How To Enter A Position With Your Stock Trade
By Ultimate Trading
Finding A Low Risk Entry Point For Your Stock Trade
Finding a low-risk entry point for a stock trade is every bit as important
as finding a good stock trade. How can this be? Think about it for a few
seconds and you'll realize that you can pick the best stock trade in the
world, but if you enter it at the wrong place, you may make no profit
on it at all - and you may actually lose money.
Nobody knows, for instance, which stock trade is going to make them rich
in five or ten years. Many companies won't even be around in five or ten
years. Doesn't it make sense for anyone, trader or investor, to enter
a stock trade at a point where it has a better chance of actually making
them money instead of losing them so much that they have to wait five
years just to get their initial investment back? Or to enter any other
stock trade in any other investment vehicle at a point where making money
Where is a safe entry point for your stock trade, and how do you make
sure you enter there?
Finding a sensible entry point for your stock trade involves knowing the
time frame of your stock trade (for a particular trend trade, for example,
you might know that you should enter no earlier than a week before the
event creating the trend); looking at charts to see where the stock trade
has been and where its support and resistance levels are (and thinking
about psychological support and resistance levels); and waiting for a
pullback in price if you believe that the price is temporarily high and
that it will drop and create a better buying opportunity for you.
The way to make sure you enter the stock trade where you plan to is to
use a limit order. (A limit order is an order that can execute only at
the stated price or better.) Limit orders sometimes make you wait behind
others who placed their orders at the same price before you did, but in
most situations, placing a reasonable limit order is the only smart way
to enter a stock trade.
In certain situations, it may make sense to stagger your entry by buying
half the shares you want at a price you think may be the lowest the stock
trade will reach, and then waiting to buy the other half either when the
price does get better ("averaging down") or when the stock trade starts
to move ("adding on strength.")
The wrong way to enter a position is to chase a moving stock trade. Chasing
stock trades is a form of panic, and it practically guarantees that you'll
pay too much for the stock trade. Why is it so bad to pay too much? The
more you pay for a stock trade, the further your risk-to-reward ratio
is shifted away from reward (because your upside is decreased) and toward
risk (because the probability of the run ending increases as the stock
trade gets more and more expensive.) There are two ways to look at the
decrease in your upside:
First of all, you'll capture less of the stock trade's movement, so your
percentage return will be less; second, the more the stock trades costs
per share, the fewer shares you'll be able to buy, and any return you
get will be multiplied by fewer shares. So your entry price matters greatly.
Also remember, it doesn't matter if you miss a stock trade or a position.
Its not the last good stock trade. There will always be more stock trades
to make. It's much better to miss a stock trade than to chase it and end
up with a loss. Morning gaps down present good opportunities to buy stocks
About To Learn Secrets Most Traders Will Never Know About Profitable System Trading..."
Inside you’ll learn...
to design a winning system from scratch and exactly what
to do to supercharge your current stock trading system!
one ingredient you literally "Drop" into your
stock trading system that can triple your profit!
to use “secret” money management techniques
to minimize your risk.
tools the professionals use and how you can get huge discounts
(charting software, data, etc).
you'll also get a FREE copy of David Jenyns’ complete
Ultimate Trading Systems Course…
Just enter your name & email - then click the “Click
Here For Free Instant Download!” button. (All information
kept 100% confidential). The download details will be
emailed to you immediately.
take your privacy very seriously. My
personal privacy guarantee to you. I respect your privacy
and will never share your email address with anyone. You can
easily unsubscribe at any time. View our Privacy
Policy - David Jenyns Founder of www.ultimate-trading-systems.com
copyright 2005 Stock Trade