What is better? Getting into a trade early to get a better reward:risk ratio and larger payouts or taking trades later with more confirmation and higher quality? This question comes up frequently in our pro area and also in my emails so I thought I’d share my view and explain what most people overlook.
What does early vs. late entry actually mean?
Let’s first be clear on what we mean when talking about early and late entries. Every pattern or method can always have an early or a late entry signal, depending on the style that you want to follow.
When we look at a Head and Shoulders pattern, for example, it means that a trader enters before the neckline is broken when he enters early. A trader with a late entry enters after the neckline is broken.
A trader using moving averages might use a smaller moving average to get earlier signals while a trader who wants to have later entries uses a higher period moving average – I talked about the best moving average setting before.
A support/resistance trader gets in right at the level for an early entry, while the later-entry trader waits for a confirmation signal around the levels.
This idea can be applied to any trading system, pattern or approach; there is always a way to get into a trade earlier or later by changing the rules slightly.
1. Early entry
Professionals are looking for an earlier entry because it usually gives them a better Risk/Return coefficient. It also appears to be easier with regard to patience and eliminates concerns that the market will make its move without you.
The disadvantage is that early entry means more false signals and a greater load on the psyche. The earlier you enter, the more losing transactions you will have. The main problem remains the trainer's psyche and for this reason the trader has to make sure that even after a series of losses, his strategy will compensate them.
The system with early inputs looks very good on paper, but when it comes to reality, it is usually too difficult for beginners and they start to deviate from the plan.
2. Late entry after confirmation
This type of trade is a lot more psyche because you get a lot more profitable deals. This means less emotional problems than the early-entry system. The Late Entry Strategy will help you overcome many of the market problems.
The main drawback of the system is that it requires traders to be much more patient, waiting for enough to get all available entry criteria. On the other hand, the Risk/Reward ratio is much lower, but the high percentage of profitable deals will offset this effect.
The most important part of this post is that you have to understand that there is no better or worse system. Both approaches can be profitable.
The only thing the trader should understand is that he is aware of his own personality and his preferred style of trading.
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