Reviewed by Sep 28, 2020| Updated on
The entry point in investing refers to the price point, which is suitable for investing or buying security. An investor determines the entry point based on a well-researched trading strategy which minimises investment risk and also removes any emotional decisions. Analysis and research will help in taking objective investment decisions.
Understanding Entry Point
Investing involves buying or selling a security. The transaction of purchase or sale allows a person to make investment and exit at a future point in time. The price of purchase is the entry point. For example, Mr X carries out research and finalises a few stocks for investment, but apparently, the price is high as per his research. He then waits for the entry price to drop to buy the stock.
In investing, any person should exercise caution and objective judgment. One should also have the patience to wait for the entry point and also exit from the investment in order to earn good returns on investments. Research helps in determining the entry point and exit point before making an investment.
Investors must ensure there is a gap of time between the entry and exit point to maximise the reward from the investment. The time gap also helps in building a good portfolio with patience. One can determine an entry point from the trends in the stock prices, statistical measures, and averages. They may be a range within which you can invest in a stock.
An investor can streamline entry points using a set of rules. For example, the trading strategy of an investor may generate only one entry point when a stock price crosses the 200-day moving average and when the moving average convergence divergence signal indicating line crosses 0. A trader may automate this process to generate various entry points.
An investor can optimise various entry points normally after a short counter-trend move or a period of consolidation in a stock. Investors can also programme entry points into trading algorithms, which in turn automatically enable trades when a set of conditions are met. You can also use algorithms to include exit points to manage the risk. In a range-bound market, you can determine suitable entry points near key support and resistance levels.
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