I was standing behind a new trader, Battery Park, watching him buy a pullback in a Stock In Play. Battery Park bought 76c and hit out at 63c. He should have hit out at 69c. Then Battery Park reentered at 65c when he could have bought 58c on the bid.
We talk about Reading the Tape often in this blog but not enough about how we use it to fight for prices or get the best entries and exits. We do not talk enough about why this is so important to trading. There are so many point-and-click retail traders out there underperforming. Let’s take a set back and offer a reason why that might be. In this one simple trade above, buying a pullback, Battery Park cost himself 13c. If you trade in 1000 share lots that is $130 dollars. Imagine if a brokerage company adopted this slogan: We charge $130 extra on all trades. Come trade with us!
The other day Amazing Andy ripped through his trades from the past few weeks. He estimated he was costing himself $150 a day with bad entries and exits. “I have to stop just paying the offer and hitting the bids,” he continued. This is great analysis by him. You know you are allowed to bid and offer.
Likable Lev made a great point about why fighting for the best prices is important: doing so improves your win rate significantly. Every entry price must be followed with a stop for if you are wrong. Your risk/reward ought to be 1×5 when you begin trading. As you get more advanced you might trade risk/reward set ups of 1×3. Master traders might even crush 1×2 set ups.
But that stop is set by the entry price. You can set a much better exit price stop if your entries are superior. For example, Battery Park buying 58c allows for a stop below 50c. A purchase at 65c might dictate a stop below 58c. Your chances buying into a pullback are significantly higher if your stop is 49c as opposed to 57c. You are making the same trade, a pullback play. It is just with one you are executing well and significantly improving your win rate.
Fight for the best prices.
Mike Bellafiore
Author, One Good Trade
4 Comments on “Fighting for the best prices”
Bella, my question is… if you put the stop on 49c, then the target to get a risk/reward like 1×5 must be much higher than the stop on 57c. It’s a 8c difference, that means that the target should have be 40c (8c x 5) higer. How you manage this risk/reward situation during the day? Do you put the target down?
can look for a r/r of 1/5 . For instance, two I personally played today were FLR on the pb to 71 and PCLN short at 525. The latter you could risk less than .30 to make over 4 or 5 points.
Good points, Mike. My chart trading changed completely when I learned how to perfect my entries. The only thing I disagree with is that it takes more skill to trade 1/2 setups…I think it is much more difficult to wait patiently for and spot the better r/r setups than to scalp all the smaller ones in between.
There are always opportunities throughout the day where you can look for a r/r of 1/5 or better with the correct entry. For instance, two I personally played today were FLR on the pb to 71 and PCLN short at 525. The latter you could risk less than .30 to make over 4 or 5 points. Trading the chop in between is a lot harder. Good points, Mike. My chart trading changed completely when I learned how to perfect my entries. The only thing I disagree with is that it takes more skill to trade 1/2 setups…I think it is much more difficult to wait patiently for and spot the better r/r setups than to scalp all the smaller ones in between. I also think it is important to use hard stops but to let the chart determine your exit to some degree.
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