I believe in building positions and exiting the position in a similar manner. I deal in zones rather than an exact entry price.
First, I will identify where the support or resistance is and then enter some orders just ahead of that price. If I wait for the perfect price, I may be disappointed as it may get close but then rejected before I manage to lock in my position and then that is a lost opportunity.
As a result of this, I prefer to break my orders into three levels.
Let’s imagine my support level is 33. I will enter buy orders at 38, 36, and 34 providing me with an average purchase price of 36 if I manage to buy all three levels. I am prepared to lose 8 points on the trade and therefore I place my stop-loss at 28.
If it is $5 per point and I buy five contracts at each level, then I would lose $5 x 15 x 8 = -$600. If the market turns and moves into profit, I will consider exiting the trade from 52 upwards, depending on how strong I consider the momentum!
I could close the whole trade at 52 or sell out 5@50, 5@52, and 5@54 to lock in the same profit. Similarly, for the stop-loss I could sell 5@30, 5@28 and 5@26 which would be the same loss.
Depending how volatile the market is, there are times that rather than break my volume into three I will just slowly keep adding to the trade while the price is in my zone. I still identify the level I expect the market to hold, and I always take volatility into consideration.
The higher the volatility the more I reduce my volume to compensate…I call it the 3 Vs, Volume versus Volatility! By reducing my volume, I can allow for the market to go further against me without increasing my financial risk.
Of course, there are certain times such as flash news, events, central bank announcements and press conferences where trading is an instant reaction rather than planned. Here it is just a matter of hitting the market immediately to take on your position, no planning or analysing, just instinct and reactions!
Trading should always be flexible rather than rigid as aiming for the perfect price for every trade can reduce your opportunities and profitability. I aim to maximise my profit in every trade, and it is all about taking only high probability trades, quality over quantity.
Armchair Trader readers can currently enjoy a discount on Chris Tubby’s trading courses using the discount code ARMCHAIR5% when booking. More details on Chris’ courses can be found at www.masterc.co.uk