What Do I Do If I Miss A Signal?
What Do I Do If I Miss A Signal?
By Dave McLachlan
If you’ve been trading for any amount of time you will have experienced this scenario – I know it was one of the more frustrating things about trading and investing for me before I learnt how to deal with it.
You might know what I mean - you’ve just spent hours researching a stock; checking out the balance sheet, checking the charts, and have finally convinced yourself to buy it. You set your entry point and wait. But something happens – the stock jumps up and gaps directly past your buy price. You watch in amazement as the price continues higher and you think “I can’t buy now, it’s too expensive! Besides, I could have bought it cheaper at my original set entry price!” And what happens? You never buy. The price trends nicely up but you can’t bring yourself to enter because now the stock looks “expensive”.
If this has happened to you, don’t feel bad. It happens all the time – especially gaps in price – and with good reason. Large players in the market, with the ability to move the stock to a certain degree, can cause the price to gap upwards. This traps in the bull players, and also scares out the bear players, which is exactly what they want if the stock is to rise.
But for whatever reason you’ve missed a trade, there are plenty of ways to enter the stock again afterwards. In fact, I will give you six different ways.
Six Ways To Enter After Missing A Signal
First you need to realize that it is ok to enter a stock again if you do miss a signal. As long as the price is still going in your direction then you can still make money. The key then becomes telling when the stock is likely to continue in our direction. Ways we can tell are:
1: You get a further continuation pattern as the trend forms. Sounds simple enough? It really is. Plus you can use the technique below if you can’t wait around for a continuation pattern to form.
2: You can move down one timeframe to look for another signal. For example if you are trading on a weekly chart, you can move down to a daily chart and look for additional trend line entries, continuation pattern entries, or whatever you like. The same would go for Daily charts to intra-day charts, or monthly to weekly charts. This method is my personal favorite. The only word of caution here is I would manage the trade on the new timeframe until you get to the risk free trade, then move back up to your original timeframe.
3: You can enter again using Trend Line Support or Resistance. Often a stock will make an entry signal, and then pull back again before shooting off. You can use Trend Line Support and Resistance by buying at support and selling at resistance (provided the trend is confirmed of course).
4: Using a similar technique as above – you can enter again using a trader’s trick entry. You can use the trader’s trick entry either with an ABC correction, or the trend line support and resistance as the stock pulls back.
5: You can enter a stock again on a further Dow Theory Entry signal. Again, simple but effective.
6: Provided the overall market is moving in your direction, you can simply buy more stock (or sell for a bear market trend). The only caveat here is to still stick to your solid money management, stop loss and trade management rules.
In reality it is a good idea to ensure the overall market is moving in the direction you wish to trade for all of the above techniques. This is because 3 out of 4 stocks tend to travel in the direction of the overall market, helping to increase your probability.
The Market Will Always Be There Tomorrow
The main point is that the market is always moving, and because of this there will always be another chance to enter a stock if you need to. Have patience, and don’t force your view on the market – wait for it to prove itself to you. The market is a wonderful slave, but a terrible master.
Investing and trading should be fun, and never stressful or time-consuming. The more useful tools we have in our trading box the more prepared we will be. And the more prepared we are, the more we can relax and let the market do the work it is supposed to while enjoying the lives that we are supposed to. And this makes me happy.
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July 30, 2009
Tags: Enter and Exit, miss a signal, trading plan, trading system Posted in: Articles On Building Wealth
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