P1: PIC/b P2: c/d QC: e/f T1: g
c06 JWBK182-McDowell April 25, 2008 15:54 Printer: Yet to come
Entry Rules and Your Trading System 49FIGURE 6.2 TheBullish Pyramid Trading Point©RSignal Tells You Where to Enter
and Where Your Initial Stop-Loss Exit Is
Source:eSignal. http://www.eSignal.comThe triangles are pointing in the upward direction, indicating a bullish
trend. The P signal indicates aprimarypyramid trading point that tells me
these are high-probability entry and exit signals available to me if I choose
to take them.
The entry will be taken one tick above the Apex of the first bullish
triangle (the top) and the initial stop-loss exit will be taken one tick below
the base of the first bullish triangle (the bottom). See Figure 6.2 for an
illustration on how this works. Both of these signals are completely based
on the current dynamics—and the realities—of the market and will give
my trade the room it needs to “breathe” so that there is less chance of my
trade being unnecessarily stopped out.
Now, mytrade riskis going to be determined by measuring the dis-
tance between the Apex of the triangle and the base of the triangle. The
dollar amount of the distance between the entry and the exit will deter-
mine my trade risk. So, with this information, and using my money man-
agement rules, I can calculate what my trade size should be in contracts
or shares.
We’ll cover this topic in Chapter 10, where you’ll see how to best calcu-
late your trade size based on what your trade risk is. Yourtrade sizewill be
calculated by looking at the total number of dollars in your trading account
and by risking no more than 2 percent of your total trading account capital
on this one trade.