Hey, I'm a crypto day trader and I've decided to make a series of posts related to trading, hopefully to give some advice to some of the new traders here. I made my first thread a few days ago about the lesson that anything can happen, but today I want to give two quick tips that can help keep you out of bad trades.The first trick is something that I consider essential and it's something that a lot of new traders make the mistake of doing. The mistake new traders make is entering a position before a candle has closed. This is a sure fire way to end in disaster.I know it's very emotional and intense when you see a candle start to shoot up (or down), but you really need to have patience, and you need to wait for that candle to close before you can consider it a confirmation. Going in before the candle closes is really like going in blind, and you really don't have the information you need to make a good decision.When we trade, the best we can do for ourselves is give ourselves a statistical advantage based on practice, our strategy, and our discipline and emotional control. When you enter a trade nothing is guaranteed, but it makes it even more difficult if you enter before you have a chance to judge whether something really meets your entry requirements.It also makes it much easier to practice, and much easier to trade live the way we practice, if we wait for candles to close. If you use the replay function on Tradingview to practice for instance, you're going to be practicing on closed candles, and you should trade live on closed candles too.The second tip, is how to place your entry to keep you out of bad trades. This tip actually requires implementing the first one, so they work well together to keep you out of bad trades needlessly.The general idea, is to place your entry a few ticks above the high of your closed entry candle, using a stop-limit order. The reason for doing this, is because if the next candle reverses, your order will not get filled and it will keep you out of a trade that would have otherwise went bad.I'll walk you through it with some examples:1(1) Say we have this situation here, and we've decided that this bullish candle (The most recent white one) is where we want our entry based on our strict entry rules, whatever they are.2(2) What we would do, is make a stop-limit order, and have our entry a few ticks above the high of the entry candle, indicated here by the green line. It's important it's above the high and not the real body. I don't have the statistics of the fail rate, but I can tell you from personal experience that putting it above the real body instead of the high will get you in a lot more bad situations. Even though you make a little less money per trade putting it above the high, the amount of bad trades it keep you out of is well worth it.3(3) Here's what it looks like when the price reverses and goes downwards. You can see how it kept you out of a trade that may have went bad for you. As an extra, you can see another green line I marked on the left where this would have really saved you. If you would have went in early on the one on the left, thinking price was going to shoot back up, you would have got wrecked. But doing an entry above the high, you would have avoided it.4(4) So, what happens next? This! This is actually an interesting example:Because of how we set our entry with a stop-limit, we could have left the order up for several candles to see how the price action shakes out. If it would have continued downwards, we could have just cancelled the entry and taken a different trade. But being as how it reversed and filled our order, we got in at around the same price we would have got in anyway had we rushed it, but we reduced our risk by keeping us out of the trade had it continued downwards. That is extremely powerful when it comes to mitigating risk.5(5) It's worth noting that this technique can be used with stop losses too. Had we entered here instead (green), and placed our stop loss a few ticks below the low of the lowest candle (red), we would have kept ourselves in the trade long enough for it to turn favourable for us without us getting out too early. Another powerful tool.This example is really interesting because if we would have gone in before the candles closed and rushed it, we could have had multiple failing trades here, but because we did it this way, we avoided them all.6(6) Even if we would have chose the wrong candle for entry here, it wouldn't have costed us anything and we could just try again. If you placed your entries and stops correctly, you could have made multiple wrong choices here and still ended up in a winning trade. A big one (note: I don't recommend risking more than 2% per trade, it's just an example).In summation, make sure and wait for candles to close before you use them as an entry signal. Going in too early is a recipe for disaster. Also, when you're timing your entry, use a stop-limit and enter in a few ticks above the high of the entry candle. This will keep you out of bad trades if the price reverses and goes downwards, reducing risk and making it more likely that when your order does get filled, that it will have a better chance of being a good trade.
Submitted December 23, 2020 at 09:47PM
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