How To Use Trigger For Entry
Although this article is focused on triggering entries for trade initiation, successful traders know that trigger entries are only one component of success. To have a comprehensive understanding of success in trading, any discussion on the topic of Trigger Entry should also address the perspective and context of the underlying market conditions.
Trigger trades can be thought of as lines in the sand that determine exactly when a trade will be entered. Unlike filter trades which can cover multiple factors, trigger trades tell the trader exactly when to act. Trigger trading should be strictly objective and clear in the trading plan. There should be no room for ambiguity.
Trading triggers can be based on a variety of conditions, from indicator values to crossing price thresholds, such as support or resistance levels. Many traders use technical analysis tools, such as indicators, to determine high probability settings in the market.
The indicator can provide objective trade entries as precise thresholds can be easily set. Examples include events such as "enter long positions when stochastic 5.3 reaches level 30;" or "enter a short position when the true range average reaches the 0.5 level." The filter will provide the settings for this trade; level indicator will give a trigger.
An important aspect of trading triggers is that they need to be simple in order to be actionable. Too many trading triggers, or triggers that are too complex, can be overwhelming and make the system difficult to implement. It can also lead to frequent trading errors as traders get confused about their own system.
Trigger trades are like a company's mission statement: they should be clear enough that they can be easily read from memory. The trigger should be objective and easily identifiable so that there is no question of whether the trigger was met or not.
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