DEFINITION of 'Entry Point'

Entry point is the price at which an investor buys an investment. The entry point is usually a component of a predetermined trading strategy for minimizing investment risk and removing the emotion from trading decisions. Recognizing a good entry point is the first step in achieving a successful trade.

BREAKING DOWN 'Entry Point'

For example, an investor researches and identifies an attractive stock, but feels that it is overpriced. He or she will buy if the price decreases to a certain level; this is the entry point. Exercising patience and waiting for the right time to buy helps investors earn better returns on their investments. Determining both an entry point and exit point in advance is important for maximizing returns. Investors must ensure there is sufficient distance between the entry and exit point to allow a risk-reward ratio of at least 2:1.

Optimizing Entry Points

Trending Markets: Good entry points in a trending market come after a short countertrend move or a period of consolidation. Investors can use trendlines, moving averages and indicators to help determine suitable entries. For example, on the chart below, there was a confluence of support that produced a high probability entry point at the $34 level. Prices had returned to the trendline; the stochastic oscillator was below 20, which suggested the stock was oversold; and the 60-day moving average was acting as support. Additionally, a spinning top candlestick pattern formed after a period of selling which hinted that the countertrend move was concluding. As can be seen on the chart, this did turn out to be a good entry point.

                                              Trending Entry Point

Image depicting a trending market entry point.

 

Range Bound Markets: Suitable entry points in range bound markets are typically near key support and resistance levels. Using trendlines to connect peaks and troughs helps to define support and resistance areas on a chart. For instance, the chart below has a trading range between $22 and 27.5. A high probability entry point for a long trade would be near the support trendline, while a high probability entry point for a short position would be close to the resistance trendline. Investors who use this method for selecting an entry point may wait for a head-fake move above or below a significant support or resistance level before taking a trade.

                                           Range Bound Entry Point

Image depicting range bound entry point.

Streamlining Entry Points

Trade entries can be streamlined by using a strict set of rules. For example, an investor’s trading strategy may only generate an entry point when a stock crosses its 200-day moving average and the moving average convergence divergence signal line crosses 0. To automate the process further, entry points can be programmed into trading algorithms that automatically place trades when the conditions are met. Algorithms should also include exit points and risk management rules. (For further reading, see: Basics of Algorithmic Trading: Concepts and Examples.)

RELATED TERMS
  1. Adjusting Journal Entry

    An adjusting journal entry occurs at the end of a reporting period ...
  2. Barriers to Entry

    Barriers to entry are the costs or other obstacles that prevent ...
  3. Double Entry

    Double entry is an accounting term stating that every financial ...
  4. Accounting Cycle

    An accounting cycle is the process of identifying, analyzing, ...
  5. Price Level

    A price level is the average of current prices across the entire ...
  6. Range-Bound Trading

    Range-bound trading is a trading strategy that seeks to identify ...
Related Articles
  1. Trading

    Price Action in These ETFs Deserves Attention

    These strong ETFs are near trade levels, but are the trades worth taking?
  2. Trading

    Stocks Close to Technical Entry Points

    These stocks are trading near trendline support, providing a potential buying opportunity.
  3. Trading

    Trend Channel Stocks Near the Buy Point (WCN, MWA)

    These stocks are currently trading near the bottom of trend channels but moving higher, presenting a buying opportunity.
  4. Trading

    Patience Is a Virtue for Traders

    Waiting may be the biggest key to reeling in that trophy investment.
  5. Trading

    Stocks to Buy Along Trendline Support (ABBV, MXL)

    These stocks are near or approaching trendline support, which is often a favorable time to buy.
  6. Trading

    Rules for Picking Stocks When Intraday Trading

    Intraday trading is intensive and risky, but potentially profitable. Here are some guidelines for picking the best day trading stocks, and how to get in and out of them with a profit.
  7. Trading

    Uptrending Stocks Near Technical Buy Points

    Aflac and Humana are in uptrends but have pulled back to support, providing a potential buying opportunity.
RELATED FAQS
  1. What is double entry bookkeeping and how does it work in the general ledger?

    Learn about the double entry method of bookkeeping and how it works in the general ledger. Every accounting transaction has ... Read Answer >>
  2. How strong are the barriers to entry in the oil and gas sector?

    There are many barriers to entry in the oil and gas sector including high resource ownership, high startup costs and regulations ... Read Answer >>
  3. How strong are the barriers to entry for new companies in the telecommunications ...

    Discover the significant barriers to entry, such as the necessity for high capital expenditures, for new companies in the ... Read Answer >>
  4. What are the key barriers to entry in electronics?

    Learn how the entry barriers of economies of scale and scope, research and development, capital, and brand loyalty affect ... Read Answer >>
Trading Center