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Entries Do Not Matter
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Entries Do Not Matter

by The MoleJuly 24, 2014

From the very first moment fledgling traders look at their first chart they being taught all the exciting things which seem to matter and none of the (somewhat) boring things that really do matter. More often than not there is an almost obsessive focus on trading tools, various indicators du jour, technical analysis in all forms and shapes, trading books/videos, trading seminars what have you. The average trader expends thousands of hard earned Dollars and many available hours on all of those things, and that is before getting their account funded and approved.

If you have visited here then you probably already know that none of this really makes an iota of difference when it comes to placing a successful trade. That doesn’t mean you don’t need to know your stuff – by all means you do need to understand the basic tenets of trading. But more does not equal better – as a matter of fact when you really boil it down to the most basic level all you really need to know is where to place a trade and where to get out. Sounds simple, right? Actually yes and no – it is simple once you know how to do it. Getting there takes years of hard work and quite a lot of practice.

What’s making matters more difficult are certain aphorism you will invariably come across – most of which are actually completely wrong. One of the biggest ones is that entries matter – more specifically known as ‘buy low and sell high’. Well duh – that’s common sense, right? Actually no – it is not. I assure you that entries are the most trivial aspect of a campaign. Your exit is much more important – so is your money/campaign management. There is a lot to doing the latter two properly and we have discussed some aspects of that in the past and we’ll probably be doing it again.

Now, I can literally hear you thinking right now: This is completely bonkers – of course my entries matter, what the hell is he talking about? So, you’re not convinced? Well, I can’t really blame you – after all years and sometimes decades of misinformation and brain washing are difficult to reverse. But there is hope for you (you’re here after all – which is a big step forward) and to put you on the right trail let me prove to you that entries do not matter via a campaign we launched twice in the past few days:

Here’s gold which if you’re a sub you recall I suggested as a very juicy short at the 2x inside day candle. I really wanted this one to resolve to the downside and for once I actually got my wish the next day. Entry at 1307.9, stop at the 1R mark at 1319 and Bob’s your uncle. yesterday it was testing our patience and today it dropped hard and earned us over 1.5R (thus far, the day ain’t over yet). If you took this one then don’t forget to lower your stop to the 1R mark at 1296.8.

However yesterday that little inside day candle (which tested our patience, remember) presented late comers with a second entry opportunity. Which I sincerely hope you took advantage of for obvious reasons. Now let’s see – that entry was at 1303.5 and the stop, based on the previous candle) was at 1311.8, again representing one R (risk ratio of 1% exposure). And what happened today? It banked 1.5R thus far and once again anyone who took it is advised to lower their stop to the 1R mark at 1295.1.

And there you have it – conclusive proof that entries to not matter. Yes, of course it would matter had you used the same stop but that is context and chart specific – it all depends on your particular lens and how price advances. Another big implicit lesson to be learned about price in general is that it doesn’t matter where it has been – all that matters is where it’s going. Let me repeat that because it is absolutely crucial that you wrap your reptilian brain around this little mind teaser:

It doesn’t matter where price has been – all that matters is where it’s going.

Which by the way also applies to your life in general but let’s not complicate matters by turning philosophical.

Some of you older dogs may remember Yahoo back in the late 1990s – while it was going up up up it was one of the most hated stocks out there. After all everyone knew that search technology was a trivial business to be in and that any value invested or perceived was all built on smoke and mirrors. Well, they were partially right but that really didn’t help them on the trading front. Many hobby bears got taken to the woodshed week after week attempting to short this thing which obviously went completely exponential all into 2000, pushing from single digits in 2006 to over $120 in 2000.

When it all came crashing down it did the very same move to the downside (in one year I may add – volatility is a bitch on steroids). But what was most remarkable to me was the change in sentiment among the average retail trader who either had been holding YHOO while it was going up or was now considering a steal based on where it had been. The guys who got burned watched it crater week after week constantly thinking that it couldn’t possibly drop any lower, could it? The dip buyers found themselves in their own little hell as they watched it drop from $120 to $100 to $80, $60 – all the way down to single digits again. Of course buying every single dip because after having dropped 20, 30, 40 bucks and more it suddenly was such a great deal now, wasn’t it?

