Discover The Secret Of A Flawless Trade Entry

Trading Rules: 2% Rule Explained

I think most professional traders already know the secret of a perfect trade entry, but it’s the newbies who insist on searching for the Holy Grail of trading. Well, you need look no further because the secret of a perfect trading entry is that there’s simply no such thing as a perfect trading entry. Unfortunately, you’re never going to find that perfect magical indicator that tells you when to get in and when to get out.

As I’ve just mentioned, while the pros are aware of it already, those who are new to trading need to accept the fact that a “perfect” indicator does not exist.

What is it that drives people to believing that it does exist?

When asked for his opinion as to why many traders, novices in particular, believe in such a thing as a perfect trade entry, Van Tharp makes the following suggestion: Novice traders have a tendency to believe that if they’re actually involved in the selection and entry into a trade, they have a certain amount of control over the way the markets behave. Likewise, this highly respected trading guru points out that these novice traders have something in common with all those people who choose lottery numbers which in some way are connected to their personal lives, be it their birth date, or be it an anniversary date.

These people choose these numbers because they believe the numbers are ideal, thus giving them a greater chance of winning. Of course, their combination of numbers has the same chance of winning as any other combination would have, but the difference is, there’s a certain degree of emotional attachment involved. This tends to impart a feeling of power and/or control over the final outcome and this is the exact same reason why traders want to do the same with their trade entry.

The only time a trader has any degree of control over a trade entry, is when they’re entering a trade. On the other hand, once you’re in a trade, you need to understand that you no longer have any control over the markets, or the way in which they behave. The bottom line is, once you enter into a trade, you need to let go.

Contrary to what you may currently believe, the amount of money you make on a trade depends primarily on how much you put into a trade and when you exit the trade, and not when you enter it.

Let’s try and shed a bit of light on this by looking at an example:

Okay, so you’re ready to buy some stock and by implementing the stock trading system you use, you know that you should buy the stock at per share, and that you should exit when they reach per share. In this example we’ll look at two different scenarios. In the first one you have 00 and in the second you have ,000.
1. Buying at per share, your 00 gets you 100 shares which in turn means that when you sell at per share, you will have made 0 profit.
2. Buying at per share, your K gets you 1000 shares. In this case, when you exit at per share you’ll be 00 richer.

So, now you have it. Your trading entry doesn’t determine how much profit you make but instead, it’s the amount of money you invest that will determine your profits. This is without a doubt your cornerstone of effective trading money management.