One of the reasons for the prevalence of technical analysis among financial market participants is the possibility of determining the rules of entry and exit of the transaction with high accuracy. In fact, finding the best way to enter and exit is the main concern of most traders and is a holy grail of investment for them. We have seen many times that a trader still does not have a good return after years of working in the stock market.
Examining the journal (transaction detail notebook) and the trading strategy of this person reveals that his main problem is the lack of specific rules or tools to determine the conditions for entering or leaving the transaction. Although each of the stock market analysis methods has advantages and disadvantages, but according to the majority, the efficiency of technical methods in determining the optimal entry and exit points has been proven.
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In this article, we will describe one of the technical trading concepts called trigger, to clarify the importance of determining the exact rules and details in the process of making each trading decision.
What is the meaning of trigger in trading?
First of all, it should be noted that some analysts consider the trigger to be a specific graphing tool and even consider new compound names for it; But in principle, the trigger is not limited to a specific analytical tool and is used as a comprehensive concept in all methods of technical analysis.
The word trigger literally means trigger. Trigger in technical analysis and trading refers to points, areas or levels; Based on our method of analysis or trading strategy in those areas, we enter or leave the trade.
In this process, the type of trading position (buy or sell), symbol and financial market does not make a difference, because each action must be based on the trigger of the trader.
In fact, you should consider the trigger as a sign or set of signs for trading in certain chart ranges, which you have developed based on your analysis tools and included in your personal trading strategy.
For example, Trader A makes a purchase as an entry trigger based on the occurrence of the following conditions:
“Creating a bullish break between the RSI indicator line and the level 30”
Is the trigger just for the deal?
The second misconception about the concept of a trigger is that some technical traders consider it limited to the entry process! But as we mentioned, the trigger is useful in entering and exiting the transaction.
In fact, as a professional trader, you should have a set of rules for all your actions. After entering the trade at the best possible levels and moving the market in the direction you want, the price trend may be reversed after a while and a profitable trade will turn into a loss-making situation!
Therefore, we come to the conclusion that you must have certain triggers for a successful exit from trading.
Trigger is an integral part of any trading strategy!
The need for a personal trading strategy for each financial market trader has been repeatedly emphasized in various educational resources. The main components of a complete trading strategy are the trigger points , the exit and the capital management system.
In other words, formulating a trading strategy without accurate entry and exit triggers is meaningless and in these circumstances there is basically no trading strategy. So if you have reached the stage of building a personal trading strategy, you are subconsciously dealing with the concept of trigger.
Triggers based on conventional technical tools
Today, with the development of financial markets, technical analysis has become a world of diverse graphing tools. Traders use different methods to analyze the price chart and of course their triggers are different from each other.
It is important to note that entry and exit triggers, which due to differences in analysis tools, some traders may have different and reverse triggers at the same time. In fact, your entry trigger may be equivalent to another exit trigger.
Also, if you are analyzing and trading in a multi-time (multi-time analysis), the smaller timeframe will be as a time trigger; Because you analyze the chart with a larger time frame and find trading triggers in the chart with a smaller timeframe.
In this section, we will mention examples of entry and exit triggers based on different tools and Tehran stock market charts:
1- Indicator
One of the most diverse tools for stock market graph analysis is indicators. You can use the indicator as part of an analytical approach to your trading strategy to determine the entry or exit conditions of the trade.
In this section, we have used the simple 9-day moving average indicator as a chart analysis tool to receive entry and exit triggers.
What is a trigger and what is its application in technical analysis?
In the above chart, which is related to Mobarakeh Steel Company of Isfahan, the upward failure of the price and the indicator of the entry trigger. On the other hand, the downward failure of the price and the indicator is also a condition or trigger for exit from the trade.
3- polback
According to many experts working with price charts, this technical trading technique is one of the least risky ways to enter the trade. In fact, the goal of trading based on pullbacks is to enter the trading positions in the best possible conditions in terms of risk and return.
The quality of using price pullbacks as a trading trigger is also quite evident in the chart below. Using the two available money opportunities, it was possible to enter into a transaction with the lowest loss and the highest profit potential.
3- Failure
There is a lot of talk about the concepts of failure and price pullback. The truth is, pullbacks are not always created, and in these cases the price continues to move at a high speed as soon as it breaks. Of course, the existence of fake failure patterns is also undeniable. However, many traders prefer to enter the trade during price breaks and not wait for the price to return.
The above chart is related to the symbol of Shepna (Isfahan Oil Refinery) . After breaking the relatively long-term trend line, a bullish break occurs and the entry trigger is activated for failure-based traders. Interestingly, a pullback is also seen during this failure!
4- Price pattern
Price patterns are almost as varied and very popular as the indicators. The main advantages of these models are high predictive power, the possibility of multi-time trading, profit and loss determination.
In the chart of Informatics Services Company (symbol: Ranfour) , we have specified an ascending flag pattern. The entry trigger is based on the uptrend between the price and the upper edge of the flag. Although this type of trigger is also based on price failure, but the existence of a valid price pattern is the main reason for entering the buying position.
5- Candle stick
This simple charting tool, which dates back to Japan, is arguably one of the most popular technical analysis tools in financial markets. The reason for this popularity is simply to understand the nature of candelabras, patterns and other related details. Therefore, many trading methods are based on candelastics.
The chart below uses an uptrend pattern as an entry trigger. Traders following this Kendall pattern will observe and buy after the candle covering the trigger trigger is closed.
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