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. Closing Entry

    A closing entry is a journal entry made at the end of the accounting ...
  2. Dangling Debit

    A debit entry with no offsetting credit entry. Dangling debit ...
  3. Contestable Market Theory

    Contestable market theory is an economic concept that refers ...
  4. Countertrend Strategy

    A countertrend strategy is a trading method that attempts to ...
  5. Buck the Trend

    Buck the trend is a colloquialism that refers to when a security's ...
  6. Current Liabilities

    Current liabilities are a company's debts or obligations that ...
Related Articles
  1. Trading

    How Do Limit Orders Work?

    Picking entry and exit points can be a big challenge for investors. Find out how limit orders can help you buy and sell a stock at the price you want.
  2. Trading

    Stocks Close to Technical Entry Points

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

    Simple Strategies For Capitalizing On Trends

    Find out how following a trendline bounce or a new swing high or low can help you get into a trend early.
  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. Investing

    Time to Buy These Stocks at Support

    These stocks are moving within well-established trend channels and have recently pulled back toward channel support, presenting a potential buying opportunity.
  7. Trading

    Buy the Dip During Dog Days

    Buying the dips can book reliable profits but aggressive trade management is needed to control downside risk.
  8. Trading

    Pullbacks Present Trade Opportunities in These ETFs

    These exchange-traded funds are in overall uptrends but have recently pulled back.
RELATED FAQS
  1. What are the most important steps in the accounting cycle?

    Understand the steps in the accounting cycle. Learn about each of the eight steps in the accounting cycle and why each one ... Read Answer >>
  2. What barriers to entry exist in the financial services sector?

    Dive into the complicated and controversial relationship between the maintenance of stability in the financial services sector ... Read Answer >>
  3. 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 >>
  4. How do I start using technical analysis?

    Technical analysis is a method of analyzing securities by evaluating current and historical price and/or volume activity. ... Read Answer >>
Trading Center