A trigger is when you get a signal to execute a trade. You have already got the set-up and now you just need the sign to enter the market. Ideally, your strategy and set-up will have identified a buy or sell zone, once the market has entered your buy or sell zone, you are then waiting for that trigger to open a position.

New traders often confuse a trigger with a set-up and will often try and make a strategy based around a trigger. The process should be as follows:

  • Identify direction
  • Strategy set-up
  • Trigger

How to Identify a Trigger

A trigger can be anything, we’re going to focus on technical triggers but you can also use fundamental triggers. Simply a statement by a governor of a central bank can be a reason for some traders to enter the market.

Technical Triggers

Technical triggers, again, can be anything. You can choose to use primary or secondary indicators to give you the trigger or a mixture of the two. For best results we would recommend using a primary indicator as your main trigger and a secondary indicator as confirmation.

Primary Indicator triggers

Candlestick Formations

If you are looking to buy a market and the price has entered your buy zone, you are looking for a bullish candlestick formation, this could be a continuation or a reversal candlestick.

Candlestick trigger

In the example above, the decision is to short AUD/USD, a sell zone has been identified (if this market enters this zone, sell it!). Now we are just waiting for a reason that this market will hold in the sell zone. We don’t want it to fly through it to the top-side, which is why we need a trigger before just blindly selling here.

The first instance the market enters the sell zone, we see a rejection candle, whilst it is not a perfect shooting star, the tall wick does suggest that there are sellers in this area. Personally, I wouldn’t sell on that rejection candle, it is not quite enough.

Next we see a bearish engulfing candlestick, this is a significant rejection candlestick formation. Once this candle closes and confirms it is bearish, this IS your trigger. You hit the sell button once that candle closes.

Trend Line Break

A trend line break is a significant signal that one trend is finishing and that another is beginning. The theory goes back to Elliot Wave Theory, the fact that markets don’t move in straight lines, they move in waves. If you are looking to sell a market, you need to be aware that there will be small uptrends. Using a trend line, we are identifying these uptrends and waiting for them to break to give us a signal that the uptrend is over and that our expected down trend will continue.

Trend Line Break Trigger

For the trend line break, you need an impulsive break, something that tells you that that trend is finished and that the market is ready to continue in your direction.

In the example above, you can see the trend line has broken with a candle stick that has closed right at the lows, suggesting there are more sellers in the market. You will also notice that there is a retest of the line and again the market has sold off, both these signals are a good sign.

You can sell at either instance. Either on the close of the impulsive break or you can wait for the retest, selling on the close of the retest candle.

  • Advantage of selling the retest is that it acts as extra confirmation whilst if you sell the initial break, you can sometimes see fake breaks, where the market would stop and reverse.
  • Advantage of selling the initial break is that sometimes if it is a fast move, there will be no retest and therefore the traders that are waiting for that little bit of extra confirmation will simply moss the whole move.

Unfortunately, there is no right answer, it is down to the trader. One slight work around is that you could sell 1/2 of your position on the break and if you get the retest, then you could sell the other 1/2. You therefore won’t miss the move and should it turn out to be a fake break, you will only have a 1/2 position at risk.

Support or Resistance Break

The theory is similar to a trend line break. If a support line breaks, then that line becomes resistance and you are expecting the market to fall to the next level of support. You need to see an impulsive break to signal that the support or resistance level is broken before you can enter the market.

Support Line Break Trigger

In the above example, there is a support line that has shown to hold. There is an impulsive break, whereby a candlestick has close with over half of its body over the support line and has closed near the lows. There is then a retest where the support level has now turned into a resistance level.

Here there are two options to sell (similar to the trend line break). You can sell on the initial break or on the re-test. the same logic applies to this break as the trend line break – it is up to you which one you sell but both have advantages and disadvantages. Ultimately the risks are:

  • Missing the move (if you were waiting for a retest)
  • Being caught in fake break (if you have sold the initial break)

Price Pattern Triggers

Another way of entering a market is by using price patterns in lower time frames to give you your trigger. This is actually similar to candlestick formations. The idea is that you wait for the market to enter your buy or sell zone, once it is in there, you then need to see a price pattern formation in the direction you expect to see the market go.

