Why did you buy stock XYZ at the price you did?
Can you explain that entry?
Can you explain that entry IN DETAIL?
Can you give me MULTIPLE reasons WHY you took the trade?
I bought it on a HOD (High Of Day) break.
I bought it on a flag/base break.
I bought in on a 2s, 5s, or 15s pullback.
I bought it at support.
It pulled backed to VWAP.
I thought it would bounce here.
All of those sound like good reasons to entry a trade. Right?
By themselves, none of those are a good answer.
Buying some random stock that's breaking its HOD isn't a consistently profitable strategy. Same thing goes for some stock that happens to be flagging. Entering a trade because a strong stock has pulled backed a little isn't an A+ Set-Up. Hitting the buy button because XYZ is at one (1) area of support isn't going to work most of the time. Sure, any of these will work once in a while. That's called luck. Don't confuse luck with a consistently profitable strategy.
Anytime you're entering a trade, you have to make sure the odds are in your favor. You do this by making sure you have multiple reasons for entering the trade. Taking a trade for one reason usually has a very low win rate %. Taking a trade for multiple reasons puts the odds in your favor and has a higher win rate %. The more reasons for entering the trade the better.
When I'm discussing a trade with someone, the first thing I ask is "WHY?" the trade was taken in the first place. I'm usually given an answer like the six (6) listed above. My next question: "AND?" Why else did you enter the trade? Sometimes they can answer this second question but often that answer involves a comment like:
"Well, I thought this would work."
"It looked good."
"This worked before on stock ABC."
"Now that you mention it, I'm not really sure."
Whenever I find myself getting ready to enter a trade for a SINGLE reason I stop, apply rule #43 and don't enter the trade. Rule #43? Never enter a trade for a SINGLE reason - that's just a RANDOM entry.
So what are some good answers to the "AND?" question?
It was also near the premarket highs.
The 2s, 5s, 15s pullback also coincided with strong support on the daily chart.
There was a BIG seller on Level2 that needed to get taken out at the exact same level.
There was whole # support/resistance.
There was support from the 15/200 or Daily 200.
There was a large amount of volume coming into the stock.
It was in the buy zone between the 8/20.
Those are just a few examples. The reasons should really depend on the set-up you're trading and the parameters and rules you have for that particular set-up. These additional reasons you have for taking a trade should be based on the chart and on technical analysis. The other reason(s) should NOT be based on emotion and/or what you THINK the stock may do...
Every set-up we teach and trade has MULTIPLE parameters and reasons for taking the trade.
If the stock you're watching isn't giving you MULTIPLE reasons to enter, go look for the next trade...
Remember: Never enter a trade for a SINGLE reason - that's just a RANDOM entry.
The worst possible entry? The random one.
Any questions? Reach out!