Level 1 — RecognitionEntry, Exit & Trade Management

Entry, Exit & Trade Management

⏱ 20 minutes30 marksprintable — key stays hidden on paper

Level 1: Recognition

Time Limit: 20 minutes | Total Marks: 30

Section A — Multiple Choice (1 mark each)

Choose the single best answer.

Q1. The minimum acceptable risk-reward ratio commonly recommended for a trade is:

(a) 1:0.5
(b) 1:1
(c) 1:2
(d) 2:1

Q2. An ATR-based stop-loss places the stop at a distance determined by:

(a) A fixed dollar amount
(b) A multiple of the Average True Range
(c) The previous day's close
(d) The broker's margin requirement

Q3. "1R" in R-multiple terminology refers to:

(a) Total account balance
(b) The initial risk (entry minus stop) per unit
(c) The reward target only
(d) The number of shares traded

Q4. A break-even stop is defined as moving the stop-loss to:

(a) A level below entry to allow room
(b) The entry price so the trade risks nothing further
(c) The profit target
(d) The day's low

Q5. Scaling out of a position means:

(a) Adding units as price moves in your favour
(b) Exiting the entire position at once
(c) Closing part of the position while letting the rest run
(d) Increasing leverage on the trade

Q6. A trading setup with clear rules primarily helps a trader to:

(a) Guarantee profits
(b) Remove ambiguity and act consistently
(c) Avoid paying commissions
(d) Predict news events

Q7. Expectancy of a trading system is best described as:

(a) The largest winning trade
(b) The average R (or currency) gained per trade over many trades
(c) The win rate alone
(d) The stop-loss distance

Q8. A structure-based stop is placed:

(a) At a fixed percentage from entry
(b) Beyond a swing high/low or support/resistance level
(c) Randomly to avoid detection
(d) At the ATR midpoint

Q9. "Cutting losers quickly" is important because:

(a) It maximises the number of trades
(b) It limits losses to the planned risk and preserves capital
(c) It guarantees the next trade wins
(d) It reduces brokerage fees

Q10. A trailing stop is used mainly to:

(a) Lock in profits as price moves favourably while giving room to run
(b) Increase position size
(c) Set the initial entry
(d) Determine the risk-reward ratio

Section B — Matching (1 mark each)

Match each term in Column X to its correct description in Column Y.

#	Column X		Column Y
Q11	Fixed stop	A	Stop set X × ATR from entry
Q12	ATR stop	B	Adding to a position in stages
Q13	Scaling in	C	Stop at a fixed % / point distance
Q14	Entry confirmation	D	Exit signal reducing further risk
Q15	Profit booking	E	A second signal validating the primary entry trigger

(Write answers as Q11–?, etc.)

Section C — True/False WITH Justification (2 marks each: 1 for T/F, 1 for justification)

Q16. A trade with a 1:3 risk-reward ratio can be profitable overall even if it wins only 40% of the time.

Q17. Moving a stop to break-even removes all risk of loss but also guarantees a profit.

Q18. A system with 60% win rate and average winner = average loser has positive expectancy.

Q19. Scaling out always produces more total profit than holding the full position to the final target.

Q20. A structure stop below a swing low is generally more logical than an arbitrary fixed-percentage stop because it respects market context.

Answer keyMark scheme & solutions

Section A (10 marks)

Q1 — (c) 1:2. Why: The standard minimum RR ensures the reward is at least twice the risk, so a sub-50% win rate can still be profitable. (1)

Q2 — (b) A multiple of the Average True Range. Why: ATR measures volatility; the stop adapts to current market movement (e.g. 2×ATR). (1)

Q3 — (b) The initial risk (entry − stop) per unit. Why: R normalises trades so outcomes are measured in multiples of the risk taken. (1)

Q4 — (b) The entry price. Why: At break-even, if stopped out the loss is zero (excluding costs). (1)

Q5 — (c) Closing part of the position while letting the rest run. Why: Scaling out books partial profit and reduces exposure. (1)

Q6 — (b) Remove ambiguity and act consistently. Why: Defined rules produce repeatable, testable behaviour. (1)

Q7 — (b) The average R per trade over many trades. Why: Expectancy = (Win% × AvgWin) − (Loss% × AvgLoss). (1)

Q8 — (b) Beyond a swing high/low or S/R level. Why: Structure stops invalidate the trade thesis when key levels break. (1)

Q9 — (b) It limits losses to planned risk and preserves capital. Why: Small controlled losses keep the account able to recover. (1)

Q10 — (a) Lock in profits while giving room to run. Why: Trailing stops follow price to protect open gains. (1)

Q11 → C (Fixed stop = fixed % / point distance) Q12 → A (ATR stop = X × ATR) Q13 → B (Scaling in = adding in stages) Q14 → E (Confirmation = second validating signal) Q15 → D (Profit booking = exit reducing risk) 1 mark each; all-or-nothing per line.

Section C (10 marks)

Q16 — TRUE (1). Justification (1): Expectancy = (0.40 × 3R) − (0.60 × 1R) = 1.2R − 0.6R = +0.6R per trade > 0, so profitable long-term.

Q17 — FALSE (1). Justification (1): Break-even removes downside loss risk but does not guarantee profit — price can hit the break-even stop and exit at zero gain (or a small cost-related loss).

Q18 — TRUE (1). Justification (1): Expectancy = (0.60 × 1R) − (0.40 × 1R) = 0.6R − 0.4R = +0.2R > 0, positive.

Q19 — FALSE (1). Justification (1): If a big winner runs to full target, holding the full position yields more than a partially-exited one. Scaling out reduces variance/drawdown but not necessarily maximises total profit.

Q20 — TRUE (1). Justification (1): A structure stop is placed where the trade idea is invalidated (below support), respecting price action, whereas a fixed % is arbitrary relative to volatility/structure.

[
  {"claim":"Q16: 40% win at 1:3 RR gives +0.6R expectancy","code":"E = 0.40*3 - 0.60*1; result = (E == Rational(6,10))"},
  {"claim":"Q18: 60% win, 1R:1R gives +0.2R expectancy","code":"E = 0.60*1 - 0.40*1; result = (E == Rational(2,10))"},
  {"claim":"Q1: minimum RR 1:2 means reward is twice risk","code":"risk=1; reward=2; result = (reward == 2*risk)"},
  {"claim":"Total marks sum to 30","code":"secA=10; secB=5; secC=5*2; result = (secA+secB+secC == 30)"}
]