Once the market goes into your buy or sell zone, you can go into a lower time frame and wait for a price pattern. If you are looking to short the market, you would look for a bearish price patterns, a double top, head and shoulders or rising wedge.

The comparison with candlesticks is because if you imagine a bearish engulfing candlestick, if you were to drill down into a smaller time frame, this would look like a double top formation.

You can use the price patterns trigger to enter the market (which is normally a break of a trend line or support or resistance line).

Secondary Indicator Triggers

It is advised that you shouldn’t enter a market just on a secondary indicators signal. These should be used as confirmations of the primary trigger. A secondary indicator is one that is not directly associated with price action, they are derivatives of the price. There are more secondary indicators than there are primary, they include; MACD, slow stochastic, moving average, parabolics, plus much much more.

Each secondary indicator will have its own buy or sell signal that can be used to confirm the trigger, check out the technical analysis page for more information on each secondary indicator and its signal.

Rather than identifying every secondary indicators trigger, the best use of your time is to understand how you can use them in conjunction with a primary indicator. Using the examples above, we will show you how a secondary indicator can confirm the trade as well as stopping you from taking the trade.

Trigger 1. Trend Line Break Confirmed by MACD

Trend line break & MACD

In the above example you can see that the MACD actually gives us an early signal that the trend line is about to break. The cross of the MACD line and signal line is a sell signal, you will therefore have had an idea that the trend line might be broken soon.

The next candle, you see the trend line break, with an impulsive candle.

You therefore have a primary trigger (trend line break) and a secondary trigger (MACD cross). This is a great signal to sell.

Trigger 2. Candlestick Formation & Parabolic Confirmation

Candlestick trigger & parabolic

In the example above, the price enters the sell zone we have identified, it then creates several bearish candlestick formations giving us a primary trigger. There is a shooting star and a bearish engulfing candlestick, both signalling that there are sellers entering the market.

The confirmation is then the fact that the parabolic SAR has flipped from below the price to above the price, it is now technically acting as a stop loss, however in this example we are just using it to confirm the primary trigger.

Differences Between Trigger 1 & 2

As you will see, we have identified two different ways of entering the same market. Both have a primary and a secondary indicator as confirmation. However, you will notice that one essentially gets you in earlier than the other AND one will likely get you in at better price.

Looking at it as simply trying to get the best price, trigger 2 should be used, right? It gives you the best price and means you can make more pips from your entry to your target.

That is correct, you will make more pips HOWEVER this does not necessarily mean that you will make more money. The amount you will make on the trade is down to your risk reward ratio and ultimately where you place your stop loss.

When you enter a market, there are obvious places for your stop loss to go.

Trigger 2 stop loss = 30 pip stop loss

Trigger 2 Stop Loss

Trigger 1 stop loss = 20 pip stop loss

Trigger 1 Stop Loss

As you can see, the difference in entries has also affected the stop loss placement and ultimately how much you can make from the trade. So whilst one may give you an earlier entry it may not always give you the best risk to reward ratio. Again, there is no right answer, unfortunately it is trial and error and seeing which you prefer.

My preferred method is to use candlestick formations rather than breaks, but that is personal preference.

Whilst we have not covered every single possible trigger, you should have a clearer idea about how you come up with your own trigger. Simply listing all the different options and variations would turn this page into a 1000 page book but please do ask questions about the trigger you are using, we can clarify anything that you’re unsure of.

A notable thing to take from this page is that a lot of triggers are breaks of certain levels or lines. Both the trend line and support and resistance triggers need breaks, as well as the price patterns, because they normally require a break to confirm the pattern.

Understanding what a break can be difficult for beginners, especially when they always seem to find it is a fake break. Whilst there is no exact science (like everything in trading), there are filters that can be used to help you identify a break. See our filters page.

1 Comment

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