Swing Trading for Dummies Summary (C11): Entries and Exits

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The act of trade execution isn’t as important as your risk management plan, but the better you are at it, the more profit you will make.

If you are able to execute orders during market hours, you will have more options, such as additional order types and intraday charting.

If your lifestyle has you trading outside market hours, then things are a little different.

Placing a market order means you want your order to be filled as soon as possible, regardless of the price. If you are trading during market hours and the stock has enough liquidity, it is likely to get filled immediately.

Never enter a market order when the market is closed. You have no idea if the security will gap before the next open.

With a limit order, you set the maximum price you are willing to pay per share (assuming you are going long), and your broker will execute the order only if the price is at or below that specified amount.

When trading outside market hours, use limit orders to be filled the next day. Once they are filled, enter a stop-loss order.

Sam’s Note: Your broker may allow you to attach a stop-loss order at the same time as you set the limit order.

A stop order means you will enter or exit a position only after the price reaches a certain level defined by you.

Sell stop orders are useful for protecting your capital or for entering short positions. They tell your broker to sell shares only if the security reaches a certain price or lower.

Buy stop orders are essentially the opposite of sell stop orders. Use them to buy a security only if they start trading above a certain price. Buy stop orders can also be used as protection on a short position.

Once the price level of a stop order is reached, it becomes a market order, which means the actual price you receive can differ from the one you specify.

With a stop limit order, once your stop price is reached, instead of becoming a market order, the stop order turns into a limit order.

This ensures that the actual execution price isn’t wildly different from your stop order.

Stop limit orders are great for protecting your capital. The downside is that they are less likely to get filled, which actually isn’t such a bad thing. You don’t want a bad trade getting filled.

Never use a stop limit order as a stop loss order. The limit part may prevent the order ever executing, which is bad news when you need to get out of a losing trade.

Many traders will enter a trade based on a signal that has happened regardless of when it happened. For example, if the MACD shows that it is in a buy zone.

Taking this approach will often have you entering trades too late.

It’s far better to only execute a trade on the day of the buy or sell signal, or if you trade outside market hours, on the very next day, but no later.

In order to do this, you need to have very clear buy and sell rules in place and written down in your trading plan.

Sam’s Note: Many trading signals require you to wait for confirmation, e.g., a bullish candle following the signal. In this case, the confirmation day is the day of the signal.

Only enter trades on your terms!

This is what the limit order is for. When you see a buy signal, take the time to decide where to place your limit buy order. If it doesn’t get filled, it’s fine. There are plenty of opportunities out there.

When exiting, however, you want to do it fast. As soon as a trade goes against you, exit. This is what stop loss orders are for.

A trailing stop loss is a stop loss that is raised as the price of a security increases (or lowered as it drops if you are going short).

This can be done manually or, depending on your broker, you can set it to trail the market price automatically by a specific measure, such as $2.

Although not necessary to use, when trading while the market is open, you can take advantage of an intraday trading overlay.

An intraday trading overlay is when you zoom in on a 30-minute or 1-hour chart and time your entry based on some kind of technical indicator. Use it on top of your existing entry plan.

Chart patterns are not reliable with intraday charts so stick with technical indicators.

Additionally, never compare intraday time-frames to each other. Pick one, either 30-minute or hourly, and stick to it. Otherwise you may get mixed signals.

One word of caution is to never trade when the market first opens. This is a chaotic time. Wait 30-minutes or so for it to calm down.

Read the next chapter here.

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