Alright, so just in case I haven’t blown your mind just yet, how about this: Some of the most experienced and time tested trend traders like Bill Eckhard or Ed Seykota, and even the venerable Jesse Livermore actually follow(ed) an inverse approach – buying high and selling low! Yep, you read that right. But that’s a story for a different day 😉

I have only one setup tonight and I’ll have to keep that one for my intrepid subs. But it’s an awesome one, so grab your decoder ring an meet me in my air conditioned luxury lair:

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You have been briefed – now have fun but keep it frosty. See you guys later this afternoon.

Cheers,


About The Author
The Mole
Mole created Evil Speculator amidst the chaos of the financial crisis in early August of 2008. His vision for Evil Speculator is a refuge of reason, hands-on trading knowledge, and inspiration for traders of all ages and stripes. You can follow him and his nefarious schemes at various social media waterholes below.
  • mugabe

    If it doesn’t matter where price has been, why look at charts? (trolling off).

  • BobbyLow

    “Remember that prices are never too high for you to begin buying or too low to begin selling.”

    Jesse Livermore

    A current example of this happened to me last night. After having 2 winning trades in a row shorting the NZD/USD over the last few days, I made sure that I stopped myself out (by rule) quite a few hours before the Major Announcements on NZD came out at 5 PM Last night. After the announcements it Tanked around 100 Pips. Newb, who held short through these announcements said why not get back in as it still had room to go. Although I was reluctant to chase a gap, I reevaluated my chart, waited for a little retracement, held my nose and got back in at .8612 (It was over .8700 before the announcement and I had covered my previous short at .8666.)

    Last time I looked NZD/USD was at 8576. Where it goes from here I don’t know. But my stop is in place and will be moved as needed.

    To reiterate your point. “Entries do not matter” but Exits do. :)

  • http://evilspeculator.com molecool

    I don’t know why but this old classic has been rattling around in my brain all day:

    http://youtu.be/G-Bn_kD6QN4

  • http://evilspeculator.com molecool

    Actually there are people who trade without looking at charts. I surmise that around 60% of institutional trading is statistical now.

  • http://gerb-reloaded.blogspot.com/ Gold_Gerb

    Exits….nothing else matters

    http://www.youtube.com/watch?v=X-B8k0n_3cs

    banging around in my head yesterday.

  • BobbyLow

    For some strange reason, I’ve lost the Volume Capabilty on this computer. I don’t know if my sound card or whatever it’s called is gone or what. I’ve troubleshot it and “it” says it’s working fine but it’s not. So I can’t hear what’s banging and rattling around you guys heads.

  • badflightrisk

    Evidently charging sales tax matters to Amazon. Down big on earnings

  • ridingwaves

    have they ever really made a profit yet?

  • mugabe

    True but it may well be based on historical price: momentum, rate of change, etc. In fact, 2 of the 3 systems I currently employ use that as the base. In this excellent and long interview, the legendary Ned Davis talks about objective measures vs subjective chart reading at some point:

    http://www.ritholtz.com/blog/2013/04/interview-ned-davis/

  • http://evilspeculator.com molecool

    OS X or Windooz?

  • Scott Phillips

    Nope. Most insto trading is on quant things like covariance (google it its interesting)

  • mugabe

    I will. thx

  • mugabe

    it’s seems it’s basically correlation calculations used to construct diversified portfolios.

  • newbfxtrader

    https://www.tradingview.com/x/pDfD2KzW

    Timber better find roots here….

