STAGE 7 · LESSON 3 OF 5

Document entries, exits and position limits

Every rule should be written so another reader can apply it without guessing.

THE IDEA~8–12 MINUTES

Understand it

List setup context, observable entry trigger, proposed order type, initial stop logic, profit/exit criteria, position-size formula, exposure caps and invalidation rules. Specify slippage and costs. If there is uncertainty about whether a signal qualified, document the ambiguity and revise the rules before claiming a validated backtest. Keep emergency risk controls separate from the strategy's normal exit.

WORKED EXAMPLE

'Exit when momentum fades' cannot be applied consistently. 'Exit on the next bar after two completed closes below a specified moving average' is at least a testable rule, even if it has no edge.

Watch for this misconception

Adding untested exceptions during a losing streak and still treating results as one strategy.

PRACTICE EXERCISE

Use the trading-plan builder to write one unambiguous entry rule and one exit rule.

Trading plan builder ↗
KNOWLEDGE CHECK

Why separate strategy exits from emergency risk rules?

Select the best answer

Check the sources

Hypothetical educational examples. Verify current product specifications and rules before making decisions.