Should I Re-Enter a Trade?

The price hits your stop loss resulting in a break even trade or losing trade…but then you see the price immediately start moving in your direction again. Do you Re-enter a trade? How we act in this situation is a significant determinant of our overall success. In this article, I’ll discuss why you should re-enter a trade.

Why you should Re-Enter a trade..

Some of my biggest trades will come on my second entry, or sometimes even my third. This is because the market often has a false move in the opposite direction before a big move in the trending direction. You may have a great trade setup where everything looks great. But instead of going in your direction it blips past your stop loss, resulting in a break even trade or a loss, and then runs in the direction you expected. If the trade was good before, it is often even better now. The price tried to move in the other direction and quickly reversed back in the expected (and strong trending) direction. Get back in and re-enter the trade!

This is normally a powerful sign that price is just testing support or resistance, in case of an uptrend, the move lower did not have enough force to break support making the area even stronger. The upward momentum immediately resumed pushing the price up with a Re-Entry as a result. Don´t be afraid to take a Re-Entry even if your fist trade was a losing one.

As a side note, holding trades through news events is a personal decision, not my cup of tea. There can often be big moves, and they can go for you or against you. If unsure, get out before earnings!

Careful of Over-Trading

There is a big distinction between re-entering a trade because it is still a valid opportunity, and re-entering a trade because we want revenge for the loss.

Make sure the opportunity is valid. Look at the trade with fresh eyes. Don’t let the recent loss skew your view. If you hadn’t taken the prior trade, would you want to take the new trade that is developing now? If the answer is YES, then take the trade. If you are just mad because you lost money and want to make it back as quickly as possible, that is not a valid reason for entry. Be patient. Another opportunity will come along, and if you focus on trading the strong trends, then that money will be made back quickly. Take random trades, or trades in weak trends, and losses will likely mount.

Trade Re-Entry Guidelines Summary

If there is still a strong trend and you are stopped out, but then another signal occurs right away, consider taking it. Especially if the move you were stopped out on is quickly reversed by a strong move back in the trending direction. The market doesn’t care that you lost. Sometimes we will end up in trades before the asset is ready to move, and we get stopped out. What matters is recognizing that it is still a good trade and capitalizing if another opportunity materializes. Keep an eye on the average daily range and time of the day. If we are trading near the Average daily range high or low of the day, price will probably go side ways. If you are approaching the end of the trading day then most of the time it is best to call it a day.

Live trades taken in the Live trading room on Monday August 12th 2019:

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Hope this helps,

Alexander Soares

 

 

 

 


Also published on Medium.