Michael J.

Parsons

Trend Entry
The rule for a trend entry is as fol lows:
Enter an established trend within one-third nearest to an inside
channel l ine.
What this means is that once the channel lines are established, the average
range is then determined. Entry is then set at a price level that is one-third
or less than that range and nearest to the i nside channel line. If a market
is accelerating at a rapid pace, this ratio will tend to be too conservative.
In such a case an alternative would be to use a one-half ratio, entering whi
le in the better half. The actual calculations will be covered in more
detail later, but for now simply focus on mentally gauging this ratio by
visualizing the channel split into thirds and in halves. You don't have to
be perfect, just close.
Despite any apparent strength of a trend, you can never be sure when it
will stop and reverse. Because of this possibil ity we always want to limit
our risk and look to enter when price is closest to our stop. Since stops are
placed just beyond an inside channel line, the closer we enter to this line
the less risk we take on. It requires patience to wait for a market to come
to you, but the results are much better than chasing after it. There is no
way to avoid losses all together when trading, but there are ways to keep
losses from putting you on the road to the poor house. So keeping losses
to a minimum is a priority. A football team can have a great offense and
rack up score after score, but if the defense can't stop the other team from
scoring more points then they will still lose the game. So the more you
limit what the market is able to take from you, the greater the odds you
will come out the winner.
At times this rule of waiting for the market to trade on your terms will mean
that you will miss out on some very rewarding moves, but a market that
suddenly rockets will also usually burn out very quickly. Figure 1-12 shows
how a trend entry is made.

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