Validea is an advisory service which assesses stocks based on the investing criteria of many of the ...
Know When to Execute Your Trades
03/30/2011 1:00 pm EST
Once a set-up is presented, it's all in the execution, and Corey Rosenbloom explains how to "pull the trigger" using either conservative or more aggressive methods.
I’m talking with Corey Rosenbloom about some daytrading strategies, and Corey, one of the problems that traders face is execution slippage. How can you minimize that?
Well execution and slippage are two different concepts. Execution will deal with how you actually put the trade on. At the Traders Expos, at any kind of seminar, any kind of book, any kind of presentation Webinar, there are lots and lots of strategies as simple as a bull flag or popular as a head-and-shoulders, trend-line break, whatever the case is, there are literally hundreds of ways to look at a set-up, but how do you actually execute that set-up?
And execution tactics deal specifically with how to put the trade on. Using a market order, using a limit order, doing so aggressively, which is as the signal triggers, or even ahead of the signal, jumping the gun; or conservatively, which is where you wait for a trigger to set up, so there’s maybe a divergence or a bounce off a trend line.
We have to actually see that and then at an aggressive point, we just take that trade and go with it. A trend line in an uptrend—boom, execution trade is on—but a conservative trader would need to wait for some sort of confirmation, maybe a reversal candle, maybe an increase in volume, maybe a breakout from a falling trend line, as a trigger to enter that trade, so they’re a little bit separate in terms of aggressive and conservative strategies.
And you need to know whether you are an aggressive or conservative trader before you adopt one of these strategies.
Exactly. A lot of times we see and even in books that I’ve read and in my experiences, most people tell you to execute at this point in time. If this is a flag, it’s going to have this trigger and there’s nothing else to it, but in reality there are little nuances. There are early entries. There are late entries and that depends on the personality, the skill level, the experience, and the goals of that trader.
Personally, I’m conservative, so I look to have triggers and signals before I put the trades on. I’m not going to execute just because it’s a pullback into, a say, Fibonacci level or just a trend line that’s aggressive and it tends to make more in terms of edge because your stop is tighter, but you’re not going to have that accuracy.
You’re not going to have that confirmation, so you do pay up for the confirmation, but I personally, and most traders that are on conservative standpoints will prefer that, just one more thing to set that trade into motion for a conservative trigger.
And it increases the probability of success on that trade?
Exactly, and there is really a tradeoff between the accuracy edge, and a position trader is what we are doing, needs to have at least 50% chance of the trade to be successful. That’s based on backtesting or based on research, so if the trade does not have a greater-than-50% chance of winning, it’s just random guessing, so that is essentially the accuracy edge.
The monetary edge is where the risk/reward comes in, so you’re playing for a larger target, say $3, $4, or intraday $0.30 or $0.40 versus your stop of $0.10 or whatever the case is, so usually the higher the accuracy edge, which is when the trade is actually at that pivot point, where it will reverse or not, you’re going to have the tightest stop possible, and of course the larger target, but there is no guarantee that will work.
But if you wait for a trigger for a reversal candle to form, for a declining trend line to be broken, for price to break a high, or something else to happen, the trade is already in motion towards the target and away from your stop, so you’re going to deteriorate the monetary edge, but you’ll increase the accuracy edge of that trade continuing in your direction.
And that’s what we’re looking for, accuracy and success.Well the combination, accuracy and success, but the combination of risk/reward and the monetary edge.
Related Articles on STRATEGIES
The Roman philosopher Seneca wasn’t talking about the stock market when he wrote that “T...
The Dow Theory was originally referred to as “Dow’s Theory,” since it was based on...
When stocks are selling at valuation extremes and consumer optimism is at one of the highest levels ...