Entry Strategy — reaction limit test

We do a lot to identify the market”s near-term objective (direction and target). That doesn”t mean the market will trend there uninterrupted, assuming that it”s going to get there. Even the best entry strategy may be stopped out — profitably, or not — prior to the trend ending. So, strategies to trade around a move are equally important as the original signal to continue exploiting the trend as it develops.

LATE-ENTRY / RE-ENTRY / ADDING

The initial buy or sell signal is only one possible entry trigger. A test of the reaction limit can also be used as an entry parameter.

When the 3-minute extreme for probing the reaction limit is identified, the risk can be calculated as a price beyond that 3-minute extreme. So long as that 3-minute extreme isn”t exceeded, any outstanding target can remain in-play.

This information can be useful to considering a new position”s Risk-to-Reward ratio.

First, measure the current price against the price that would violate the reaction limit”s 3-minute extreme. Next, measure the distance to the potential target. These two measurements are the Risk and Reward, respectively.

If that Risk is less than the potential Reward, and meets any personal trading plan objectives, then it can be considered for entry.

If not yet exposed to the original signal, or already exited, it would be an opportunity to enter or re-enter. If already exposed, this would be an opportunity to add.