Day Trading Second Entries
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If you are not already familiar with day trading second entries, you are missing out on some of the best entry opportunities available in trading. Second entries are an important part of price action trading, and they work in any market and on all time frames. I prefer trading tick or volume charts, and these entries work on them just as well they do on any time based chart. You should look for second entries on daily, weekly and monthly charts as well, because you can find them there too.
If you do not already know what a second entry is, then you are probably scratching your head and wondering exactly what I am talking about. Before attempting to describe a second entry, I will discuss some of the theory behind why they tend to work so well. If you have been trading for any length of time, then you are probably already aware of the fact that the market tends to move in pairs. In other words, prices will make one leg, then have a pull back, and normally make a second leg that is somewhat equal in length as the first leg.
These moves in “two’s” happen over and over all day long and on different time levels. If you need proof, just go study a few charts in depth, and I think you will then agree with me that the market does indeed move in two’s over and over. Now that you know and understand that this is a natural part of any price movements in the markets, the next thing you should understand is that whenever the market tries to do something twice and then fails, it is likely to move strongly in the other direction. This is what makes second entry opportunities work so well in my opinion.
Describing a second entry is not easy, but I am going to try and put it in very simple terms so that you can grasp this entry technique. When trading second entries, you are looking to take them “with trend,” or at major turning points. There are actually many other clues that you must also look for when trading turning points in the markets, and that would take far too much room for one article, so for now, we will concentrate on taking only with-trend second entry opportunities. After all, it is the traders that are fishing for tops and bottoms that actually contribute to what makes these entries work so well.
If the market is trending upwards, every time a new high is created, even if only by one tick, then the count must start over. Let us assume that prices just made a new high, and now they are pulling back with several bars that are making lower highs and lower lows. At some point, the pullback will stall, and you will have a bar that will tick higher than the previous bar, so this is the first attempt for prices to start back with the original upward trend. This is your first entry or the first time that prices moved higher after the start of the pull back. Prices could rocket on from here and continue the original trend, but if they fail to make a new high, and then pull back again and start making lower lows and lower highs, we would then start watching for a second entry, or a second chance for the trend to start moving upwards again.
If the second pull back stalls as well, and prices are able to again tick one tick higher than the previous bar, then that constitutes the second entry, or a second chance to get back on board with the upward trend. This really is all there is to a second entry, but they work extremely well for a couple of reasons. First of all, if you get a second entry long, that means that the market obviously tried to go down twice and failed, so the odds are in your favor that prices will now succeed in going in the other direction. You are probably very familiar with double bottoms and double tops, and that is why they tend to work so well, and this is a similar type entry, with the exception that the two pull backs do not have to necessarily form a double bottom or double top. Secondly, when the market starts a second pull back, many traders are assuming that the upward trend is ending, and they are adding shorts, looking to try and catch a top. When their short entries quickly fail, and the market starts back with the up trend, then these traders are trapped on the wrong side of the trade, and they quickly start buying to cover their shorts and limit their losses, and this short covering gives the market extra fuel and pushes it even further to the long side.
Most trends will go further than you will ever expect, so trying to pick tops and bottoms is a very risky trade, and that is why second entries work so well. Too many gamblers are trying to pick a top or bottom, justifying it with the fact that they can get out with only a small loss if they are wrong. By staying with the trend, you will be taking their free gifts and adding them to your trading account. One of the best places to find second entries is on a pull back that stalls near a 21 bar EMA. I normally trade a 2000 tick chart, and one of the few things you will find on my chart is a 21 bar EMA, and that is where most of the best second entries usually form on my trading chart.
The most important part of the count when looking for second entries is to remember that you start the count over on every new high in an up trend, and every new low in a down trend. You must always start the count over, even if the new high was only by a tick or two. If you are trading a downtrend, just reverse the process as I described it above for second entry longs. I normally place an entry stop order one tick above or below each bar once I start looking for a second entry. If the trend is up, I prefer to see a completed bullish bar before placing my entry order as well. If prices do not tick up and stop me in by the completion of the next bar, I just move the stop down above it and I keep doing this until I am stopped into the market, or until I feel the market may have gone too far.
Get out your favorite trading charts and study them closely. Mark the second entries and learn to spot them on your charts. Once you get an eye for what they look like after-the-fact, then you can start to watch for them in real time. By day trading second entries, you will give yourself a slight edge over most other traders. I actually speak to many long-term traders that often do not know or understand what a second entry is and why they tend to work so well. Go study some charts today and learn this technique so that you can add it to your trading arsenal.
Comments
AlanM April 16, 2015 at
Hi Mack. Not sure whether you are still monitoring these earlier posts, but I have a question about something you said in the second to last paragraph. You said, “If the trend is up, I prefer to see a completed bullish bar before placing my entry order as well. If prices do not tick up and stop me in the completion of the bar, I just move the stop down above it and I keep doing this until stopped into the market….”.
You say that you “prefer” to see a completed bullish bar before placing the stop entry. Does that mean that if the bar is a bear bar, you avoid placing the stop above this bear bar? Or does the use of the word “prefer” mean that you will still place the stop entry above a bear bar but prefer that it would have been a bull bar?
Thanks.
Mack April 16, 2015 at
If it’s a bearish bar, I will likely not go long above it. It’s somewhat subjective based on lots of other things, but normally you will get a reversal bar or a least a trend bar in the direction you prefer to enter.