Trading: Entering a Trade

Knowing how to effectively enter a trade is a crucial skill. Having good and thorough technical analysis is crucial for this to work. Whenever I am eyeing a purchase, I always try to think of all the possibilities. Of course I know what I think the price will do, but you always need a backup plan for if things go south (they will sometimes, I promise).

Getting a good entry starts in the analysis phase. If you’ve done solid TA on all timeframes, you should be able to see the levels of support and what will happen if the price breaks a lower support. You should know if there’s a support below it, how far down that is, and roughly where the RSI levels will be when it touches that support. If a coin doesn’t quite bounce the way that you think it will after your entry, the first step is to be patient and calm. As long as the price is still above support, you’re fine. If the price drops below support, that’s when you need to start reevaluating the situation. In the event that your coin is crashing, you have essentially three options:

  1. Choose to cut the coin loose and give up on the trade. I try to avoid this at all costs. When I decide to enter a coin, I am confident that it will go up eventually due to whatever news I’m speculating on. I’ve already done research on the team and the project, so I know that it has potential. If the TA fails and it does opposite of what I think it is going to do and there is no support in sight, I may choose to terminate the trade if I am less than 10% down. At this point I will redraw lines and see what went wrong. Usually I only have to take this route if bad news comes out about the coin or a Bitcoin bull run pushes all of the altcoins down.
  2. Wait for a bounce, and then sell the coin. If you see your coin break support and it’s not looking good, you could wait for a short bounce and unload it at the best price possible before it continues down. This is an art. Generally this happens to me when TA fails, the price falls through support, but the 1 hour RSI is on the floor. In this situation, I would wait for the 1 hour RSI to recover a bit and if the trade still looks bad, I’ll dump the coin and reevaluate.
  3. Buy more as the price goes down and average out your entry. This is what I do most of the time if things don’t go my way. This one is a bit tougher to understand so I’ll use an example. Let’s say I buy a stock at $10. A day later, it goes down to $8. Well, that means I’m 20% down from my original position. However, if I buy an equal amount at $8 as I did at $10, my average entry price will now be $9. This means that I only need the stock to bounce to $9 for me to breakeven, not $10. I use this when I’m able to justify doing so with the technical analysis and I believe a lot in the project and don’t mind holding a lot of the coin. Averaging down has saved me plenty of times. You really need to be careful with this though because if it’s really not looking good and you just keep adding more, you’re going to lose a lot of money very quickly. Knowing when to cut a coin loose is a skill that has to be developed. After a while, you’ll kind of just get a gut feeling. It’s tough to explain.

Some other stuff you need to know about entering a trade:

  • Exercise risk management. Don’t go 100% into any one trade. Control your funds responsibly. We’ll talk more about this in a later post.
  • Don’t market buy unless you really need to enter the coin quickly. Set an order for exactly where you want to enter and just wait for it to get filled. Only market buy in urgent situations.
  • Don’t FOMO. DON’T FOMO. Never buy a random coin just because you saw it mentioned on twitter or reddit. Do your research and stick to your plan. As soon as you start getting disorganized and entering any coin that people shill, you’re no longer trading. You are gambling. If a coin pumps in price and goes on some insane run, that does not mean you should buy it. Coins pump every day. There will always be another one. Take a breath, look at the chart, and trade like a professional, not a noob.

Buying a coin sounds simple enough, but these guidelines will make sure that you aren’t throwing money out the window. The basics are crucial. In the next post I’m going to cover how I exit trades!