Do This To Immediately Improve Your Execution
Do This To Immediately Improve Your Execution
Execution is what separates your analysis from your real-world results. Developing an edge and executing it well are two different realms. If you want to know how to properly develop an edge, read about it here:
Two traders can have the exact same strategy, with the same edge, and get two drastically different results. How is this possible?
It all comes down to the smallest details. Where they enter and where they exit in their strategy can turn a losing streak into a winning streak, or vice versa. Let’s look at a simple example:
You are taking a simple trend continuation trade, you expect this move to continue and buy on this small pullback, because you expect it to break out.
Your maximum risk is $400 for any one trade. You buy 100 shares here at 120.50 for a total value of $12,050, and place your stop at 116.50, four points below. You would be risking $400 on this trade.
You place your target five points above at 125.50, giving you a decent 1.25:1 risk/reward ratio. You’re risking $400 to get $500. Let’s see what happens:
Target hit, we made $500. This is great. Let’s say we entered lower, for example. We’re still following the same strategy of buying pullbacks, with the same target and stop loss, except now our entry price was at 119.50, one point lower:
With just a small change in the entry price, we went from a 1.25:1 risk/reward to a 2:1 risk/reward. By risking the same $400, we now can buy ~20 more shares and make $800. Larger position size, better price, more profit, and less risk. This trade is better in every way.
That’s why traders stress so much about spreads. You might think it doesn’t matter if you get a bad entry price, because the trade will go your way anyway. This is a huge mistake. Executing well is a learned skill that takes years of experience, and it separates beginner traders with mediocre results from pro traders with stellar results.
One thing you can do to improve your execution immediately is to only buy red candles, and only short green candles. As long as your trade idea is still valid, this will get you in at a better price, with less risk and a better return. Remember - the best trades are the ones that feel the scariest to enter, but that you know in your gut you must enter.
Everyone wants to buy the dip, until the dip finally comes… and then everyone is scared to buy the dip. This is the exact time you should be entering. The best trading results don’t come when you feel good. Most lose at trading because they buy when it goes up and panic sell when it drops right after.
Don’t be like most people. Stick to your strategy, master execution, and the market will reward handsomely.
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That’s all for today. Good luck!
- Tradewriter
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