Important concepts in trading rules! What are setup and trigger? Technical Analysis Basics Course #7
Hello! I’m SAKU!
Suddenly, have you been using methods by intuition up to now?
Previous articleWe talked about "trends", but today I’d like to discuss an important concept when building trading methods: setups and triggers!
Even if you haven’t established trading rules yet, or you want to solidify them from now on, or you already have trading rules, by clarifying which parts you codify into rules and which parts you allow discretion, you might take your trading rules to the next level.
What is a Setup?
There are many forms of trading methods, such as trend-following, counter-trend, breakout, buying the dip, selling the pullback, and more.
Moreover, to trade you also need environmental recognition: whether you are in a trending market or a range, etc.
A setupis, in these methods,「Under what conditions and in which situations would I place a trade?」is the rule that is charted.
For example, in an uptrend, if the price bounces near the uptrend line, that could be a dip-buy setup.
For someone who has such a rule, the case is that, 「In an uptrend, price bounced near the uptrend line」 means the buying setup is in place. so the setup is complete;.
If you have a rule like, during the ascending perfect order of moving averages, when the candle temporarily closes below the short-term moving average and then breaks above again, you buy, then, that means the setup for buying is complete becauseIn an uptrend, during the perfect order of rising averages, the candle dipped below the short-term moving average and then broke above again.That’s the completed setup.
What is a Trigger?
Triggeris the timing condition for entering, which comes into play once the setup is in place,「exactly when do I enter？」.
In the above example of the uptrend line setup, after the candle near the uptrend line bounces, the trigger would be,“break the high of that rebound candle” and thenenter long accordingly. This is what we call thetrigger.
Flow of Setup and Trigger
With that in mind, the flow is: you’re in a situation where you can trade (setup is in place), and when the entry timing arrives, you enter (trigger conditions are met).
If you compare to shooting, it’s like: you check wind direction and strength, surrounding terrain and obstacles (environment recognition), identify the target, and shoulder the gun—the setup; then you align the sights and pull the trigger—the trigger.
That’s the vibe!
If the wind changes or conditions worsen, you might pass on the trade, or if the target turns out to be stronger than expected, you may retreat (stop loss).
In other words, a trading method is the combination of this setup and trigger codified into rules.However, many methods only codify the setup portion, leaving the entry timing unaddressed, so it’s recommended to also codify your own trigger rules.
Especially for part-time traders who cannot constantly monitor charts, it’s not always possible to place market orders at just the right moment, so establishing trigger rules helps you place limit orders more easily.
For example, if your rule is to enter when the candle closes above its high, once the setup is confirmed you can place a limit order at the high of the candle, and you can enter even without watching the chart (of course place a stop-loss order at the same time!).
Wait Relentlessly Until Setup Conditions Are Met
A common beginner mistake is to enter even when the entry conditions aren’t met, what you could call a “posipoship” disorder.Spot-it is to prevent this, you must properly codify your setup and simply wait until that moment.
Let me reiterate.
Until the setup is in place, please just wait quietly.
Of course, setups differ by person and situation.
Experienced traders often have multiple setups for trend-following or counter-trend strategies.
But for a beginner who is not yet winning consistently, branching into many methods is risky and can lead to half-baked results.
First, thoroughly test and be able to use one setup, then learn others.
If you thoroughly verify and internalize the conditions for the setup, you won’t be inclined to enter at odd moments.
Discretion in Setups
You may have a fairly solid setup condition, but the actual chart often changes slightly and may not match the exact conditions every time.
In fact, that’s more common than not.
The solution is either to keep waiting until the same shape appears or to judge with discretion.Discretionis addressing that.
As for thisdiscretion, it’s not worth saying “anything goes,” because it’s gained through experience, soit does not come in a day.
However, by repeatedly studying charts for similar situations and thinking about what’s different and what to do, you can gradually acquire it.
For example, driving school teaches parallel parking by saying “when you see that pole, turn the wheel,” but on real roads there are no convenient poles.
The same thing applies to trading.
With steady effort and appropriate discretionary judgment on the setup, you’ll feel you’ve raised your trading level significantly!
By the way, in my e-book (see the link below),the setup and trigger conditions are not only described, but also the methods for stop loss and taking profit, with the underlying reasoning and premisesexhaustivelydetailed, so it should contribute to your trading skill development. If you’re interested, please check it out!
For details of the author’s trading method, click here ↓
MTF Multi-Timeframe Analysis Essentials
From next time, we’ll cover an introductory article on MTF analysis (multitimeframe analysis), which is also treated in the e-book above!
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Next article is here↓