Entry Or The Exit? Which Is Most Important? Here’s My Opinion-What’s Yours?

I had experienced many times where I’ve entered a trade thinking that the market would reverse, only to have the market go against me and my stop loss is hit.

Then usually at around the level where my stop loss is hit, it will start to reverse and go in the direction that I had analysed which I got into the trade in the first place.

This is crazy but it does happen!

Which  means:

• my analysis was wrong which means the market would keep going against me and I get stopped out
• or that  my analysis was right but my entry was not at the right place.
• Or it can be that my stop loss was placed too close.

But having said that, you rarely make a  perfect trade  entry…but you can get close to a perfect trade entry.

DEFINITION OF A PERFECT TRADE ENTRY

Some of you might be really lost thinking what do I mean by “perfect trade entry”.

Here’s what I mean:

If I sell AUDUSD  at 0.8742  and exactly at that price, the price starts falling immediately and does not hang in around the level where I executed my trade, then I will call that a perfect trade entry.

So a not-so-perfect trade entry is when you enter a trade and price goes against you for a certain amount of pips before it reverses and starts getting profitable.

How far the price goes against you whilst still keeping you in the trade is dependent on your stop loss distance which should be calculated based how much risk you are taking on your trading account (Position sizing).

Here’s a good recent examples of two trades I took on on the AUDUSD pair that are currently running.

The first trade went against me by 42 pips before falling back down and being profitable. The 2nd trade I took went against me by 3 pips only before turning profitable ( I would call the 2nd trade a perfect trade ):

This is the chart of the trades in the daily showing you why I took the trades:

Now, this is the same chart as above in 4hr timeframe showing why I took the 2nd trade:

• I do get these kinds of perfect trades but they are not really frequent.
• Most times, price will go against me by 5-40 pips (like the first trade above)before heading in the right direction( If not I get stopped out with a loss).
• And I guess that should be the case for you as well…rarely do traders sell at the exact top or buy on the exact bottom…if price goes against you by a few pips only then starts to turn profitable then you are doing really well.

The great majority of trades  rarely enter at the perfect spot and there are reasons for that apart from on reason being that you can never  predict where exactly the market will turn.

So this brings me to this…

WHICH IS MORE IMPORTANT, THE TRADE ENTRY OR THE EXIT?

In my opinion, I believe a good entry is is most important than the exit. And here’s why:

1. A good entry allows you to avoid the emotional turmoil that gets you when you see your trade turning negative as soon as you enter a trade. Nothing happens if you don’t trade….loss only comes with an execution of a trade so is profit.
2. good entry also allows you to have better stop loss placement distance that avoids the getting stopped out prematurely. Your entry point/price determines how small or wide your stop loss placement will be. You get it wrong or if there’s a false signal and you get stopped out only to have the market reverse later to confirm your initial analysis.
3. A good trade entry allows you better Risk:Reward Ratio on your trade, which means your risk a small but potential rewards are great.
4. A good entry allows you to move your stop loss to break even quickly because price would have moved further away from your entry level and less chance of coming back like I did on the trades in the chart above.
5. A good entry allows you to lock in some profits or take some profits off the table because price would have moved a lot further ways allowing you to be in profit quickly.

As an example note that my 2nd trade on the chart is  27 pips in floating profits (at the moment of writing this) and I’ve moved all stop losses to break even and there is no risk on this trade for me now.

On a side note, I have no intention of taking profits off the table as my profit target is on the previous support level If my analysis is right, price has a strong chance of hitting it in the next few days and I intend to trail stop these trades using the subsequent lower peaks that form until myt profit targets get hit. I’f I’m wrong I will be stopped out, hopefully with some profits.

In my opinion, using price action to trade does make for some really good trades like what I’ve just shown.

EXIT IS A FUNCTION OF ENTRY NOT THE OTHER WAY AROUND!

Only when you get into a trade then can you  exit. So once you enter a trade then you start to figure out where you are going to set your profit target (which is your exit), or how you are going to trail stop your trades (which is your exit!), or if you stop loss gets hit (which is your exit) how much you are going to lose in your account but that should be determined before you place a trade anyway.

What do you think? State your opinions by commenting below…I would like to hear your thoughts on the matter.

UPDATE: HOW I EXITED THE TWO TRADES SHOWN ABOVE

And there’s another potential short trade setup also happening again…this is what I’m seeing in the 4hr timeframe:

This is what I’m also seeing on the 1hr timeframe (same trading setup as above). I’ve placed a sell limit order at previously broken support level which I anticipated will now act as a resistance level.:

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