Improve Timing When Entering a Position

Late entry for a position can be costly in that it increases risk and decreases profit potential. In previous articles I introduced some of the tools from my “trader toolbox.” In this piece I will introduce some of my favorite indicators for initiating a bullish or bearish position in a timely fashion.

Intraday Signals

To improve timing when entering a position, I prefer using 60-minute bar or candlestick charts. Liquidity (volume) peaks during the opening 60 minutes of the trading day and the last 30 minutes of the session. Professional traders tend to be most active during those times because they can execute large orders without hurting their positions. Fundamentals move markets, and pro traders have access to better research and development than we do. Thus, we may discover their bias if we focus on those times they are most active. Consequently, a move above or below the flag or pennant (consolidation formation) in the first hour of the day is often the cue to enter a position. A late day violation of a congestion pattern also tends to lead to continuation in that direction.

Early Session Entry

On most days the high or low for the session is seen within the first 60 minutes of the day. This happens about 65% of the time. Therefore, when a market makes a new high after the first hour a long position is taken, or if a new low is realized after the opening hour a short is taken. This signal works best after a few days of choppy, trendless trade where range length and volume are below average.

Single Candle Indicators

Long body candles portray power. They mean bulls or bears were dominant during an entire time frame. They are common at the onset of trends or acute vertical moves. They are more reliable in the first and last 30 minutes of the day. Furthermore, they tend to come in bunches as the trend accelerates.

Another candle pattern that frequently ignites a trend is called an engulfing candle. In technical circles it is also known as an outside day. This is a candle or bar that has a lower low and higher high than the previous candle or bar. These are common at the end of congestion phases and often signify the start of a vertical move.

Retracement Entry

Events or fundamental data are the driving force for price movement. Unexpected events are often the catalyst for abrupt above average moves. Swift markets are tough to catch and are called fast markets for good reason. If you enter a buy market order in a fast market, you will likely buy near the top of the move. And if you work a sell market order, chances are your order will be filled near the low of the move. In other words, you will have terrible trade location.

Rather than buy or sell immediately after an acute move I prefer to wait for a 50% retracement to enter a trade. For example, let’s say a market rallies 30 points to 300 immediately following an economic report. Wait for about a 15-point dip from 300 (285) to enter a long position. You will improve your trade location with this method. And the better the trade location, the better the odds for more profit and less risk.

John Seguin, Market Taker Mentoring

Trader Education