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profitable trades
initial risk
mental barrier
psychological issues
drawdown
wonderful feeling
space travel
entire system
downside
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Entry Signal Over - Rated
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Entry Signal Over - rated

It's a wonderful feeling when you've discovered you have an edge on the markets. I also used to jump from one entry signal to another. Basically my mental barrier was the need to have a strategy that had more wins than losses or as the experts say the need to be right. Trading can be tough. Everyone has heard of the pun saying “95% of all traders fail” either by a margin call or simply abandoning their trading after what seemed to be a ruinous drawdown. I still consider myself a beginner even after trading for two years but please don't let that deter you from trading, I've had more, you could say, psychological issues than most. It really doesn't have to be that hard though as I've realized, with a simple entry signal, you can design a strategy that can put you out in front.

To begin with I've assumed that you've molded a trading plan and strategy around your goals and you actually stick to your rules. Following your rules is crucial to your success otherwise you void your expectancy and essentially condemn your entire system.

There are plenty of different entry signals on the internet, some very simple, some rather intricate and others so complex they rival space travel. I backtested a daily strategy with an elementary trade setup from data over a number of years and even though it was profitable, it should have been better. The win ratio was about forty percent and the return on each profitable trade was my risk give or take. For weeks I fumbled about refining my entry signals trying to eliminate losing trades but in the process missed profitable trades that originally I would have been in on. It occurred to me that most profitable trades never went deeply against my position before turning around and soaring off in the intended direction. The answer then was tightening stops. I could increase my position size with the initial risk percentage per trade remaining the same. Thus my profits per trade were magnified.

There is a downside of course as there is with everything. The primary pitfall is being stopped out on more trades, though I confide in the fact that if a trade isn't working then just take the loss already and wait for the next trade. The second is that unprofitable trades will be stopped out closer to the initial risk, therefore the loss is rarely half or a quarter of the opening risk. Even though the downsides seem significant, this little change to this strategy has boosted profits quite considerably without changing my entry or exit trade setup.

Forgive me if you thought that tightening stops was a no-brainer to increasing profits. Fair enough. The question though is where to tighten the stop to. Taking records of your trades and examining them produces everlasting success and is advisable. In summary, something as simple as tightening a stop can but not always enhance strategy performance keeping in mind every strategy varies and every trader is unique. Remember, keep an open mind with trading and placing too much emphasis on your entry signal may not be the answer.


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