Late entry for a position can be costly in that it increases risk and decreases profit potential. With that in mind, let’s take a look at some of my favorite indicators for improving entry with timing tools.
Intraday Signals
To improve timing when entering a position, I prefer using 30-minute bar or candlestick charts. Generally, liquidity (volume) peaks during the opening 60 minutes of the trading day and the last 30 minutes of the session. Professional traders tend to be most active during those times because they can execute large orders without moving the market against their position. Fundamentals move markets and pro traders have access to better research and development than we do. Thus, we may discover their bias if we focus on those time frames when they are most active. Consequently, a move above or below the flag or pennant (consolidation formation) in the first hour of the day is often the trigger to enter a position. A late day violation of a congestion pattern also tends to lead to continuation in that direction.
Early Session Entry
On most days, the high or low for the session occurs within the first 60 minutes of the day. This happens 65% to 70% of the time. Therefore, when a market makes a new high after the first hour a long position is taken, or if a new low is made after the opening hour a short position is taken. This signal works best after a few days of choppy, trendless trade where range length and volume are below average.
Single Candle Indicators
Long body candles portray power. They mean bulls or bears were dominant during an entire time frame. They are common at the onset of trends or acute vertical moves. They are more dependable in the first thirty and last 30 minutes of the day. Furthermore, they tend to come in clusters as the trend accelerates.
Another candle pattern that frequently ignites a trend is known as an engulfing candle. In technical circles it is also known as an outside day. This is a candle or bar that has a lower low and higher high than the previous candle or bar. These are common at the end of congestion phases and often signify the start of a significant vertical move.
Retracement Entry
Events or fundamental data are the driving force for price movement. Unexpected events are often the catalyst for abrupt above average moves. Swift markets are tough to catch, and they are called fast markets for a good reason. If you enter a market order to buy in a fast market, you will likely buy near the top of the move. And if you enter a market order to sell, chances are your order will be filled near the low of the move. In other words, you may endure horrible trade location.
Rather than buy or sell immediately after a sharp move I prefer to wait for a 50% retracement to enter a trade. For example, let’s say the market rallies 30 points to 300 immediately following an event or economic report. Wait for about a 15-point dip from 300 (285) to enter a long position. You will improve your trade location with this method, increasing the odds of more profit while also decreasing risk.
John Seguin
Senior Technical Analyst
Market Taker Mentoring
