• Skip to primary navigation
  • Skip to main content
  • Skip to footer
Trading Heroes

Trading Heroes

Forex Trading Education

  • Free Tutorials
  • Products
  • Resources
  • About
  • Login

Is the Entry or Exit More Important in Trading?

Some traders say that the exit is more important than the entry, in trading. Is that true? Well, that depends on your trading system. However, I believe that the entry is far more important than the exit. Here's why...

Home / Forex Trading Strategies / Is the Entry or Exit More Important in Trading?

There are many opinions out there on if the entry or the exit is more important in trading. In reality, it's all important.

You need to have a complete system that has a statistical advantage, before putting any significant money behind it. In addition, you have a winning mindset and be in peak physical/mental condition.

But if we are going to only talk about entries and exits, then I wholeheartedly believe that the entry is much more important than the exit. 

Here's why…

Entry signal

Why People Say Exits Are More Important

Some say that monkeys throwing darts to pick stocks will do better than the average fund manager. This illustrates the point that exits are much more important.

Stock picking monkey

SEE ALSO: My strategy for making money on Lending Club

There are educators who do exercises like this to show the importance of optimizing exits. While the educators are making a very important point, some developing traders might misinterpret this to mean that exits are more important than the entry.

Finally, there are studies that show that a random entries can show profitable results. One example is in the book Trade Your Way to Financial Freedom.

In that book, an experiment done by Tom Bosso showed that using a “trading system” that involved flipping a coin (for short or long), was always profitable at the end of each test. This is an excellent illustration of how important the exit is in trading.

But that is all theory. Let's take a look at why I believe that great entries will help a lot more than great exits, in real world trading.

Why the Trade Entry is More Important Than the Exit

The best place to start is at the beginning. Nothing happens to your trading account until you open a trade.

You will never lose money if you don't open a trade.

Yeah, duh.

I am only saying this because I think that it can be too easy to take this for granted. Here are a few other key things to consider about entering a trade.

Entries are Psychological

The very act of deciding to open a trade is extremely important. If you are not in the right frame of mind or you don't stick to your plan, it is very likely that you will end up with a losing trade.  

This can be overlooked when we examine the results of purely mechanical backtests. So deciding to put your money on the line all starts with your psychological state at the time the trade is entered.

Of course, this is not the case if you have a purely mechanical trading system. But for traders who manually enter trades, the psychological aspect cannot be ignored.

A Higher Probability of Profit

When you have a good entry, your probability of success goes up significantly. For example, here is a trade that I entered on a limit order.

The blue line is my entry point, right above the previous high. I set a 20 pips stop (red line) and set a 2R profit target (green line).

Chart results

As you can see, this was a strong uptrend and there wasn't a lot of room to profit on this trade. However, I was able to squeeze 2R out of the trade, just by having a great entry.

SEE ALSO: Forex scalping secrets revealed (full interview)

If I had waited for the Outside Bar to form, it would have been too late. The trade would have been stopped out.

The green arrow shows the initial entry.
Trade results

Better Entries Mean More Profits

Here are two Pin Bar setups, which one has the higher profit potential? This one…

Good potential

…or this one?

Bad potential

Obviously, the first Pin Bar has more potential because there is more room to the downside, whereas the second chart is already very close to a major support level.

So if you decide to take a trade on the first chart, your chances of getting multiple R out of it is much greater. Again it all comes down you which trade you choose to enter.

Consider Opportunity Cost

Finally, by having a solid entry, you are more likely to reach your profit target faster. Or your stop loss. This leaves your mental and monetary capital available to look for another opportunity.

However, if you have a sub-par entry and you have to wait days or weeks to see the result, you are not making the best use of your time. Sure, some killer trades will take a little time to materialize.

But having the best possible entry will help you increase the number of trades that you can take, and therefore multiply your edge.

Beware of Over Optimizing

Of course, the danger of focusing too much on the entry can lead to over optimization and trying to set your stop too tight. So be sure that you aren't trying to set your stop too tight.

This all comes down to backtesting and figuring out what works best for your trading style.

Conclusion

Your trade exit is still important and should be optimized. Your risk management is also very important.

It's all important.

However, if you can focus on only entering trades that have the best potential, being focused and optimizing your technical entry, you will make it much, much easier to profit consistently.

 

 

Disclaimer: Some links on this page are affiliate links. We do make a commission if you purchase through these links, but it does not cost you anything extra and we only promote products and services that we personally use and wholeheartedly believe in. A portion of the proceeds are donated to my charity partners. 

You Might Also Enjoy

My Best Forex Hedging Strategy for FX Trading
Backtesting Results: Simple Pin Bar System on AUDJPY
7 Trailing Stop Loss Strategies That Work

Category: Forex Trading Strategies Tag: Entry Strategies, Exit Strategies

About Hugh Kimura

Hi, I'm Hugh. I'm an independent trader, educator and international speaker. I help traders develop their trading psychology and trading strategies. Learn more about me here.

Top

 

Share This Article


First posted: October 18, 2016
Last updated: May 17, 2020

Footer

Company

  • Support
  • About Trading Heroes
  • Trading Courses and Education
  • Recommended Resources
  • T-Shirts & Trading Gear
  • Charities We Support

Tutorials & Guides

  • Free Forex Trading Course for Beginners
  • Best of Trading Heroes
  • Forex Trading Blog
  • Best Trading Books
  • Forex Trading Strategies
  • What is Forex?
  • Podcast

Community

  • YouTube
  • Twitter
  • Dtube
  • Odysee
  • Flote
  • Minds
  • Private Trading Community
  • Contact
Trading involves substantial risk and there is always the potential for loss. All content on this website is for educational and informational purposes only and is not trading, investment, or medical advice. You should be aware of the risks associated with trading and seek advice from an independent certified financial adviser if you have any doubts. Some links on this page might be affiliate links, where we get a small commission if you purchase through the link. It doesn't cost you anything extra and we only recommend products that we absolutely love. This site uses cookies and using this site means that you agree to the use of cookies.

 

CFTC Rules 4.41 - Hypothetical or Simulated performance results have certain limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, because the trades have not actually been executed, the results may have under-or-over compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs, in general, are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown. Testimonials appearing may not be representative of other clients or customers and is not a guarantee of future performance or success.

 

 

 

 

 

Copyright © 2007–2021 TrueLiving Media LLC | Terms | Privacy | Risk
How to choose a trading system guide

Get the FREE Guide to Picking the Best Trading Strategy For YOU

x