  • mugabe

    This is a long Jesse Livermorre extract that isn’t quoted so often, perhaps for obvious reasons:

    Then there was one office where a chart of the daily
    movement of prices was kept. It showed at a glance just
    what each stock had done for months. By comparing individual
    curves with the general market curve and keeping in mind
    certain rules the customers could tell whether the
    stock on which they got an unscientific tip to buy was
    fairly entitled to a rise. They used the chart as a sort of
    complementary tipster. Today there are scores of commission
    houses when you find trading charts. They come
    ready-made from the offices of statistical experts and
    include not only stocks but also commodities.
    “I should say that a chart helps those who can read it or
    rather who can assimilate what they read. The average chart
    reader, however, is apt to become obsessed with the
    notion that the dips and peaks and primary and secondary
    movements are all there is to stock speculation. If he
    pushes his confidence to its logical limit he is bound
    to go broke.

  • newbfxtrader

    https://www.tradingview.com/x/8SUTLtRX

    Jerked me around a bit both ways but willing to try the long side again.

  • newbfxtrader
  • mugabe

    looks v different if you pull it back 5 or 6 years.

  • arkhamb

    Good stuff Mole!

  • http://gerb-reloaded.blogspot.com/ Gold_Gerb

    Check your hearing aid battery?
    😉

  • BobbyLow

    Windooz

  • SS_JJ

    Earphones plugged in?

  • http://evilspeculator.com molecool

    Thanks!

  • phylum

    Just hit some pots & pans with a stick and you’ll get the general idea…

    Oh … and make sure you play the vid so u keep in time:)

  • phylum

    n we thought you were just a techo rat! +1

  • phylum

    … and a team … and lots of hardware, software and ….. OPM

  • Darkthirty

    sandoz

  • Scott Phillips

    Nearly but not quite. Covariance is a mathematical expression of how likely two instruments that diverge will cross again. Think those es v gbpjpy charts that Mole posts. If the covariance is high enough it is a mathmatical edge that you can buy one and sell the other and eventually it will work out

  • Billabong

    Excellent piece Mole … You’ve done a great service if it saves one person from trading hell.

  • mugabe

    sounds like a risky form of birth control:)

  • http://evilspeculator.com molecool

    That’s just one piece of the puzzle – the lessons to be learned are all about abandoning natural bias, assumptions, and avoiding to force your views on the market. Make no mistake – there are extremely talented chartists/analysts/traders out there who NEVER manage to make that important step. As much as I respect Tim for instance I would count him in that unfortunate group. He has recently changed his views it seems but it’s easy to recognize that the same old bear is still lurking below that new exterior, just waiting to spring to action at the slightest medium term correction.

    There are some people who are simply unable to get to the point of detachment. It’s a sad fact and unfortunately the best advice you can give them is to step away from trading and pursue another more rewarding activity. Due to the sunk cost effect (another cognitive bias) they however often become obsessed with wanting to be traders and wind up destroying their accounts and even their life.

    When you go to other blogs I see NONE of this being discussed – it’s completely absent from the daily discourse. There’s a 90% focus on charting and T&A which only accounts for about 20% of your trading reality. What’s sorely missing is campaign, money, and self management – the other 80%. I have been able to stimulate more conversations on this but am a bit disappointed by the muted response. This post is a good example.

    In essence I do know what is needed to get you guys on the right track. However I am having a hard time pushing above the noise level – there are just so many pertinent sources/blogs/sites out there now. I am still pondering on what would be the right format – a structured approach basically – to turn retail rats into consistent successful traders (short of auto-trading everyone’s account – hehe).

  • mugabe

    A quite common natural bias / shared assumption in many trading blogs over the last few years is almost everyone hating the Fed and talking about how unnatural / immoral /artifiical the rise in prices has been, coupled with almost glee at the thought of a crash.

    Good luck with that one.

    Edit And if you play the rally and, horror of horrors, don’t hate the Fed, you’re very, very ‘suspicious’.

  • mugabe

    Although, of course, your opinions are/should be completely irrelevant.

  • BobbyLow

    Mornin Folks,

    It’s amazing how Bankers all over the world are in a battle to see who can de-value their currency the most.

    http://www.bloomberg.com/news/2014-07-25/kiwi-grounded-on-wheeler-hinting-at-intervention-currencies.html

  • Skynard

    /DX above 81, good news for bears.

