Entry rules: the concept
Entry rules are the pre-defined conditions that tell you when a trade is entered. They typically specify:
- the trigger (what must be true to enter),
- the entry price (how you interpret execution vs. a reference price),
- related parameters you pre-state (for example, where you would exit), and
- the assumptions used to calculate size or risk.
A worked example is useful because it makes the assumptions explicit and separates stable mechanics (how the rules operate) from variable conditions (how markets execute).
Worked example with explicit assumptions
Assume a trader uses the following simplified entry rules for a hypothetical position.
Entry rule (trigger): Enter long when the market’s reference price reaches 100.00 or higher.
Execution assumption: The trade executes at entry price = 100.00 with zero slippage.
Risk management assumption: The trader pre-defines a stop at 99.50.
Profit-taking assumption: The trader pre-defines a take-profit at 101.00.
Cost model: Ignore commissions and financing/rollover. Assume no spread and no fees.
Position sizing rule: Risk a fixed amount of money per trade.
Let’s set:
- Account risk per trade: 2.00% of a 1,000.00 account = 20.00.
- Stop distance (in price): 100.00 − 99.50 = 0.50.
To keep the example fully numeric without introducing instrument-specific contract math, define an abstract conversion:
- P/L per 1.00 price move = 40.00 currency units for the chosen position size.
Then:
- P/L if price moves from 100.00 to 99.50 is a move of −0.50, so loss = 0.50 × 40.00 = 20.00.
This matches the risk budget (20.00), so the position size implied by the abstract conversion is consistent with the entry rules.
Outcome math under the rule:
- If the trade reaches take-profit at 101.00, that’s a move of +1.00 from entry, so profit = 1.00 × 40.00 = 40.00.
- The worked example ratio is therefore +40.00 : −20.00, meaning take-profit profit is twice the stop loss.
This is not a promise of which path the market will take; it only shows how the rules compute outcomes if specific price levels are reached.
How it works in practice: mechanics vs. variability
A practical way to interpret the example is:
- Mechanics (stable): The trigger condition, the chosen reference levels (stop and take-profit), and the position sizing math determine your planned risk and planned reward given executions at the assumed prices.
- Variability (changing): Execution rarely matches assumptions. Even if your trigger is defined using a chart reference, the actual fill can differ because of spread, slippage, partial fills, and differences between a provider’s price feed and your chart.
A second failure mode is rule interpretation. For example, if “reaches 100.00” is treated as intrabar touch vs. closing above 100.00, the same chart may cause different entries. This makes “worked examples” valuable: they clarify whether the rule is evaluated on a tick, a candle close, or another reference.
Limitations and risks you must be able to verify
At least these limitations apply to any entry-rule example:
- Execution uncertainty: The assumption “entry executes at 100.00 with zero slippage and no spread” often does not hold. Your realized loss/gain can differ from the planned values.
- Trigger ambiguity: The definition of “reaches” and the time basis (intrabar vs. close) changes when the rule fires.
- Cost omissions: Ignoring commissions, financing, and trading costs can materially change risk and reward.
Verification questions you can independently check are:
- What exact price series defines the trigger (your platform’s quote vs. a chart reference)?
- At what point is the entry evaluated (tick, bar close, or another event)?
- Do you model costs and execution differences, even approximately?
If you want, you can also compare two alternative worked scenarios (for the same entry trigger but different execution and trigger definitions) to see how sensitive outcomes are to assumptions.