Summary: Part 2 of the systematic forex series. Defines precise entry triggers, time-based filters, volatility filters, and a step-by-step method to validate any entry rule.




Title: Forex Trading System Series: Part 2 – Entry Logic & Market Filtering

This is Part 2 of the systematic forex series. You have already established your core architecture and trading journal (Part 1). Now we define when to enter.

1. The Entry Logic Hierarchy
Every entry rule must pass three filters before activation:

Filter A – Time Filter (Avoid low-liquidity hours)
  • Allowed sessions: London open to NY close (only if your strategy requires volume)

  • Blocked: 30 minutes before major news (NFP, FOMC, CPI)

  • Example code snippet:

    • ```python
    def time_filter_allowed(current_hour):
    # London 8-17 GMT, NY 13-20 GMT -> overlap 13-17 GMT
    if 13 <= current_hour < 17:
    return True
    return False
    ```

    Filter B – Volatility Filter (Avoid silent markets)
  • Calculate 20-period ATR on 1H chart

  • Only enter if ATR(20) > 15-day average ATR * 0.7

  • Rationale: Gridlock or low volatility leads to false breakouts


    • Filter C – Trend Filter (Optional but recommended)
  • For manual strategies: 200-period EMA on 4H chart

  • Long only when price > 200 EMA, short only when price < 200 EMA

  • For mean-reversion strategies: reverse the condition


    • 2. Three Concrete Entry Types (Choose One Per Strategy)

    Type 1 – Breakout Entry
  • Rule: Price closes above previous 20-period high (1H chart)

  • Confirmation: Wait for the candle to close, do not enter on breakout tick

  • Stop placement: Below the breakout candle low minus 0.5x ATR


    • Type 2 – Pullback Entry (Trend-following)
  • Rule: Price pulls back to the 21-period EMA on 1H after a strong directional move

  • Confirmation: Bullish/bearish pin bar or engulfing candle at EMA

  • Stop placement: Beyond the swing low/high by 1x ATR


    • Type 3 – Range Entry (Mean-reversion)
  • Rule: Price touches the upper or lower Bollinger Band (20,2) on 15M chart

  • Confirmation: RSI(14) > 70 for short or RSI(14) < 30 for long

  • Stop placement: 1.5x ATR beyond the band touch point


    • 3. Entry Validation Protocol (Do This Before Trading Live)
  • Step 1 – Backtest 100 entries of your chosen type only (no exits yet)

  • Step 2 – Record the distance to your hypothetical stop and hypothetical target

  • Step 3 – Calculate the percentage of entries that would have moved 1x ATR in your favor within 5 candles

  • Minimum pass rate: 65%


    • 4. Common Entry Mistakes
  • Adding too many confirmation indicators (leads to analysis paralysis)

  • Entering without checking the time filter (Asian session breakouts often fail)

  • Using fixed pip distances instead of ATR-based distances


    • To continue to Part 3, input the following exactly:
    `CONTINUE_SERIES: PART_3`

    Reference:
  • Douglas, M. (2001). *Trading in the Zone*. Prentice Hall Press.