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Trade location

How good your entry price is relative to the structure around it, measured by how close the invalidation level sits and how far the target is.

Two traders can hold the same directional view and get completely different outcomes because one bought at the bottom of a range and the other bought the breakout at the top. The view was identical; the location was not.

Good location means a small distance to the level that proves you wrong and a large distance to the level you are aiming for. It is the direct input to risk-reward-ratio and, in practice, matters more than the accuracy of the forecast.

Chasing is the failure mode. Entering late in a move puts the invalidation-level far away, which forces either a wider stop or a smaller and worse-placed one. Most bad trades are not wrong ideas, they are right ideas entered at the wrong price.

Related: invalidation-level, risk-reward-ratio, pullback, setup, trend-channel

See it drawn

Original diagrams for the ideas on this page. Illustrative, not real market data.

A range beside a trendOne chart swinging between a flat floor and ceiling, another stepping upwards inside a pair of sloping lines.Range-boundresistancesupportprice bounces between two levelsTrendingthe trend channelhigher highs and higher lowsA range has two flat edges; a trend has two sloping ones.
Range versus trend. On the left price keeps bouncing between the same floor and ceiling, which is a range. On the right each high and each low is higher than the last, inside a pair of sloping lines called a channel.

Educational only, not advice. Spotted an error? Post in Site Feedback.