First, there is no right or wrong approach; it is what works best for you. What you described above fits with how I typically frame a trade set-up, with a few variations. Allow me to explain.

When you are looking to buy a pull-back in an uptrend or sell a rally in a downtrend, we cannot know for certain whether prices are simply correcting or starting a new trend. Sometimes we will nail the turning point; other times the market will roll right over us and take our stops out.

That said, I think it is best to first determine how you will break your trade up. Will you take your max position size (based on the stop-loss and max % risk) and break into 2, 3 or 4 entries?

I think 2 or 3 is a good number ….4 seems like overkill in my opinion.

However, I would rarely enter a full position into the support or resistance zone I am looking at. Remember, as noted above, the market may not give a rip about my so-called resistance or support zone.

Therefore, by putting on a piece at what we believe to be favorable price levels, we put ourselves in position to get a really nice entry if the market then reverses shortly thereafter. If the market continues to move lower or higher we have a modest position on if we get stopped out. Seems like a reasonable trade-off.

I would use the last half or third to add to the position once the market starts to move in the direction you anticipated.

I hope that helps.

Dave

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Author

Dave Floyd

Aspen Trading Group

If he lived anywhere but Central Oregon, where the trails of the Cascades mingle with the warm sunshine and fresh air of the high desert, Dave Floyd would probably be one of those guys who lives and breathes trading and analysis 24/7.

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