Traders can spend hours looking for stocks with promising patterns and well-developed reward/risk. But when it comes time to turn theory into practice, they get ten thumbs and make a thousand mistakes getting into the market. Unfortunately these bad trade entries rarely yield good profits.

To help traders get into the market at the best possible price, time and position size, I've put together this Q&A session on effective entry.

Question: How do I know the best time to enter my trade?

Answer: First define the price where you want to buy or sell short. A good setup will point to this level through support-resistance, pattern recognition and reward/risk. Keep in mind that this execution target will change dynamically as new data alter the landscape. It's also possible a single tick will affect the pattern and bust the intended trade entirely. Then mark the space between current price and the execution target. This is the attention boundary for your trade entry. Watch closely when the stock enters this zone and hit the trigger when it reaches the target, as long as market isn't turning against you at the time. Also stand aside if you see anything else you don't like, and re-evaluate your strategy. .

Question: Is it better to chase breakouts or wait for pullbacks?

Answer: You have three entry choices on most trade setups. You can enter in congestion near a breakout or breakdown level. You can stand aside when the breakout or breakdown occurs and wait for a pullback. Or you can get in after the move starts and hope to get filled at a good price.

In most cases, the key to success is buying near substantial support or selling near substantial resistance. Of course this is a lot harder to do than it sounds. Emotions rise in moving markets, and the decisions taken in the heat of battle may not be the best ones for that particular setup.

Question: How big should my position be?

Answer: First, overcome a common sizing error and ignore margin when computing position size. Many traders believe they need to buy or sell as many shares as their margin accounts will allow. But each opportunity carries an optimum position size that exists independent of the account size. This elusive figure is a combination of risk, volatility and the odds the specific trade will work out in your favor.

Then decide if you need to enter the trade all at once, or in pieces. Scaling strategies work well in mildly trending markets that exhibit shallow pullbacks. But don't scale into positions if your holding period is short-term and you're trying to take a quick profit out of the market. In that case, enter at full size immediately.

Question: Should I scale into and out of longer-term positions?

Answer: You can average up or down as part of position-building as long as you're using it as a strategy rather than an excuse for a bad trade. Keep your initial size down so you don't take too many shares at high-risk levels. You can also add to profitable positions, but keep in mind that the reward/risk equation changes as a position moves in your favor.

Scaling into profitable positions increases risk if you don't pick the right execution levels. The best plan is to wait for the position to clear an obvious barrier before adding to it. Then move in your stop to protect your growing profits.

Question: How do I enter the market after opening gaps?

Answer: Stand aside at the open, and let the stock set up its highs and lows for the first hour or first day of trading. Mark the boundaries of this pattern and wait for price to break out in the direction you want to trade. Use that as your signal to enter the position. Keep in mind this might not happen until several days or weeks after the gap event.

Question: I like to buy pullbacks but get stopped out all the time. How can I minimize this?

Answer: First place a limit order where you expect the pullback to shift back in the direction of the breakout. New trends frequently return to prior support/resistance before real momentum kicks in. Look at the pattern and find where the initial breakout took place. Pullbacks often move into these levels like magnets.

Second, break your limit orders into three or four pieces at different price tiers. The last order should be placed at the absolute extreme of where the pullback could go and still not break the pattern. Then place a stop loss for the entire position just below this last trade entry.

Question: Should I place limit orders or market orders?

Answer: Use market orders to get in fast when you can watch the market. Place limit orders when you have a life outside of the markets.

Question: I'm getting ripped apart by momentum trades when they reverse. What should I do?

Answer: Follow two rules to survive the dangers of momentum trading. First, always establish your risk before making the trade. Choose a flat stop-loss percentage, or use a pattern in a lower time frame to signal when the trade goes against you. Second, look for the broad market to offer support for your strategy. Momentum stocks benefit from momentum markets.

Question: I'm not sure what entry strategy works best with hammer and doji reversals. What are your thoughts?

Answer: Wait two to three days for a test of the hammer/doji high or low. A successful test often triggers a sharp move in the direction of your entry. Alternatively, wait for a few days of sideways price action after the hammer. Then use a narrow range entry strategy to get into the position.

Question: Is an intraday move sufficient to enter a breakout, or should I wait for the closing price?

Answer: There is no right or wrong answer about intraday vs. closing breakouts. You need to work with signals that fit your lifestyle. These may be closing or intraday triggers; it depends on your risk tolerance and ability to watch the markets. Short-term traders can't wait for too many end-of-day signals. Alternatively, long-term traders need to apply good intraday filters to avoid whipsaws and protect themselves from sudden losses.

Question:What trade entry will incur the smallest loss if it doesn't work out as expected?

Answer: Buying or selling in narrow congestion patterns offers the lowest risk trade entry in most cases. This classic strategy confuses many traders, but the theory behind it is simple. The best time to enter a new position is just before a breakout or breakdown. So why wait?

Narrow range uses characteristics of low volatility to identify when conditions are ripe for the new trend to start. The trader then enters a tightly formed price pattern, like a triangle, and waits for a move to start. The advantage is that the position can be exited for a small loss if the market breaks the wrong way.