  • http://evilspeculator.com molecool

    That basically describes any of the bearish watering holes. I think when it comes down to it I completely agree with Tim and his bears – he’s right that it’s unfair and that the Fed should have let the system reset. We may be poorer for it now but definitely better off economically. At this point the can has only been kicked further down the road and while other countries create value and accumulate real wealth and savings the U.S. is going further into debt.

    However none of that has anything to do with trading. I’ve said this to Tim and his followers on many occasions – if you want to bitch about the situation at hand then go to ZeroEdge and have at it. But don’t bring your wishful thinking and bearish bias into your trading life – you will get stomped.

  • http://evilspeculator.com molecool

    Expect more of the same until the entire world community gets slapped on the ass. I never understood why people would accept the fact that the entire life savings get effectively cut into half or more by the time they reach retirement. The only factor that somewhat mitigated this was compounding – but good luck doing that with a 0.5% annual interest rate, if you’re lucky. Meanwhile your purchasing power depletes by about 2% per year – which is the Fed target if I understand it correctly.

    But again, nothing to do with trading. Don’t let this affect you when trading Forex.

  • http://evilspeculator.com molecool

    What a beautiful open :-)

  • Skynard

    See if the bears can capitalize on it:)

  • ridingwaves

    the volume is pathetic, in fact even a Yugo has more volume than this summer market

  • mugabe

    meanwhile the rate of inflation is neglible…. i remember in the uk it got up to 25% in the 70s

  • mugabe

    as ivan might say, it is what it is.

  • http://gerb-reloaded.blogspot.com/ Gold_Gerb
  • mugabe

    this sucker’s going down! (part 2)

  • http://gerb-reloaded.blogspot.com/ Gold_Gerb

    I need to see JNK break below 41 before I’m convinced this is just another dip.

    http://stockcharts.com/h-sc/ui?s=JNK&p=D&yr=1&mn=0&dy=0&id=p89408309011

  • mugabe

    i was only joking- imho, action meaningless (so far) except on a v short time frame

  • http://gerb-reloaded.blogspot.com/ Gold_Gerb

    yeah – I caught that.

    it’s Friday. just pulled off last week retail oil longs for 13% profit.
    I’m done.
    good day scoundrels..

  • mugabe

    nicely done on oil!

  • Skynard

    Possible gap close.

  • badflightrisk

    Pavlov dog syndrome. BTFD has worked for so long everyone has been trained not to sell

  • Skynard

    Good action /ZW, /ZC seems weaker.

  • BobbyLow

    In the US a lot of the inflation in the 70’s came with the Oil Embargo at a time when the US was much more dependent on Oil for manufacturing. (Yes we actually made things here back then) In the early 80’s, Mortgage Rates were 18% or so and the general feeling was you had better buy things today because it’s going up tomorrow.

    Today’s inflation is more insidious whereby things like Tee Vee’s, Smart Phones and the like cost less but things that are more of a necessity of life like Food, Shelter, Fuel, and Health Care are increasing at a rate much higher than what the Govt. says is our inflation rate. Why is that? It’s because the Govt. doesn’t include most of the rising cost of necessities in their calculations.

    In other words the publicised rate of inflation is complete Bullshit.

  • ridingwaves

    true..
    throw in lack of fear and mm’s can push this anyway they want….
    ACRX trade is kicking in, so I’m just holding on…big day on Monday…

  • BobbyLow

    Not bad for a youngster! Congrats son. :)

  • ridingwaves

    sure would like to see the 60 minute spx spike below the 200 before getting all giddy..cut thru the 50

  • Skynard

    Rut -Roh, signal is weak.

