Stock Market Trade Entry Optimization.

A lot has been written about how and when to enter a trade. However, in all the books we have read about the stock market we never encountered a discussion about how to buy stocks to get a fair price after your system generates a buy signal for the next morning.

Do you chase stocks (buying stocks when they rise and then watching them come back down the same day)? Do you feel that you could get a better price or trade execution? Our experience dictates that it is very disheartening to buy a stock at the open and then see it crash during the day. That is the reason behind this simple method of entering a stock position.

Some traders enter at the open and some traders enter trades at the close. Some experienced traders advise not to enter a trade at lunch because it is a period of low liquidity. Some traders caution against entering a trade during the first 30 minutes of the trading day as it is a period where the prices are governed by the activities of the stock market maker.

We at http://www.stockmarkethacker.com offer two creative ideas to enter stock market trades in a systematic way: enter as close to the lows of the day as possible or enter when the 5-minute chart MACD histogram goes from negative to positive.

The first method is great because it eliminates the emotions of chasing a stock that gaps up at the open (a rookie and common mistake).

For example, if stock XYZ has the following daily quotes for the five preceding days:

Day 1: open: 51 low: 51 Difference=0
Day 2: open: 50 low: 49 Difference=-1
Day 3: open: 52 low: 50 Difference=-2
Day 4: open: 54 low: 53.5 Difference=-0.5
Day 5: open: 51 low: 49 Difference=-2

We have an open-to-low total sum of 0+(-1)+(-2)+(0.5)+(-2)=-5.5. Then take this number (-5.5) and the average it over five(5) trading days and the open vs.low average that results is -1.1 (-5.5/5=1.1).

Suppose the stock XYZ opens at 52 the next trading day, then the entry point of the trade would be 52.0-1.1=50.9. The stock market strategist would place a conditional limit order to buy it at 50.9 or lower and the order is only valid for that day. Therefore, the strategist gains about an extra two(2) percent by using this entry point instead of buying the stock at the open to avoid the risk of an opening gap.

Trade entry optimization will help increase your stock market profits and decrease your losses in the long haul. In addition, it will help you trade in a way that is aligned with the market maker since stocks tend to fill opening gaps. However, the stock might not reach the limit price and the order might not be fulfilled. In those cases it is best to move on to the next opportunity. Our mantra is to never chase a stock. We will always try to buy on the dips and not the breakouts.

Below is a visual example of the system and how it is implemented. In this example we used five days for simplicity, however, a different time frame could be used.

Google (GOOG) Stock Market Trade Entry Example.

We will discuss how to use the 5-minute chart MACD entry strategy on a future post. Stay tuned. Better yet, subscribe to our RSS feed or our twitter page today @smarkethacker!

Note: We do not own a position on Google (GOOG).

Popularity: 8% [?]

Related Posts:

• Want to Trade Without Stops? (Part Deux)
• Where Are the Customer’s Yachts?
• Interesting Stocks for 12/27/2010 – Some ETF Love with a Twist from the Pacific
• Free Access to Investors.com
• Stock Market Efficiency