6/9/11 professional entry techniques
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Adam GrimesSMB Capital, LLC
Twitter: AdamG_SMBYouTube: [email protected]
9 June 2011
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Stocks, Futures and Forex
Entry techniques with emphasis on longer-termpositions
Most appropriate for swing/position trades
Can be adapted for daytraders, especially iflooking for bigger picture plays
Not giving you specific techniques, but refiningones you already have
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Can get good feedback and a better read on themarket with a position on.
Action, commitment
But....
Entries are probably not as important as youthink.
Not the most important element of execution.
Too much attention probably focused on them.
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General considerations for entries
Type of entry
Position in market structure
Portfolio considerations Overall market
Diversification??
Execution and early trade management
Choices
Most important time of day
How reactive?
General Considerations Portfolio and Market Execution and Management
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General Considerations Portfolio and Market Execution and Management
With-trend or contra-trend?
Tipping point or indefinite entry spot?
Where are we in market cycle? There are only four trades:
Trend continuation
Trend termination (not reversal)
Support/resistance holding Support/resistance breaking
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General Considerations Portfolio and Market Execution and Management
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General Considerations Portfolio and Market Execution and Management
Idea of only trading with higher timeframetrend is not particularly effective
Indicator lag is a seriousproblem
Best entries are at turning points
Many trends only 1-2 legs
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General Considerations Portfolio and Market Execution and Management
Best use of higher timeframe:
Do not enter in HTF over extension
Use TTF entries as triggers into HTF patterns
Clarify your use of timeframes
LTF TTF HTF
Related by factor of 3-5
Do not make decisions based on timeframesout of your range
Do not change focus timeframes once in atrade
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General Considerations Portfolio and Market Execution and Management
You do not swing trade to express market opinion
Market of course can influence your trades
Consider market context
Consider sector context
Consider stocks relationship to sector (leader?)
Can trade index product outright if you have
market opinion
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General Considerations Portfolio and Market Execution and Management
Idiosyncratic risk = company risk = diversifiable
Systemic risk = market risk = non-diversifiable
Diversification decreases idiosyncratic risk.
No easy answer but ~30 stocks = fully diversified
But...
Diversification is protection against ignorance. Itmakes very little sense for those who know whatthey're doing Buffett
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General Considerations Portfolio and Market Execution and Management
For short-term, technically-oriented traders:risk = opportunity
Do not diversify your opportunity away, leavingonly market risk!
Do not over-diversify
Do hedge: hold some long / short
Forget about Beta
Can do volatility-adjusted (ATR, Realized vol, etc)
If you cant find other side, use index
Remember: you hope to lose on yourhedge
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Defines character of the day
Price action off open is most important
High or low is often set in first 5 minutes
Highest volatility in first two hours
Strongest trending environment in first 2 hours
Most opportunity and most danger.
General Considerations Portfolio and Market Execution and Management
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General Considerations Portfolio and Market Execution and Management
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General Considerations Portfolio and Market Execution and Management
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General Considerations Portfolio and Market Execution and Management
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General Considerations Portfolio and Market Execution and Management
If you have a problem ON the open, considertendency for gap closure, but...
If you have a problem OFF the open (large
move, time, etc) then it probably is not going toget better.
If you miss an entry on the open, probably go
to the market.
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General Considerations Portfolio and Market Execution and Management
Entries are based on the close of the day
Execute on close or at close on next open
Go to market if unable
Do not use alerts use real orders
Exit orders entered at time of entry GTC asmatter of discipline
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General Considerations Portfolio and Market Execution and Management
Most important thing to know before entry isrisk point. Where am I getting out if I amwrong?
Potential profit impossible to estimate. Onlyfocus on risk.
Risk point far enough away to be out of noise.
Tradeoff is larger/smaller position. Must use consistent risk on every trade.
Ignoring this will introduce another random elementto your returns.
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General Considerations Portfolio and Market Execution and Management
Expectations depend on type of entry
Scaling in?
Tipping point?
Partial exits? Consider different impact of partials in profit or loss
Do not be too reactive
You took risk on the trade, let it work Will work or not. Cannot micromanage
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?Adam Grimes
Twitter: AdamG_SMB
YouTube: AHGrimes