What to look for when Entering a Trade

The information you will require from your research to enter a trade is

  • Underlying Instrument – individual share, commodity or index
  • Epic Code or Symbol
  • Direction – going LONG or SHORT
  • Desired Entry Price
  • Stop Loss Level
  • Target Price

When deciding to enter a trade it is important to look at the condition of the trade:

  1. Price – has the price gapped away from your intended Entry Price? Or has it moved only a small percentage of points away? E.g. 2 points away from a share trading at 1143 is isn’t much but 2 points away from a share trading at 122 represents a much higher percentage movement.
  2. Direction ‐ is the share going in the right direction for your trade? Has it eaten into the target price? Is there still enough points left to take? How far into the Stop Loss has the price moved – if it has moved a high percentage into your stop then you may consider not trading it as it is going against you.
  3. Spread – is the spread right for the share? The spread can be wider in the first 30‐40 minutes on market opening due to volatility and uncertainty. Once the markets settle the spreads should return to more normal sizes.

If all conditions are good then you can look to enter the trade. The above is particularly important when day trading.

What to look for when closing a trade

An important aspect to making money with spread trading is to not let your emotions override rational decisions.

If the market is rallying, you might want to sell and take your profits real soon, afraid the rally will stop and the prices will go back down, and you’ll have missed out. But rallies don’t usually end with a price drop off a cliff; they stay stagnant then may drip down. So you should generally “run with the rally”, riding the wave until it fizzles out, and then sell, maximizing your profits.

Look at the chart: once you get good at charting, you can tell if a share has fallen through a barrier. This isn’t good news. You should cut your losses at this point, because it’s probably more than likely that it’ll fall further, before it goes back up some. Also, if the share is going up, but about to hit a resistance level, and you’ve already made good money, you might consider selling now and taking your profits if it doesn’t break through that barrier and falls back down.

Move your stop‐loss up as the share price goes up (or down if you are going short): Let’s say you bought Intel at 19, and set a stop loss at 17. If Intel goes up to 23, move your stop loss up to, for example, 21, thus making sure you’ve locked in your profits even if it drops back down to 19. Keep moving your stop‐loss up as the stock continues to climb.

It is best not to try and call the ‘bottom’ or ‘top’ of the market; instead be happy taking a slice of the profit in the middle of the action.