Missing a crucial entry n isn’t an uncommon occurrence. If you follow multiple stocks or commodities, it’s easy to look track to the point of missing ideal setups. You can even miss an entry by being hesitant, in which case the subsequent market movements may have confirmed your directional bias.
So once you miss an entry, how might you get back into the market? What measures might indicate a good spot to open up a position?
If you use lagging indicators, one that may require several bars of calculation before producing a signal or reading, you run the risk of pulling the trigger a few bars too late. Sometime, price action may be the best indicator, as it may directly reflects the most current state of the market.
CIBR: Daily Chart from July 24 to December 31, 2018.
The chart above illustrates the descending price action for CIBR (First Trust NASDAQ Cybersecurity ETF). Our directional bias will be toward the downside.
Let’s suppose you missed the entry point at (2) following the failed breakout attempt at (1). Any point below the support following the breakdown at (2) might have sufficed for an entry. But if your stop loss was set at the high of (1), this means that your position might have lightened depending on the percentage of risk you placed on the trade. For instance, if you were risking 2% of your capital, then entering at 27.59 at (1) might have given you a larger position size than if you were to have entered much lower, say at 26.17, since your stop loss at 28.74 would have been much farther.
The swing low at (3) and its retracement at (4) might have made for an strong entry point and stop loss, respectively. Had you done that, you would have been stopped out at (5) for a loss of -1.35. This sometimes happens, even if your setup and execution is correct based on a given set-up rule.
Following (5), the question now is whether the current price trend was going to reverse, in which case the low of (4) would have to remain unviolated, or even better, untested. But considering that it was tested again at (6) indicates that CIBR may now be entering a period of sideways trading range movement.
At this point, depending on your fundamental outlook, you might have awaited either a breakout toward the upside or the downside. But let’s assume your bias was bearish. Considering the price action at (8), twice unable to reach resistance formed at the high of (4), let alone that of (5), your next strong entry point would have been right below the support at (6).
Your position would have been triggered at (7) at which point your stop loss might have been best set at (8) until the a new swing high is formed (which is currently happening now).
Of course, none of this guarantees a profitable trade. But it does illustrate an objectively-determined set up for re-entering a position based on strict price action rules. And in many cases, the success of any approach, which can only be evaluated through several trades, hinges not only on the reason behind the trades but the money management approach supporting both the winning and losing trades.
The risk of loss in the trading of stocks, options, futures, forex, foreign equities, and bonds can be substantial and is not suitable for all investors. Trading on margin or the use of leverage is not suitable for all investors and losses exceeding your initial deposit is possible. Supporting documentation is available upon request. Trading futures, options on futures, and FX involves substantial risk of loss and is not suitable for all investors. Carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources and only risk capital should be used. Opinions, market data, and recommendations are subject to change at any time. The lower the margin used the higher the leverage and therefore increases your risk. Past performance is not necessarily indicative of future results.