This appears to be superfluous if you have read my article last time in connection with the studies cited on the comparative importance of the two components of the trading equation, namely: the entry or buy side, on one end, and the exit or sell side, on the other end. In the studies made, how these two components are handled determines the outcome of profit or loss made in one’s trade.
For example, even experienced investors are stopped out of a good trading idea just because they entered early. The way the market has been moving in the last two months, I’m sure this has happened and continues to happen to many of us. We may have abandoned or thinking of abandoning a good stock pick because the direction of its market price is just unclear as of late.
Just on these two examples, I believe they are good enough to serve as a sufficient basis to assume why a good entry still matters.Before we leave the subject, however, let me reiterate that even the proponents of good entry admit that the following are more contributory to a successful trade. These are exit strategy, risk management, and position sizing, to mention the three most critical factors.
Based on the table, you should not incur a loss of more than 20%. Otherwise, you’ll be like Tharp when he first started to trade. For proper position sizing, there are three factors to be properly weighed. First is the account risk. Typically, account risk is expressed as a percentage of the investor’s total capital. As a rule of thumb, individual investors should not risk more than 2% of their investment capital on any given trade. With a P500k total capital, the investor is limited to risk P10k per trade only.