3 - How I Decide My Entry PointsAmazon.com, Inc.BATS:AMZNbalinorI should premise that I almost always operate LONG and rely mainly on the basic tools in my trading (which I listed in the first article of the series). There are hundreds of different methods that might rely on specific indicators or calculations, and for each of these, there are endless videos and books explaining how to use them. Learning a new method means adding a new tool to a hypothetical "toolbox" that might fit certain situations better than others. With the basic "tools of the trade," it is still possible to trade profitably. The important thing is to master all aspects, especially the emotional component and money management. This article is primarily aimed at those who are approaching the world of trading. My Favorite Setups 1) Entry on Support/Trendline Definitely my workhorse—by far my favorite entry, though it requires patience. Support identified on the weekly or monthly chart, preferably with three or more "touches," is often the best kind of entry. Identifying it is quite simple: you draw a line connecting the lows and observe how many of them touch it. They can be found on any timeframe; the holding power of a support that has existed for years is greater than one from a few days ago. In my charts, I mark this support in blue and sometimes accompany the touches with upward-pointing arrows of the same color, which you can see in the chart for this idea. Generally, on long-term supports, I enter immediately with a full position and place the stop-loss below, usually just under the previous low (if it is not too far away). Note: For some hyper-growth stocks like Palantir, it might be better to use a Logarithmic chart in the case of monthly analysis. 2) Parallel Channel Entry A close relative of the support described in the previous paragraph. The channel attempts to include the highs and lows of a movement between two parallel lines. Again, a parallel channel can be found on any timeframe. The price tends to move like a ball bouncing between the two margins, which therefore become the main point of attention for a potential entry or exit. There may be a breakout or a bounce on the margin, which I sometimes try to catch with an entry like in the "AI Factory" idea. It is important to distinguish a bull/bear channel from a bull/bear flag: in a channel, I tend to anticipate a bounce, whereas in a bull flag, I look for an upside breakout. 3) Bullish Breakout of Descending Dynamic Resistance When a price continues to drop, it is generally possible to draw a descending line connecting 2 or more highs. In my charts, I mark this resistance in purple and sometimes accompany the touches with downward-pointing arrows of the same color. Prices do not fall forever, so managing to catch the reversal moment often leads to a great gain. The upward break of the resistance is often accompanied by an increase in volume, confirming the arrival of buyers. I generally make a partial entry followed by a second accumulation after the close above the previous high (which is often marked in light blue in my ideas). The main risk lies in a false breakout followed by a return to the downward movement. 4) Bullish Breakout of Previous Highs A close friend of the previous point, this occurs when for weeks or months the price fails to exceed a certain level, forming a series of highs that can be connected by a horizontal line (resistance). Depending on the shape of the lows, there may be a rectangle (or box) pattern, a triangle, or a semicircle. In all these cases, when the price manages to close above the horizontal resistance, a strong upward movement often follows; the longer the period spent under resistance, the greater the expected rise. Often, after a few days in cases of major breakouts, a retest follows before the strong rally, but not always. I usually enter partially when I see the price holding below resistance, especially if volume starts increasing. I add the second part on a retest or if the rally gains momentum with a large volume surge. 5) Moving Averages I make fair use of moving averages both as confirmation and as an entry point. Over time, I have gotten used to using only "classic" SMAs instead of exponential averages and the SMA9 and SMA18 that I see other traders use. - Fast Averages (10 and 20 periods — gray for 10 and orange for 20 in my charts): An uptrend often continues to touch the SMA10, bouncing off every contact. This happens across almost all timeframes, both high and low. The SMA20, on the other hand, can lead to a stronger bounce than the others or to a bearish breakdown that confirms the loss of momentum in the ongoing movement. - Slow Averages (50, 100, and 200 — red for 50, green for 100, and blue for 200 in my charts): Sometimes they act as a reversal point in the same way as support. You can recognize this because the candle has a long lower wick resting precisely on the SMA (and the "reverse" can happen where price is rejected by an SMA and leaves a long upper wick). For entries (or exits) on SMAs, I rely heavily on experience; sometimes I enter fully and sometimes only partially, depending also on the current chart structure. It can happen that an SMA and a support (or resistance) sit at the exact same levels, in which case I view this as further confirmation. 