The Problem of Late Entries and its effect on the trading system

The Problem of Late Entries and its effect on the trading system


Posted by Bossxero Wednesday, September 16, 2009
Late Entries is widely disregarded problem but it does affect your trading negatively. There is no doubt on this. When using indicators in your trading, you will be getting the 'Late Entries' problems most of the time because most indicators are price driven... which simply means that price should move first before the indicator can move... Therefore, what we will see is a lag between the indicator and the price.. In some indicators the lag is minimal while in others, the lag is noticeable... worst scenario comes when the indicator lags and repaints as well... this is another issue.
Firstly, let me write a little what is meant by late entries... late entries is simple entering a trade late. We have tops and bottoms or Highs and Lows and late entries are entries which are triggered around the middle of the top to the bottom or vice versa. Late entries is almost unavoidable when using indicators, however, if we can be a little less late in our trades, it is always in our favor... Let me explain..
Normally, when you enter late into the market, the main drawback is that the price has already made some moves in quite some pips which you could have booked. Now, the more the price moved, the more our Risk versus Reward ration decreases. So, when a trading system has the problem of late entries, it will eventually turn the trading system into a POOR RISK/REWARD system... meaning, you could be risking 2x to make 1x profit... Since most of the time, our stoploss are better and safer at recent swing highs and lows, the more the price has already moved from this recent swing, the more our risk increases as our stoploss will be further from our entry and at the same time, our takeprofit will be nearer to the entry.
So, when developping ones trading system, you should pay close attention to the late entries problem and if your signals make you enter late in the market, you should revise your methodology. I hope you have benefit from this little article and this can help you out in your trading. Feel free to download at your own convenience.