Why your entries suck (and how to find better ones)

Key Concepts

• Risk-to-Reward (RR) Ratio: The ratio of potential profit to potential loss in a trade.
• Expectancy: The average profit or loss expected from a trading strategy over many trades.
• Volume Weighted Average Price (VWAP): The average price of a security over a period, weighted by the volume traded at each price.
• Morning Range: The price range established in the initial trading period of the day.
• Chopping: A market condition characterized by frequent, small price movements in both directions, often leading to losses for traders.
• Higher Low: In an uptrend, a price point that is higher than the previous low.

Entry Strategy: Maximizing Risk-to-Reward

The core problem identified for many traders is entering trades at unfavorable points, leading to a poor risk-to-reward (RR) ratio and diminished expectancy. This often occurs when traders "chase strength" in an uptrend or "chase weakness" in a downtrend.

The proposed solution is to enter trades as close as possible to the point where the trader is "wrong" (i.e., where the trade would be invalidated) while the setup remains valid. This strategy immediately "bloats" the RR ratio and provides "real expectancy."

Identifying Trend and Entry Opportunities

Scenario: Strong Uptrend

1. Initial Price Action: The stock pushes above the Volume Weighted Average Price (VWAP) and breaks its morning range, indicating a strong trend.
2. Beginner's Mistake: Many beginners, upon observing consolidation after such a move, might "get chopped" by waiting and predicting a breakout.
3. Experienced Trader's Approach: Experienced traders recognize the established trend and the extension from the intraday VWAP. This extension creates an opportunity.
4. Entry Confirmation: The strategy involves waiting for a "check-in" near the VWAP. A confirmation of a higher low in this area indicates that the trend remains intact.
5. Entry Point: This higher low near the VWAP, following an uptrend and extension, is identified as the optimal entry point.

Benefits of this Entry:

• Tight Risk: The stop-loss can be placed just below the confirmed higher low, resulting in a small potential loss.
• Massive Potential Payoff: If the uptrend continues to extend, the potential profit can be substantial.

The Importance of Patience and Precision

The transcript emphasizes the critical role of patience in waiting for precise entries. The statement, "Be patient. Wait for precise entries because it makes all the difference," highlights that meticulous entry selection is fundamental to trading success. This precision directly impacts the profitability and viability of a trading strategy.