Define what “Entry Rules” are before judging them
Entry rules are the predefined conditions that tell you when you would open (enter) a position. The key idea is separation: the rule describes your action criteria, not a promise about what price will do next.
A common misunderstanding is to treat an entry rule like a prediction tool (“this will move in my favor”) rather than a checklist for a specific decision (“if these conditions happen, then entry happens”). When that mindset slips in, you may evaluate the rule based on outcomes that it never actually controlled.
Another frequent mistake is mixing stable mechanics with variable conditions. For example, a rule might be written using a “level” or “signal,” but the exact price you receive depends on execution quality, spread, and timing. If you do not explicitly separate what your rule requires from what the market/provider delivers, your entry rule can become inconsistent in practice.
Mechanism: how entry rules usually get implemented
Most entry rules include inputs (e.g., a reference price, a trigger condition, a time window, and optional constraints like allowed trade direction) and outputs (e.g., submit an order type and size, or wait until a condition is met). A neutral way to test clarity is to ask: if two people read the rule, do they submit the same order under the same circumstances?
Common implementation errors:
- Vague triggers: “when momentum looks strong” is not a condition you can verify before execution.
- Hidden assumptions: using a calculation without stating what fees, spread, or pip value you assumed.
- Confusing monitoring and execution: deciding based on one moment of data, but executing using a later, different price.
Evidence and examples: typical mistakes and what they cause
Mistake 1: Evaluating the rule’s prediction power
If an entry rule is designed only to specify when you act, treating its historical success as proof of future predictability is a logic error. Historical relationships do not establish future results, and the market can change conditions, costs, and liquidity.
Consequence: you may believe the rule “works” because of recent outcomes, then abandon the discipline of verifying that the rule is still implementable.
Mistake 2: Not accounting for execution costs
Even simple rules can fail to behave as expected when you ignore transaction costs. Spread and fees change the effective entry price, especially for short-term entries. Execution can also include delays, which matter when your rule expects a fast transition.
Consequence: your stop or target assumptions (if you compute them elsewhere) may not match the actual entry.
Mistake 3: Overfitting the rule to a narrow context
Entry rules sometimes include extra “filters” that were tuned to past behavior without defining what should happen if market conditions differ.
Consequence: the rule may trigger rarely or only in one regime, making results unstable when conditions shift.
Limitations and risks: at least one material failure mode
A material failure mode is slippage: the price you receive can differ from the reference price you used when you decided to enter. This can happen around volatility spikes, low liquidity, or when using certain order types.
Related failure modes include:
- Partial fills when liquidity is insufficient, which changes your position exposure.
- Timing mismatch between the moment you check the condition and the moment the order reaches the market.
- Monitoring ambiguity, where the rule depends on data you cannot consistently reproduce.
Verification or next question: neutral checks you can run
Use neutral checks to verify whether your entry rule is genuinely well-defined and implementable:
- Operational check (afvinkpunten): Does the rule specify inputs with measurable definitions (no “looks like,” no subjective judgments)?
- Cost check (bewijs of document): If you perform any calculations, write down the assumptions (fees, spread, pip value, timing). You should be able to justify the numbers you used.
- Rode vlaggen check: Look for triggers that cannot be monitored in real time, order types that conflict with your trigger timing, or rule steps that depend on uncertain data.
- Klaarcriterium: Define a pass/fail standard: for example, “Under identical inputs, a different person would submit the same order.” If you cannot pass that criterion, revise the rule’s wording.