What Is Rule-Based Trading and Why Does It Work

The Answer

Rule-based trading is a methodology where every trading decision is governed by predetermined, testable criteria. Entry rules define when to buy. Exit rules define when to sell. Position sizing rules define how much. Stop loss rules define maximum risk. There is no gray area. No 'it depends.' No 'I feel like the market is going to reverse.' The rules either trigger or they do not. When rules are automated, execution becomes deterministic. The same conditions always produce the same action. This eliminates execution leak entirely.