So what is a perfect trade entry and what’s the secret to finding it? While this may come as a disappointment, its better that you learn the truth so let me say this, “the secret is, there’s no such thing as a perfect trading entry. Yes you’ve read correctly so you can save yourself a lot of time and effort if you accept the fact that you’re not going to discover the Holy Grail of trading. That’s right; that perfect indicator which tells you when to jump in and when to get out, simply does not exist.
Once again, if you’re still relatively new to trading, you need to realize that a perfect indicator simply does not exist.
Why is it that so many still continue to believe in such indicators?
Renowned trading guru and accomplished author dr van tharp is of the opinion that this belief in a perfect trade entry, particularly between novice traders, stems from them believing that so long as they’re involved in the selection and entry into a trade, they have a certain degree of control over the markets. In fact, Van Tharp even goes as far as calling it the “lotto bias”, stating that the same tendency can be seen in people choosing lottery numbers based on birthdays, anniversaries or any other numbers they deem to be relevant.
Why do so many lottery punters choose numbers from birth dates and etc? Simply because they believe whole heartedly that those are the best possible numbers. Of course, irrespective of what they want to believe, their combination of numbers stands the same chance as any number of combinations. Unfortunately, because there’s an emotional connection, these punters have a tendency to feel as though they have a certain amount of control over the outcome. The same applies to traders and trade entry.
At that point in time when you’re just about to enter into a trade, you’re in full control of any trade entry. However, once you’ve taken the plunge, you need to let go. Once you’re actually in a trade, you no longer have any control over the markets. They’ll do exactly as they please and there’s absolutely nothing you can do to change it.
Interestingly enough, the amount of money you rake in from a trade isn’t determined by when you buy your stock, but rather, it’s determined by how much you put in and when you exit.
Let’s take a look at the following example:
Okay, so you’re ready to buy some stock and by implementing the system you use, you know that you should buy the stock at $10 per share, and that you should exit when they reach $12 per share. In this example we’ll look at two different scenarios. In the first one you have $1000 and in the second you have $10,000.
1. Buying at $10 per share, your $1000 gets you 100 shares which in turn means that when you sell at $12 per share, you will have made $200 profit.
2. Buying at $10 per share, your $10K gets you 1000 shares. In this case, when you exit at $12 per share you’ll be $2000 richer.
So, now you have it. Your trading entry doesn’t determine how much profit you make but instead, it’s the amount of money you invest that will determine your profits. This is without a doubt your cornerstone of effective money management.