Fine Tuning. Mon Mar 29

It's often a trade off between certainty and profit potential. I've played around a lot with pre-empting signals and although it's given me a certain amount of grief, it has also been responsible for some great trades. I think, though, that I've often been too conservative with anticipating a trade and thus fallen between two stools. That is, I might have wanted to get long ahead of a breakout but I would still want to see good momentum before jumping on board. This has sometimes resulted in buying (or selling) only a few cents before confirmation which leaves me vulnerable to a failure.
So, I've been looking at my trade history with the idea of getting in either earlier - perhaps on a potential higher low with a tight stop - or later, after a move is confirmed but has retraced. It runs the risk of backfitting to get better results but it does look like a good approach to me and it has the advantage of taking uncertainty, and hence stress, out of trading. For example, if a potential trade has got away from me then using this approach I don't chase the entry. I either miss it or get in on a retracement.
I flicked through a few stocks and pretty much any of them could be used as an example, but I've plumped for Telstra.
Click to enlarge

As an example, suppose I had been looking to short Telstra in mid December. I would have found it very hard to get on because it dropped rapidly over two days. However, it seems pretty common for these moves to retrace more than 61.8%, even to make double tops. My rule of thumb is to use two thirds of the first swing which in this case was 26 cents. That would have got me short at about 346 or 347 depending on rounding. In this case it didn't turn out to be an excellent trade but the good entry would have enabled some sort of profit.

The stop would be above the mid December high so the longer I can wait the better.

There's a much better example in early February where I might have got short at around 342 before a good swing down.

At the lows in early March, there wasn't really a 1-2-3 buy signal - there clearly would have been on 30 or 60 minute charts - but there were a few days where I might have anticipated a turning point and got in at 291 or 292 with a stop below the low of 288. It certainly looked like a turning point although these things can be dangerous. If I look back a few days earlier in late February there was another potential turning point which failed to hold.

The other pitfall with this approach is that you still need to pick the right direction. For example, that short position in early February could have been viewed as a potential long just a few days earlier when the January move seemed to have retraced. Having said that, my view at the time was bearish but I was waiting for confirmation and the day that occurred, February 11, was a fast moving gap day that I wasn't willing to chase.