Entry Points & Stop-Loss Levels

Often, risk in investment markets is defined in terms of cash. However, risk in a trading plan is not limited to just losing money. Another way to define risk is in terms of opportunity risks. Entering a particular trade means the trader may not be able to enter another.

They say in the forex market, “Some of the best trades are the hardest to get into.” Therefore, it is crucial to identify trade entry points. Technical analysis is a fantastic way to identify these.

Use These Technical Levels to Determine Entry Points

  • Daily highs and lows for medium- to longer -term positions
  • Spike highs and lows
  • Congestion Zones
  • Trend lines in various time frames (daily, four-hour, and hourly)
  • Fibonacci retracements of prior price movements (38.2 percent, 50 percent, 61.8 percent, and 76.4 percent)
  • Hourly highs and lows for short-term intraday position entries

Be prepared with a backup entry point if the entry level sought is never reached. This may mean the position size needs to be reduced to make-up for the worse entry rate. If the plan involves a short-term trade, be sure the entry point is also likely to be reached in the short-term time frame. To do so, use momentum reading to help determine this likelihood.

Just as important as determining the entry level is establishing the stop-loss level.  The stop-loss level is the point where the trade setup stops and the strategy is negated. This level is set in order to minimize a trader’s loss. Occasionally, a trader is removed from a trade prematurely due to the stop-loss level. To avoid this yet still remain defensive, allow for a margin of error.

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