundamentals for me, and I'm grateful for that.

I'm immediately suspicious as to why any trader/manager raking in a 7-figure income for himself would bother selling education at 3k a head. I'm constantly labelled negative (especially by the "$500 to a million in 3 months using a grid/martingale" crowd), but I believe that maintaining a default view of skepticism has saved me a lot of money, especially where vendors are concerned. Caveat emptor!

Happy holidays to you also. I appreciate your comments and your friendship.

Much respect,
David

Absolutely agree with this!

If you track the macro well then you pick up your entries while the price driver is in play(as your chart indicates, nicely done too).
Obviously, if you're terrible at sentiment and orderflow trading then you must stand out wider and go lighter in position sizing to balance out your weak entries.

We are blessed right now to be given excellent FX macro trades as the USD diverges from the other majors. It's pretty much a one sided affair.
If you work the bigger macro flows and stand aside when its washed then you'll find you can do fairly well regardless of entries.

My working base is always macro/fundamental. What is 'on' right now?
I'll then use sentiment and orderflow to see if i can pinch a discount on macro flow(the thing that's 'on' right now).

You can sprinkle plenty of salt and pepper on, but you need the macro/fundamental to work off.
Macro flow is institutional money at work.
Rgds

I like this idea! I'm very busy with my job so I like to trade longer term, definitely going to give this some thought.

I'd have to say that timing is indeed everything in forex. Although the definition of "Timing" can be objective, the reality is "TIME" IN RELATION to the change in price (we call a breakout) is one of the key factors in the positions we take. With that said timing is important, if not the most important factor in forex. Think about this. How many people trade say the 1hr chart, and how many people actually take a position once a new 1hr candle has opened, or better yet CLOSE a position once a 1hr candle has opened? Many people use the higher TF, and simply ignore the timing of the trade which they take. If you trade the h4, their is no reason to open or close a position before that candle closing. Thus making TIMING, utterly important in forex. Missing the timing will ultimately lead to bias positions, which of course will end up in margin call. Those of you who say that timing is not important, I please ask you to reevaluate your opinion.

Control is everything, an entry is a gigantic part of a trading system.

If you enter at a time that your trade will perhaps have a 80% probability of going positive for minimum of "X" pips within a minute..
include on top of the above that at your entry time you ALSO have a method to reduce the chance of a drawback happening by 80%

What does this say??
entry timing can assist you in securing your trade as soon as possible & provides a more advantageous trade with more control over the many variables in trading

entry timing is part of your trading, you can not ignore this

A lot of people are wrong here, I see so much bogus but i don't want to focus on telling everyone on what they're saying is right or wrong, what I tell you is the truth when saying entry timing is important

of course timing of entry matters. Getting the direction right is only the part of having an winning (quality) trade. Don't take it wrong, you can still have a winning trade if you gotten the direction correct, but the quality of the trade won't be a good. Timing of entry dictates the size(lots) of your trade using an risk/reward ration based on pips from your stop. Example, your timing of entry risk 30pips from stop loss, limit @ 150 pips from entry, R/R 5:1. Assuming your risk if 1% for that trade, reward is 5% gain to 1% loss. If you only have the direction, it doesn't determine your risk, how many pips from stop loss??? Limit from entry ????. The larger your stop in pips, the lower your R/R ratio will be, meaning the quality of your trade goes down. So yes, Timing is very important.

A matter of perspective.

Daily EU

(then)





(Now)





So doesn't it depend on how you trade and the style you have adopted?

Choose 1 of the following:

(hint: there are 2 right answers)

a. Right on price, wrong on direction (no loss or small win)
b. Wrong on price, right on a direction (loss)
c. Right on price, right on direction (win)
d. Wrong on price, wrong on direction (loss)

That kind of sums up the stats in a way, 25% winners, 25% breakeven, 50% losers.

+1
what he said

profit / loss comes from direction, the size of that p/l comes from timing.

in range market where 1 price visited again and again, direction is not that important because you have both ways

What a great thread!!

Timing ....


well u might be right with the direction , but the timing is slightly off... then its all about risk ie... how long can u withstand the heat ?
before u puke ?

if over a quite big sample of entries u notice that u get the direction 80 % right and sometimes the timing perfect too..

but u let yourself shakeout.. well then the main reason u get shakenout is..


a too big position !!! .. decrease your damn position.....

result is .. u get the direction right most of the time hence u should be fine...

but but but.. i will make less amount of money! yeah.. well without money u wont make money!

jeez... it takes time if u play with cents... but eventually u will have the position size to make it worthwhile..

anything else is gambling (with your emotions and money).. and most of us know the road down that path... dont get caught up in that, or it will take u even longer till u a free

timing matters.

timing "doesnt mather" , but it makes things alot easier (managing)

i mean .. timing an entry intradaywise.. 100 pips off! well u get fucked up...

but u should withstand 25-30 pips ... against your position.. and even then price may fiddle arround your entry -10 pips for quite some time..
but as long as we dont have a different picture , before you enterd the market .. then by all means u should stay in... or u might make things worse...

if you are wrong u should get out! ... if u cant take the heat stay out of the kitchen!