In this article, I will take you through a basic strategy, discuss entries and a recent live trade and teach you the easiest way I know to CONFIRM entries.
[Tweet “Confirming Trade Entries is like baking cookies for your Boss.”]
It doesn’t mean your boss won’t fire you, but it definitely improves your odds. Just like an entry confirmation doesn’t mean you won’t lose the trade, it just improves your odds. At the end of the day, improving your odds on every trade is how you become profitable.
Before, I can get into this topic, it’s important to understand that first you need a fundamental entry strategy. Now, I don’t mean that you need 237 rules to determine when the market is going to move x amount of pips on x pair for x amount of time… I am simply talking about a basic understanding of Market Structure and knowing whether you’re looking for trend continuation, breakouts or reversal trades.
If you don’t already have a basic understanding of structure and what a good entry might look like, just Download our Double Trend Trap Strategy Guide(it’s free).
The Problem with an Entry:
The problem with an entry strategy is that there approximately 2.78 Bazillion of them and, in themselves, they don’t make anyone a profitable trader.
The solution is that you have a better understanding of how to trade beyond where just an entry might be. You understand how to Manage your way to success (just like you have to manage a business to success), you need to understand market structure, filters, risk control, etc.
A lot goes into trading beyond just finding a good entry.
An Easy First Step:
An easy way to start improving is using an entry confirmation tool. Again, this isn’t something that will turn your trading around overnight, but it’s a great first step to becoming more selective and improving your odds of winning a trade every time you click the Buy or Sell button.
My favorite way to confirm an entry is to use Momentum. Whether you are looking for a breakout a reversal or a trend continuation, it’s critical that you have momentum on your side to drive the price into your target.
The tool we use to find momentum is called the SMI or Strike Momentum Indicator (and it’s dirt cheap on our website) because it makes “seeing” the momentum very simple.
Yesterday (Feb 19), we had a CAD/CHF trade possibility.
The trend is SIGNIFICANTLY down on the Daily and 4 Hour chart meaning that we were stalking Bearish breakout during a consolidation period.
This is one of the easiest trades to look for in the market because once the trend is strong in a certain direction, the move AFTER consolidation is more likely to go in that direction.
What you will notice in the Chart above is that the SMI is showing that the trend is Bearish and that the trend is Confirmed, meaning we should definitely be waiting for a bearish move.
It’s important to note that just because the trend is bearish and confirmed, we should not just short the market. We still need an entry and a confirmation.
In the next few hours, the market began to break to the downside so we zoomed into the 15 Minute to look for an entry.
When we are zoomed into the 15 Minute (I am, of course, exaggerating how close we are zoomed in for the sake of the example) we can draw a rough trend line on the most recent up move in order to create a signal for when price is breaking back in the direction of the Bearish trend.
The trend line break itself is a confirmation because we are not just shorting as soon as we see any bearish movement. Instead, we are waiting for the confirmation of breaking this trend line; however, we’ll also wait for the confirmation of the SMI to tell us when there is enough momentum to carry the trade through because many trend line breaks are false moves, especially on a 15 Minute chart.
As you can see above, the next bar breaks our trend line which is our entry signal, but the SMI has not given us a confirmation of momentum, so we don’t enter the trade. We simply wait to see if the currency pair is going to create enough momentum to give us the confidence to short.
The potential trade progresses a bit more and stays below the trend line which is a good sign, but we still do not have enough momentum, so we wait.
After a few more bars, the SMI gives us the signal via an arrow on the chart and tells us that we have enough momentum to push this trade all the way down to our target. So we enter the trade and put a stop above the recent high before the trend line break.
At this point, we can just wait and see how the trade develops. Everything looks good and the entry confirmation was the icing on the cake. A great entry with room to move, we have put the odds in our favor.
And WOW, this trade took off. We grabbed 100 pips on a 15 minute entry… Now, it is important to note that this will certainly not happen every time.
This happens to be a beautiful example of what momentum can do which is why I used it for this article 🙂
Just about every bar on the chart was bearish on the way to the target and that is the power of momentum on your side.
Again, just because you have an arrow on your chart doesn’t mean this will happen, but it shows you how Momentum can drive price.
That’s why we invented the SMI and we encourage you to use it. It’s not a strategy in itself, you shouldn’t take a trade every time you see an arrow, but it is a GREAT confirmation tool and that is an easy first step to getting into better trades and avoiding bad ones.
The SMI costs a few bucks on our website, so if you are interested in using it, you can grab it Right Here.
Thanks for reading this article, I hope it gives you something to think about in terms of Entry Confirmation and why just having a “Trade Setup” alone is not going to make you a winning trader.
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