The moment of truth arrives. Price pierces the Execution Zone and favorable conditions signal an entry at the Execution Target. You must already know your position size and intended exit price (if proven wrong) by the time that your setup reaches this critical interface. The ET strikes and you pull the trigger through a phone call, limit order, web entry or direct input. The fill report comes back and any slippage from your intended entry forces an immediate recalculation of your setup assumptions. If execution occurs more than a tick away from the ET, reconfirm risk tolerance and recalculate the intended exit. Now the hard part begins.
Review the tape and the chart to confirm that trade entry was the right choice. Set a physical stop if your personal trading plan requires it as part of an execution strategy. If not, mentally target the price and conditions under which the trade will be terminated. Update this instant analysis as each price bar prints and modifies the charting landscape.
Follow the tape closely after entry. With momentum trades, price should keep trending as quickly as it did just prior to execution. After buying a pullback, look for confirmation that selling pressure has eased. Measure pulse and volume through the time and sales ticker. Then compare that activity with the associated price change. When a surge of participation does not move price, it may signal hidden supply that will trigger a reversal. Tape reading also means interpreting the spread. Watch how it expands and contracts as price searches for short-term boundaries.
Get out immediately if price hits the level where the trade proves to be wrong. The violation could turn out to be a whipsaw, but don't delay your actions in an effort to learn the truth. Review your exit criteria after the market closes. If it triggers too many shakeout exits, revise your trading plan to give positions more room or to locate better risk targets. Remember that a setup can always be reentered. But make sure that each new entry stands on its own merits. This requires a fresh reward:risk calculation as well as a new ET. Keep in mind that trade reentry tends to fail because the initial shakeout often signals an impending pattern failure and change in trend.
Take losses manually whenever possible. This builds excellent discipline because the affirmative action accepts responsibility for the trade. It also recognizes that stop loss represents an evolving condition rather than a fixed number. Each price bar, TICK reading and time cycle affects the potential profit or loss for the trade. Physical stop loss rarely hits this moving target accurately.
Always consider mental time stops. The longer that it takes for a position to move into a profit, the more likely that it never will. Target a predetermined holding period and dispose quickly of non-performing trades. Watch out for positions that just move sideways into low volatility and die. Use the weak swing to get back transaction costs through a limit exit order, when conditions permit. And keep one eye on the closing bell if strategy requires going flat into the end of the day regardless of profit or loss.