6) Chart Patterns - Head and Shoulders: I won't describe what it looks like since it is a fairly well-known pattern. The success rate is among the highest in my opinion, especially when there is a retest of the neckline. The target equals the head-to-neckline distance. I generally enter with a portion before the neckline breaks and then add on the retest. The main difficulty lies in recognizing it and correctly identifying the neckline because it is often sloped. - Double Bottom/Top: The double bottom forms at the end of a downtrend at historical lows, and if caught, it is easy to double your money. The double bottom also has a high success rate, provided you know how to wait for the neckline breakout, as it can easily turn into a triple bottom or a head and shoulders. The target equals the distance from the low to the neckline. Here too, I generally enter with a small part before the neckline breaks and then scale in heavily on the retest. The risk here is entering too early because the second low is often slightly lower than the first; it is better to wait the following days to make sure there is a reversal rather than a continuation of the decline. - Cup & Handle: A pattern formed by a large semicircle followed by a smaller one. The breakout of the horizontal resistance (neckline) targets the distance between the large circle and the neckline. The success rate is quite good in my view, though it is always better to wait for a neckline retest. Compression Triangle: By far the most frequent pattern. Prices often tend to compress before a strong move in one direction. The triangle has various shapes and can even be symmetrical, but it provides no certainty regarding the breakout direction. I use it as if it were a short-term support, making a partial entry on a touch of the lower side and then adding if the upper resistance breaks. 7) Candlestick Patterns I mainly use 3: Hammer, Doji, and Shooting Star. The Hammer often marks the end of corrections, while the Shooting Star marks the end of rallies. If the day ends with one of these candles, I evaluate a partial entry to be increased the following day upon confirmation. The Doji, on the other hand, is a candle of indecision, and you must wait for the following day to see if the price breaks above or below it, providing an indication of the subsequent move. 8) Gaps Gaps are one of those things that divide traders: some use them like I do, while others say they don't work and should be ignored. A while ago, I looked for some fill statistics and concluded that there is about a 75% probability of a fill occurring, especially in the first few days. I decide whether to use them based on the chart; if upon opening it I see only two or three open gaps, it means it is a stock that tends to fill them. If I see ten or more, I ignore them. (This happens because many stocks are listed on different markets, making gap openings frequent.) I mainly use gaps to set a total or partial exit target. 9) Volume Clusters and POC On large-cap stocks, I occasionally use a price return to the POC (Point of Control) as an entry point, which acts effectively as horizontal support. The same goes for any major volume clusters. 10) Buy the Dip This is a very high-risk entry following exceptional events, such as an unliked earnings report or news headline. Market reactions to these events are often disproportionate, so I first evaluate the news itself, reading it independently and assessing its reliability. Some short-focused firms occasionally publish "dubious" research on certain stocks to drive them down. When the price drops decisively but halts right on a long-term support level (mentioned in point 1), I will likely try a partial entry. The risk lies in the fact that the price is a "falling knife," and it is very difficult to predict where it will stop. There is the 3-day rule or volume analysis, but in the end, absolute certainty does not exist. --Final Notes-- I always prefer to split my entries into two or three parts rather than jumping in with a full position right away. This allows me to correct my average cost basis in case of an entry that is too early (which has always been one of my main challenges). Conversely, if the price does not move as expected, a partial entry helps limit the damage. However, a partial entry is the result of planning and is very different from "AVERAGING DOWN" a losing position. Averaging down is often one of the biggest mistakes and must be avoided; I will discuss this in the chapter on psychology. The majority of those approaching trading think the hard part is buying at the right time. Unfortunately, that is not the case. Managing the position and knowing when to sell are equally important—and even more so are capital management (sizing) and emotional control. If this article is also well-received, I will proceed with the next one: "4 - Position Management and Exits" Thanks for reading, Balinor Link to previous articles, which I kindly ask you to leave a like on if you enjoyed them. 1-From beginner to trader 2- How I choose the stocks to follow