Trade Entry and Execution: Three Great Ways to Make Improvements

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Updated: 06 October 2020

If you’re a day trader and you buy when the share price dips and sell when it’s high, you’ll know that deals can sometimes go wrong or could have gone better. If you review past deals, you may notice that given a better entry price, you would have profited from a deal instead of making a loss. Many people change trading strategies or theorize about other indicators, thinking about what they should have done. However, what matters most is often the position at which you enter a trade.

Step 1: Analyze your past trades

You may not like the first of these trading tips because revisiting your past trades, especially if the results were not what you wanted, may bring back memories you’d rather put to bed, but this step is necessary. You need to analyze when a stock truly hits its bottom after you enter, or truly hits its high after you sell. The point is to assess the bottoms for long entries and highs for short entries.

Draw up a chart and document your entry price versus the actual price when things started to swing your direction. You should be able to end up with a list of values showing how close your entry was to the ‘real’ start of the move you were looking for. Make sure it consists of 250 trades or more so meaningful statistical analysis is possible.

Find the median of the trading results, not the average; the outliers will distort everything. Order the numbers in a list from smallest (e.g. 0.03) to highest (e.g. 4.7). The number in the middle of your data set represents the median value. If your number of trades is even, take the average of the two numbers in the middle to get to your median. If you need help calculating medians, there are many easy-to-follow how-to videos online.

If you are .45 off on your entry price, for example, should you adjust it by that margin in future? Not necessarily; the conclusion is simply that you are pulling your trigger too early. Don’t make any trading system changes; just keep in mind that you shouldn’t execute once your buy or sell triggers go off. It’s not an exact science, but you’ll know one thing you didn’t know before: you need to have a greater margin of patience at this point.

Step 2: Take stock of time

Now you need to hone in on how long it took for the trade to bottom out or peak after you entered the position. Evaluate this by comparing your entry time stamp with the timestamp of when the stock reached its peak. You could use a one-minute chart, but tick charts will work just as well. There’s no need to work out your entry as that is stamped. Calculate the time of the low or high by using whatever the lowest time frame available on your platform is.

If you’re using an even data set, take two numbers in the middle divided by two. Let’s say that median value is 3 minutes and 45 seconds. What does this mean? On average, you are 3 minutes and 45 seconds early to the party. As you’ll know from your day trading experience, that is enough time to determine a profit, loss or the extent of your gain.

This timing exercise, like the one before, is also meant to show you if you need to exercise more patience.

Step 3: Analyze your trade execution

You wouldn’t buy anything without assessing what exactly you’re getting in return for what you’re buying. Trading is no different.

Limit orders for trading point entries are best. Depending on market orders leaves you in the dark when it comes to how close you will be to your target entry point.

Synthesizing all three steps

First, you’ll know if you’re jumping the gun and by how much. The critical point is not to adjust your system; if you do, this baseline you’ve just worked out won’t apply any more. You know that price and time still have a way to go to work their magic, and you’ve calculated that you need just a touch of extra patience – so that is how you should go about it next time.

Improving your entry point decreases how often your stop losses are triggered. Not only should your technical analysis improve the profit value of your trades, but you should also save some money if you take all of these three steps into account.

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