What are good entries and exits?

Posted on July 30th, 2008 by admin, under online forex trading.

What are good entries and exits?

Given a mechanical Forex trading strategy that contains an entry model to generate entry orders and an exit model to generate exit orders (including those required for money management), how are the entries and exits evaluated to determine whether they are good? In other words, what constitutes a good entry or exit?

Notice we used the terms entry orders and exit orders, not entry or exit signals. Why? Because “signals” are too ambiguous. Does a buy “signal” mean that one should buy at the open of the next bar, or buy using a stop or limit order? And if so, at what price? In response to a “signal” to exit a long position, does the exit occur at the close, on a profit target, or perhaps on a money management stop? Each of these orders will have different consequences in terms of the results achieved. To determine whether an entry or exit method works, it must produce more than mere signals; it must, at some point, issue highly specific entry and exit orders. A fully specified entry or exit order may easily be tested to determine its quality or effectiveness.

In a broad sense, a good entry order in good Forex trading strategy is one that causes the trader to enter the market at a point where there is relatively low risk and a fairly high degree of potential reward. A trader’s Nirvana would be a system that generated entry orders to buy or sell on a limit at the most extreme price of every turning point. Even if the exits were only merely acceptable, none of the trades would have more than one or two ticks of adverse excursion (the largest unrealized loss to occur within a trade), and in every case, the market would be entered at the best obtainable price. In an imperfect world, however, entries will never be that good, but they can be such that, when accompanied by reasonable effective exits, adverse excursion is kept to acceptable levels and satisfying risk-reward ratios are obtained.

What constitutes an elective exit? An effective exit must quickly extricate the trader from the market when a trade has gone wrong. It is essential to preserve capital from excessive erosion by losing trades; an exit must achieve this, however, without cutting too many potentially profitable trades short by converting them into small losses. A superior exit should be able to hold a trade for as long as it takes to capture a significant chunk of any large move; i.e., it should be capable of riding a sizable move to its conclusion. However, riding a sizable move to conclusion is not a critical issue if the exit strategy is combined with an entry formula that allows for re-entry into sustained trends and other substantial market movements.

In reality, it is almost impossible, and certainly unwise, to discuss entries and exits independently. To back-test a trading system, both entries and exits must be present so that complete round-turns will occur. If the market is entered, but never exited, how can any completed trades to evaluate be obtained? An entry method and an exit method are required before a testable system can exist. However, it would be very useful to study a variety of entry strategies and make some assessment regarding how each performs independent of the exits. Likewise, it would be advantageous to examine exits, testing different techniques, without having to deal with entries as well. In general, it is best to manipulate a minimum number of entities at a time, and measure the effects of those manipulations, while either ignoring or holding everything else constant. Is this not the very essence of the scientific, experimental method that has achieved so much in other fields? But how can such isolation and control be achieved, allowing entries and exits to be separately, and scientifically, studied?

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Forex Trading Strategy

Posted on June 25th, 2008 by admin, under online forex trading.

Trade in the financial markets, as any serious business is built on the application of a set of Forex trading strategies. There are many strategies described in traders practice which become classical ones. However, each skilled trader has its own set of Forex trading strategies depending on the situation. A distinctive feature of an experienced trader is its own set of strategies and their regular use for achievement of success.

Forex trading strategy may depend on many factors. For example, the type of financial active, the size of a controlled deposit, time horizon, psychological aspects of the trader and his personal perception of risk. To be successful and receive regular profits from trade investor must create their own forex trading strategy, test it and, equally important, apply it regularly.

Forex trading strategy is a set of rules for the transactions. These rules are formulated by trader, regularly tested and applied. A set of Forex trading strategies will keep trader from excessive stress of uncertainty, of hasty decisions that might harm the deposit. Forex trading strategy should not only help the trader to go to the market at the right time and in the right place (this is called planning entry point), but also help him to close the position with maximal or planned profit.

Good forex trading strategy contains not only strict rules for trade. At the same time it must be flexible and adaptable to changing market conditions, which is a not fallen asleep scheme, but almost a living organism.

Overall, forex trading strategy should or may contain:
• a set of tools on which you will trade;
• method of analysis (technical or fundamental), by which

trader will be guided;
• Time trading interval: weekly, daily, intraday;
• rules to work only on the trend, or against it;
• use of figures of forex technical analysis;
• use a candle forex analysis, etc.

Can I use strangers Forex trading strategies? There are no rigid rules. Try it. However, an effective forex trading strategy of one player, may be totally unacceptable for another. To compare Forex trading strategies and systems it is necessary to establish criteria for their evaluation.

With the development of computer technology forex market analysis methods become more complicated. More and more complex indicators from the mathematical point of view are created and trader go further away from the real prices of conduct, and looks at it as if through a filter. Today there are almost no players who can read ticker tape and conduct the tenders without computer.

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