trade triggers & trade entry importance

Trade Triggers & The Importance Of Trade Entry http://www.netpicks.com/look-before-you-leap/

Imagine for a moment that you have plotted out a trading zone on your chart and that is the area you will need to see

price visit before entering a position. Maybe it's a confluence of factors such as price pivots, a moving average, measured

pullback via Fibonacci and a round number. What do you need next?

You need something called a trade trigger to get you into the position.

When price gets to an area of interest, you don't simply jump into a position

without some type of sign that the price is moving in your direction.

Looking at this next chart, we have a confluence of technical factors that include:

A. Former resistance area broken & is a Fibonacci cluster zone B. Pivot level plus large momentum C. Pullback to a moving average D. Not seen but also a '50 level

If you were just waiting for price to enter your confluence zone to enter the trade and not a trade trigger, you

can see you were taken out with momentum

Another positive about waiting for a trade trigger is you won't just "jump in" to a large bear or bull candle by

letting emotions take over. Not only can these candles signify an temporary

exhaustion in the move but you can also get some large slippage as you

market entry into the trade.

If emotionally entering a trade because you see a large candle (yes,

people do that), then you clearly don't have a trading plan and first order of

business: Get a trading plan!

So we need some type of trade trigger to get us into the trade in an objective

manner that shows, at least at the point of trigger, that price is in our

direction.

I am going to look at three methods to enter your trade and for all the

examples, I am going to use the same chart as the last one you just saw.

These may not be how the textbooks describe them but often times there is a large discrepancy between trading

books and in the field usage.

I am a fan of market structure in trading and not only can it signify

areas of interest but also are valuable for trade entries.

Understand that price moves in waves and in our sample chart, our uptrend needs higher highs and higher lows to

remain intact. A down trend would need lower highs and lower lows to

stay intact

It would make sense to use the last swing high as a reference point to

enter the trade. One price breaches the high after price hits your zone, you

could enter the trade.

The issue now becomes position size and risk because it is a large distance between our zone and the high of the

last swing.

There is a trade-off between confirmation of the move and your

stop placement which could leave you with a trade with a very small position size if you are using a % of account risk

method.

You can see however that there was not a trade trigger and you would not

have suffered a loss on this trade.

A very objective method of trade triggers is using an indicator cross or

turn to alert you to entering the trade. How close you are entering at the turn

will depend on the indicator and setting you are using.

This is a 14 period CCI that we can use for a trade trigger. There are a few

methods you can use to give yourself an objective trade entry when price

enters your trading zone.

1. This is where the long shadow shows up and drawing a simple trend line on the highs of the down slopping

CCI does not give you a trend line break and therefore no trade.

2. Price gives a slight bounce off the zero line but price never makes it high

enough to trigger a trade

Waiting for a simple CCI signal would have prevented you from entering a

trade after a tempting reversal candle at your trading zone of interest.

To add a little more confirmation, you may want to place a buy or sell stop a few ticks/pips off the low/high of the candles that turns the CCI. This will ensure actual price movement is in

your direction although the breach of a high or low of a single candle does

not hold much significance.

Trend lines are used by many traders to help define trend direction and

even trend strength through the use of fanning trend lines. The way you use them to define the main trend is also

how you can use them to show a break of the counter trend move or

retracement.

The chart we have been using makes it difficult to use a trend line at this point

because you want to connect swings and there are no swings to speak of at

this point.

There is another way to draw trend lines and that is simply having the line

hug the shadows or extreme of the body candle range.

The black trend line is an example of just connecting the upper shadows and entering the trade on a strong

break of the line.

The solid red trend line is plotting off the highs and the dashed red is an

attempt to join the high with a sloppy swing high.

Regardless of the reds you used, there was not a trigger when price entered

the trading zone.

Nothing is guaranteed but having an objective means to enter a trade keeps all emotions out the trading equation

and that is a huge step for many traders.

When trend lines break, there is often a retest of the lines and that can cause

many traders to panic out.

Support/resistance can be arbitrary and often times we will see price test (break the high), fail, and then drop

after you are in the trade.

CCI is one step removed from current price as it needs price to calculate.

In the end, what really matters is that whatever you use is something you are

comfortable with and will be consistent with. There are many ways

to swim a river and the same is true for trading: There is no one right way

to trade.

This objective way to enter trades takes emotions out of the equation and further cements an objective

trading style where your rules do what they are designed to do.