Noesis
Level 2 — RecallEntry, Exit & Trade Management

Entry, Exit & Trade Management

⏱ 30 minutes40 marksprintable — key stays hidden on paper

Level 2 Examination (Recall & Standard Problems)

Time Limit: 30 minutes
Total Marks: 40

Instructions: Answer all questions. Show working for numerical problems. Use ...... for calculations where needed.

Q1. Define a "trading setup" and state two essential rules that must be specified in a clearly-defined setup. (3 marks)

Q2. Distinguish between an entry signal and its confirmation. Give one example of a confirmation tool. (3 marks)

Q3. A trader buys a stock at \100.Theneareststructuralswinglowisat. The nearest structural swing low is at $96$. Using the structure-based stop method, state the stop-loss price and the risk per share. (3 marks)

Q4. The 14-period ATR of a stock is \2.50.Atraderenterslongat. A trader enters long at $150$ and uses a 2×ATR stop. Calculate the stop-loss price and the risk per share. (4 marks)

Q5. Define risk-reward ratio (RRR). A trade has a risk of \5pershareandatargetgivingper share and a target giving$15profitpershare.Doesthismeettheminimumprofit per share. Does this meet the minimum1{:}2$ requirement? Justify. (4 marks)

Q6. Explain the meaning of an R-multiple. If your initial risk (1R) is \200andyouexitatradewithaprofitofand you exit a trade with a profit of$600$, express the result in R-multiples. (4 marks)

Q7. A system produces the following results over 10 trades (in R): +2,−1,+3,−1,−1,+2,−1,+4,−1,−1+2, -1, +3, -1, -1, +2, -1, +4, -1, -1. Calculate the expectancy (average R per trade). (5 marks)

Q8. Define break-even stop management and explain the main benefit and one drawback of moving a stop to break-even. (4 marks)

Q9. Distinguish between scaling in and scaling out of a position. Give one reason a trader might scale out. (4 marks)

Q10. State the trading principle "cut losers quickly, let winners run." Briefly explain how a trailing stop helps implement the second half of this principle. (6 marks)

End of Paper

Answer keyMark scheme & solutions

Q1. (3 marks)

  • A trading setup is a predefined set of market conditions/criteria that, when met, signal a potential trade opportunity. (1)
  • Two essential rules (any two, 1 mark each): entry condition/trigger; stop-loss placement rule; target/exit rule; position-size/risk rule; market/timeframe context. (2)

Q2. (3 marks)

  • Entry signal: the primary event that flags a trade (e.g., price breaking a resistance level). (1)
  • Confirmation: a secondary condition validating the signal to reduce false entries (e.g., breakout occurring on rising volume, or a candle close beyond the level). (1)
  • Example confirmation tool: volume, a moving-average crossover, RSI, or candle-close confirmation. (1)

Q3. (3 marks)

  • Structure stop placed just below/at the swing low = \96$. (1)
  • Risk per share = 100 - 96 = \4$. (2)

Q4. (4 marks)

  • Stop distance = 2 \times \text{ATR} = 2 \times 2.50 = \5.00$. (2)
  • Stop-loss price = 150 - 5 = \145$. (1)
  • Risk per share = \5.00$. (1)

Q5. (4 marks)

  • RRR = potential reward divided by risk (money at stake) on a trade. (1)
  • RRR=155=3RRR = \dfrac{15}{5} = 3, i.e. 1:31{:}3. (2)
  • Since 1:3≥1:21{:}3 \ge 1{:}2, it meets the minimum requirement. (1)

Q6. (4 marks)

  • An R-multiple expresses the outcome of a trade as a multiple of the initial risk (1R). (2)
  • R-multiple=600200=3RR\text{-multiple} = \dfrac{600}{200} = 3R. (2)

Q7. (5 marks)

  • Sum of R =2−1+3−1−1+2−1+4−1−1=+5= 2 -1 +3 -1 -1 +2 -1 +4 -1 -1 = +5. (3)
  • Expectancy =510=+0.5R= \dfrac{5}{10} = +0.5R per trade. (2)
  • (Positive expectancy → profitable system over time.)

Q8. (4 marks)

  • Break-even stop: moving the stop-loss to the entry (break-even) price once the trade has moved sufficiently in profit. (2)
  • Benefit: removes downside risk / protects capital — a "risk-free" trade. (1)
  • Drawback: normal price noise/pullbacks can stop you out prematurely before the trade resumes. (1)

Q9. (4 marks)

  • Scaling in: adding to a position in increments as it develops/confirms rather than entering full size at once. (1.5)
  • Scaling out: exiting a position in parts, booking partial profits at successive targets. (1.5)
  • Reason to scale out: lock in profit while leaving a runner to capture larger moves / reduce risk. (1)

Q10. (6 marks)

  • Principle: exit losing trades fast to keep losses small, and stay in winning trades to maximize gains. (2)
  • Managing winners: don't cut them short at the first profit. (1)
  • A trailing stop follows price as it moves favorably, ratcheting the stop up (long) to lock in gains while keeping the trade open so long as trend continues; it only exits when price reverses by the trail amount — letting winners run. (3)
[
  {"claim": "Q4 stop distance and price: 2xATR=5, stop=145", "code": "atr=2.5; dist=2*atr; stop=150-dist; result = (dist==5.0 and stop==145.0)"},
  {"claim": "Q5 RRR = 3 meets 1:2 minimum", "code": "rrr=15/5; result = (rrr==3 and rrr>=2)"},
  {"claim": "Q6 R-multiple = 3R", "code": "rm=600/200; result = (rm==3)"},
  {"claim": "Q7 expectancy = 0.5R", "code": "rs=[2,-1,3,-1,-1,2,-1,4,-1,-1]; exp=sum(rs)/len(rs); result = (sum(rs)==5 and exp==0.5)"}
]