Tuesday, July 19, 2011
After experimenting with limit entries, I have narrowed down a few prospective entries that work somewhat consistently and when they do work, they give a slightly better entry than a preceding or subsequent stop entry. While the key to trading is to take the best setups, limit trading on small bar days can improve your win per trade by 4t or more. On large bar days this approach may not be very fruitful, simply because the momentum of every move can easily trigger tight stops. In general, I dont look for limit entries except when there is overlap since overlapped entries tend to give deep pullbacks. Limit entries are primarily a means to enter late, often at a better price.
1st Channel breakouts: When the momentum is strong and no bar has dipped below the low of the prior bar, the first bear trend bar close (b4) can be bought on limit with a stop below a recent trend bar (b2). If the stop is too far away, do not take the trade.
Entry bar tests: When an inside signal bar (b13, mDP) triggers, the entry bar's high will often be taken out by 1t (b14, b39). This provides a very tight entry at the high of the entry bar. The stop can be as tight as 3t, but if a trend bar is nearby, you could place the stop beyond it (b12 high, b38 high).
Breakout tests: When the highest low of the day or the lowest high of the day are approached for the first time, there is a good chance it will fail from 0-2t away. A BT entry can be placed 3t away from the breakout point with a stop 4t above. For example, b37 high would have been a breakout test of b11 low if it was the first approach. In general, BT is for breakouts and should not be expected to work unless a trend move did break from that point.
Double bottoms: A double bottom off strong bar can be expected to bounce at least as much as the size of the bar. For example, b45 low made a double bottom with b33 and is a possible limit entry. The stop would be below a recent trend bar (not-existent in this chart, so its not a real entry). The trick to taking double bottoms is to always take them on the 2nd or 3d push. For example, although b37 low did give 4t, you really want to buy on the second leg down at b45.