Entry Values
Okay, so you've got Entry Rules, and they say "yes, you may enter a trade", or "no". Yes or no. If there's a "not sure" in there, it's not an objective trading system. I'm only interested in objective trading systems (due to my inability to trade subjective ones).
Now we need an exact price at which we will be entering the trade. These are pretty easy. Normally.
For example, "the high of the most recently completed bar". Your Entry Rules say "enter the trade", and your Entry Value says "...when the price hits the high of the most recently closed bar".
Some people like to add a bit, so they know the price has a bit of momentum. For example, "the high of the most recently completed bar, plus 1 tick". Or plus 2 ticks, or 5 ticks, or whatever.
Notice though, that we don't have a direction for the trade yet. Sometimes your Entry Rules will specify the direction, like "enter a long trade if the bar closes above the 20-bar moving average". And then the Entry Values specify exactly where to open that long trade.
Or, sometimes the Entry Rules simply allow you enter a trade, and the Entry Values specify the direction. For example, the Entry Rule is "enter a trade when the RSI with period 14 goes above 70". And if the price hits the high of the most recently completed bar, you enter long at that price. If the price hits the low of the bar, you enter short at that price. In this case your Entry Rules have told you that the price is about to move, but it doesn't know in which direction. Your Entry Values answer the direction question.
Here are the values that Thinking Stuff currently has programmed. There'll be more:
Close Of Current Bar
High Of Current Bar
Low Of Current Bar
Close Minus X Average True Range(s)
Low Minus X Average True Range(s)
Close Plus X Average True Range(s)
High Plus X Average True Range(s)
Upper Bollinger Line
Lower Bollinger Line
Price Where %b Would Equal X
Bar Swing High
Bar Swing Low
High Of Previous X Bars
Low Of Previous X Bars
X Percent Of Bar Range Above Entry
X Percent Of Bar Range Below Entry
Simple Moving Average
SMA Swing High
SMA Swing Low
And there's also a Pip Offset thing in there, if you want to add or subtract a certain number of pips from the value calculated above.
Sometimes though, the price is already above (or below) the price that your Entry Values say to enter. What to do then? Do you pass on any trade where you can't get your intended price? Do you get in at any cost? Do you get in, but only if the price hasn't gone "too far"? In that case you need to specify what "too far" means. 20 pips? 50? 100? Backtest.
4 Comments:
(due to my inability to trade subjective ones).
Do you have bad experience with subjective systems? :)
Sometimes though, the price is already above (or below) the price that your Entry Values say to enter.
That's why I like systems on "price indicators" like moving averages and price channels. They show exact price where you'll have enter signal. You just put an order there in advance and that's it.
Thanks for your comments mehanizator. (At last - comments. Yay!)
I've tried 2 systems with subjective elements. Both had support-resistance lines. I always end up with about 1000 lines on my chart, even though I start off trying to just place one or two.
One of them was for options trading. The exit strategy was "Aim for a 20-30% profit". That often left me in "should I or shouldn't I?" territory.
And I guess when I talked about if the price is already above your Entry Value, is if you'd just started for the day, say, done your analysis and want to trade, but the price is already above your moving average.
Maybe I didn't explain well.
It's best to open the position where you are, if you've missed the signal. But if price has already gone too far... Well... The problem is to know where this line "too far" lies :)
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