Your entries and exits are a vital part of your trades.
A great entry is the cherry on top of a profitable trade, while with exits you’re not just considering profits, but also losses. Planning your exit points is a vital part of a solid risk management strategy.
But picking the perfect entry and exit is tough. Thankfully there are some skills you can learn to help you along the way.
Picking your points
Generally speaking, it’s actually harder to exit a trade effectively than enter one.
Every trade must have clear targets. You will use targets so you know when to close a trade in profit and also define a level at which you will know a trade has gone wrong. The hard part is defining these levels for each trade.
At the start of every trade you should know your targets in either direction.
Let’s take a look at some ways that you can find your entries and discern your targets in either direction.
Technical analysis (TA) is the most used and most diverse aspect of trading.
By learning and using TA you can generate trading signals. For example, you might enter a long position when the price hits a strong support level or open a short when the price hits a key resistance level.
Support and resistance levels aren’t always static. You can draw unbiased trendlines to find key levels and points of intersection.
Chart patterns can show you what’s coming next. If you are able to spot a pattern forming, you can watch and see if it plays out. If it does, be ready to catch the trade, since chart patterns often dictate which way an asset is going to move.
Don’t get it twisted. Even with technical analysis you won’t find the perfect entry or exit. The key is to stay smart and sticking to your strategy. You can buy an asset that’s trending upwards, sell it at a profit and watch it to continue to go up after you’re out. That’s fine – you’ve still made a profit. Missing out on a trading opportunity isn’t the same as a loss.
Indicators are another great tool that can help you find your entries and exits. Indicators show many different things – it really depends on which ones work for you.
Having no open trades is fine. You aren’t missing out. It means you aren’t exposed to the market and as such aren’t carrying any risk.
Traders shouldn’t be afraid to sit out and observe an asset until a clear trend emerges, signalling a strong entry point.
When an asset is moving sideways without any underlying momentum triggers, it’s possible the asset is in some sort of accumulation of distribution trading range. In this case, a good trader will wait for confirmation that a new trend is starting and the range is broken before entering.
Following the money
Look for signs that the market is heating up. Volume and volume-related indicators are your friend here.
Large volume changes can tell you a lot about a market. When an asset is ranging, if you can spot accumulation or distribution using volume-based indicators you’ll have a good idea which way the price will move out of the trading range.
If there is an abnormally large trading volume, this suggests big money is either entering or exiting a position. It’s your job to discern which is which. If the market has been on a downturn, perhaps an institution has completed a big buy. You could then use your findings as an entry point.
Finding the perfect entry is near impossible. Laddering can help you take some risk out of your entry decisions.
You don’t have to enter or exit a trade in one go. In fact, most of the time it’s better to enter a position gradually to mitigate the effects of market volatility.
Say the price of Bitcoin is going down, but you think it’s going to be heading back up soon. It’s hard to catch the bottom, so instead, you enter your position gradually with a series of small trades over a couple of hours. That way, your average entry price will end up being safer than if you had entered all in one go.
Similarly, if you can enter your position over time to lock in profits, avoiding the difficult task of nailing the absolute top. Traders like to set a number of price targets, at which they will close a percentage of their position.
Fundamental analysis involves evaluating the value of an asset based on the project’s fundamentals.
Fundamental traders will conduct in-depth research on potential trades to determine whether they believe the asset is currently undervalued in the market. A trader may decide to enter a trade to capitalize on their findings. Fundamental analysts are generally trading longer time frames than most technical traders.
Traders often study market sentiment to help position themselves and their trading biases.
Through deep research, traders are able to gauge the current sentiment and use it as a trading indicator. There are lots of sources of sentiment data: discussions with other traders, reading mainstream media, social media, market research surveys and more.
You can find entry and exit points by observing the changes in sentiment and learning how this affects market movements.
Sentiment trading is usually considered a lesser “science” compared to other methods but is still an important form of analysis.
There are no hard and fast rules for finding the best entries and exits. Instead, there are techniques that you can utilize to help you control your trading and enter more methodically.
Over time you will improve and develop your market timing skills. No trader is able to pinpoint the best entry or exit point. It’s all about developing a strategy and sticking to it.
Remember, it’s highly likely that once you initially enter a trade the market will go against you in the very short term. If you don’t time the perfect entry, it’s bound to happen. Don’t worry about it.
Remember why you entered. If your strategy has identified a proper entry, stick to your guns. When it comes time to exit, do so gradually over time to lock in profits.
Above all else, practice proper risk management on all of your trades.
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