The Importance Of Proper Trade Entry When Using Price Action Entry Rules
The more I teach new traders, the more I find out that they don’t always follow the rules exactly like we teach them. Before I say anything else, let me clarify that we have already experimented and tested our strategies very extensively. So much testing that we have it perfected and down to a science, and just the slightest tweak, particularly when entering a new trade, can often change your success rate completely. I can not stress enough to you the importance of proper trade entry when using price action entry rules. We teach a very specific way to enter, following a very specific set of steps or rules, and they can not be altered.
I was actually surprised recently when a trader contacted me and told me he was following the rules and price action trading strategies exactly like we teach them, yet he could not even make a single winning trade. He claimed that every trade he took, trading exactly like we teach, all failed on him. He wanted to know if he was just that bad of a trader, or if maybe he was missing something completely? As I normally will do, I asked him to mark a few trades on his chart and send it to me so that I could see exactly where he was going wrong. What I saw immediately upon receiving his chart was that he was actually doing a very good job of picking out the trade entries. So well in fact, that he should have indeed been making money at this point, but not only was he not making money, he was not even making any winning trades at all. Every trade he took was a loser. In the end, I found that many other traders were doing this very same thing.
This turned out to be a real eye opener for me, because it alerted me to an issue that didn’t really occur to me yet. If someone tells you that they are doing everything exactly like you teach, then you assume that they are doing just that, but I’m finding this is normally not the case in reality. In almost every instance, traders are changing very small steps or details in the strategy, starting with the entry and the stop placement. Both are critical to success, so there is no need to monkey with them or try and tweak them in any way. By doing so, you will change the complete dynamics of why these trades are working and what they are designed to accomplish. We have this down to a science, so trust the trades and the techniques and use them exactly the way we teach them and you will be that much closer to success.
Hopefully it is abundantly clear now that following the rules is essential to success, but now lets talk about price action entry rules. There is a process that we follow whenever we enter a new trade. First, we are waiting on a set up to form at particular places on our chart, and we call these places “key entry points.” Once we see a set up at a key entry point, there will be a single candle that we use that will signal us that it is time to place an entry stop that could trigger our entry into the market. We call this bar our signal bar, and it is normally a trend or reversal bar that forms at our key entry point. Once this bar forms, we then will use a break of this bar to trigger our trade entry. The first rule is we don’t enter the trade until the signal bar closes, because if you try and sneak in early, you will often be fooled and the bar will change just before it closes. This happens often enough that I can tell you without hesitation that you can not try to guess how a bar will close. You must wait on it to close first so that you get confirmation that it is the correct bar and is indeed a signal bar.
Once the signal bar closes, the next step is that your entry stop order must go one tick above or below that signal bar. If you are going long, your entry order goes one tick above the signal bar, and if you are going short, your entry order goes one tick below the signal bar. What the previous mentioned trader was doing was placing his entry order much further away than a single tick. He assumed that by waiting for more confirmation such as another trend bar in the direction of entry, he was going to have more success. In reality, had he entered properly following the rules, almost all of his trades would have been winners, and by changing the rule and entering too late, he was entering where the smart traders were exiting, so he was in essence entering after the move was ending. This is common for many traders, but it is the kiss of death with our price action scalping methods.
Another important point about the entry order is that the push past the signal bar is what triggers the order and thus triggers the trade. If for some reason prices don’t push past the end of that bar, your trade will not trigger, so the push past is also very important. If the trade never triggers and prices turn and go back in the opposite direction, then that is important. That might signal that the price action has changed, but it most certainly means that something is different and this entry might no longer be a valid set up any longer. So, as you can see, that single tick past the end of the signal bar is also very important to our trade, so again, don’t try to enter early. Just be certain that you don’t enter late like this trader was doing. While you might get away with both an early entry and a late entry on occasion, in the long run, you will most certainly not achieve the type of success that we are having with our trading strategies.
I’m going to include and attach a video just below that will show you this in a bit more detail. Make sure you view the video, as it may clear up any questions that you might have had after reading the article. If you don’t get anything else out of this information, make sure that you understand the importance of proper trade entry when using price action entry rules. If you are interested in learning more about how we trade with price action, you can find our price action trading manual at http://priceactiontradingsystem.com/pats-price-action-trading-manual.