  • SS_JJ

    Yugo? You’re showing your age … 😉

  • ridingwaves

    telling isn’t it..
    that EURO trade posted by someone here still looks great…its kind of reminding me of the short the yen trade that was so hard to time and took a long time to develop…I would expect in Sept-Oct time frame with fed QE wind down, eu wind up of QE will really kick in to drop EURO, if they don’t get it down, Germany is going to keep pushing out weak production and sentiment numbers…

  • http://evilspeculator.com molecool

    To say that the numbers are fudged would be a huge understatement. It’s all smoke and mirrors – and everyone knows it. Elizabeth Warren wrote a book on that before she started working with the Obama administration – back in the early 2000s I think – The Two Income Trap – nothing has changed since then.

  • BobbyLow

    Well ain’t that a hoot. The USD/CAD had been running a 30 Pip range from top to Bottom on a 1.0 SD set of parameters on a 15 Minute Chart. My system works from a 4 Hour Chart and has not worked well under these conditions. So this morning I decided to play the 15 Minute Range and bought the bottom and sold the top using OCO orders. This trade executed perfectly except this time price broke through the Top Line and just kept on running and running . And is still running. :)

    The bottom line is that even though I scalped 20 Pips, price is now up 49 Pips from where I entered the trade. So a win is a win is a win. But I wish I knew how to tell when price is going to break out of a range. OTOH, I’m not sure you can tell until it actually does.

  • ridingwaves

    your winning that is all that matters, plus you get the cheerleader, losers get ?
    good for you bobbylow..
    I’m back in bio land making bank on ACRX..Monday could see a huge surge…

  • BobbyLow

    Thanks RW.

    Good for you on the Bio. You seem to have a great handle on this space.

    And you’re right about the winning part especially where I was trying a new backup system for low volatilty, range bound Pairs. It did work after all. This backup system goes against the grain for me because I like to play MOMO and go with the flow. But under certain circumstances it has to be a case of buying the bottom of the range and selling the top of the range or stay out until a direction has firmly developed. So now a direction has developed and price has moved 61 Pips from my entry and 41 Pips from my exit. :(

    However it being Friday, I’m not going to re-enter and will reevalute this one Monday AM.

  • ridingwaves

    being a former S. Californian I watched LOCO IPO today hit 18.50 low, instead of trading it…dufus cap is on…at 21.8 right now..

  • mugabe

    ‘But I wish I knew how to tell when price is going to break out of a range.’

    Please tell us all when you find the answer to that one;)

  • ridingwaves

    inflation in the things you need, deflation in the things you don’t…

    I would say inflation is raging by looking at my grocery bill, thus why hedge and PE firms are buying bulk foreclosures from fannnie-freddy…something wicked is coming.

    if California is dry this year, your grocery bill will even get worse.

    OT-how come I had a lot of ugly teachers when I was young?

    http://news.yahoo.com/hot-english-teacher-victimizes-two-18-old-males-232008224.html

  • BobbyLow

    Yep. I might have to add a Ouija Board or Palm Reading to my Tool Box. Perhaps that’ll work. LOL

    http://pad2.whstatic.com/images/thumb/a/a9/Read-Palms-Step-1.jpg/670px-Read-Palms-Step-1.jpg

  • mugabe

    that’s exactly the sort of out of the box thinking that only winners do!

  • ridingwaves
  • bdoone

    We could drop from here but I think today’s downside is in. Why? SPY 198 strike volume: 62K calls & 81K puts, not to mention 54K 197.5 puts. Nice chunk of premium MM’s want to collect for their weekend festivities! And park ES near 100hr sma (1976.50) to keep both sides guessing.

  • ridingwaves

    unless they overplay Russian troop buildup on Ukraine border, I believe your right..weekly options changed this market too.

  • BobbyLow

    Damn, that’s every teenaged boy’s dream.

  • http://evilspeculator.com molecool

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    ¨°º¤ø„¸F R E S H „ø¤º°¨

    ¸„ø¤º°¨ M E A T“°º¤ø„¸

    ¸„ø¤º°¨¤ø„¸¸„ø¤º°º¤ø„¸

  • http://evilspeculator.com molecool

    Actually that I know how to do – but if I told you I would have to kill you. And I’m pretty handy with the sharpened spoon.

  • http://evilspeculator.com molecool

    Interesting….