Applying Triggers in Forex

Applying Triggers in Forex

Hello Forex traders,

Today we will complete the explanation of the TOFTEM model by focusing on the “trigger” segment.

Take a look at this list for an explanation of each TOFTEM segment:

1)      Trend 

2)      Opportunity 

3)      Filters 

4)      Trigger (today’s article)

5)      Entry Method 

Filters 1

TRIGGER

In Forex and when trading, the trigger is the difference between a confirmed trade setup and a potential trade. When a Forex trader has a trigger in their plan and price has reached and activated that trigger, then the trader has received the confirmation of price moving into the anticipated direction/bias/trend. The actual entry could be completed at the same spot as the trigger, but does not have to be.

The trigger is a price level which increases the attention rate of the trader because it is warning them that conditions of the trade are close to being met.

Let us use an example to highlight the difference. For instance, a Forex trader is looking for trends and sees an uptrend on the 4 hour chart. An opportunity arises because a pullback has occurred on the 1 hour chart and there are no filters that block this potential setup. In this trader’s trading plan it refers 50% Fib retracements as triggers.

1)      The trigger is activated as soon as price hits the 50% Fib level because price action and the trading plan are matching each other.

2)      If price action is still at the 38.2% Fib level, then despite the fact that the other conditions have been met (trend present, pullback is occurring, and no filters) the trader still would not be interested because the trading plan is specifying that the trigger occurs at a different spot (the 50% Fib, not the 38.2%).

Does this mean that the trade will actually enter at the 50% Fibonacci retracement? The trader could do so but does not have to:

1)      If the trader enters a trade at the 50% Fib, the trigger and entry are the exact same.

2)      If the trader chooses to wait for a candle stick pattern at the 50% Fib, then the trigger is the 50% Fib but an entry would be a pinbar or engulfing twins at the 50%.

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ANTICIPATING VS CONFIRMATION

The difference between using a trigger and directly entering the market is the difference between having a trading style that is focused on anticipating the market versus a style that is focused on waiting for more confirmation.

The advantage of anticipating the market is that the trader has a better entry price and the risk in terms of pips could be smaller. The disadvantage is that the market might not confirm the analysis of a trader.

The advantage of using a trigger and waiting for confirmation is that trader gets confirmation from the market on their own analysis. Instead of thinking/anticipating/hoping that price will do as expected, the trader waits for price to confirm their analysis. The disadvantage is that the market might not see follow through after the confirmation is received.

To continue with the 50% Fib example mentioned above:

1)      When a trader places a direct entry at the 50%, the advantage is that the trader can get better entry price if price indeed stops and reverses at the 50% Fib.

2)       When a trader waits for confirmation at the 50%, the advantage is that the trader can wait for price and market confirmation at the Fib level.

  1. If there is no bounce at the 50% Fib then a trade is not entered and a potential loss is avoided;
  2. If there is a bounce, then the trade can be entered upon the confirmation.

i.      The disadvantage of waiting for confirmation is that entry is at a worse price and once confirmation occurs, the market might not have momentum left.

Whether a trader opts for a trigger depends on their trading psychology and trading strategies. An impatient trader could fare well with using a trigger as it reduces the risk of over trading. An intra-day trader might do better with anticipating the market to squeeze out the best R:R ratios (reward to risk), otherwise there could be little daily movement left after the trigger has been hit.

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TRIGGER PROCESS

The trigger helps traders with distinguishing the difference between moments of analysis and increased interest.

When price hits a trigger, the trader knows that a potential entry is close by and they can now increase the frequency of monitoring the potential trade OR even set a pending order. More information on various types of entries can be found via this link. 

The trigger creates clear lines in the sand. Clear lines in the sand mean that the trader has a plan:

a)      If price does this and this, then I will do this

b)      If price does that and that, then I will do that

Here is a real life example:

a)      If price breaks the upper trend line of the triangle, then I will enter a trade when price pullbacks to the broken trend line.

b)      If price breaks the lower trend line of the triangle, then I will enter a trade when price pullbacks to the broken trend line.

c)       If price stays between the 2 lines, I will do nothing.

The lines in the sand create a decision tree in which the trader is waiting for price to confirm which direction it wants to go to. The trader lets the market decide instead of the trader trying to decide for the market.

This process allows the trader to monitor the charts without second guessing each minute whether a potential entry has been missed. This process can be especially though on the trading psychology. The trader then knows when to implement their trading plan and thereby avoids over trading, monitoring the charts each minute or taking too early positions. In that regard, knowing when not to trade can be as important as knowing when to trade. Using a trigger is a key element in that process. It creates a peace of mind within the trader (and reduces fear).

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TRIGGER TIME FRAME

Both the trigger and entry time frame do not have to be completed on same time frame as the trend analysis. It could easily be implemented on 1 or 2 time frames lower than the trend view. Using multiple time frame analysis is key in this section.

For instance, if the trend is viewed on the 4 hour chart, and the filters are checked on the daily, then the trigger and entry should be completed at minimum on the 4 hour chart but easily be done on the 1 hour or 15 min chart as well.

By searching for a trigger on a lower time frame the confirmation signal occurs quicker but the advantages of having a trigger are not lost. The time frame where the trigger is applied is then called the “trigger chart”, just as the entry is called the “entry chart”.

On these charts no analysis needs to be done (depending on your exact trading plan) necessarily. All that the trader needs to do is look for the signal and entry as the analysis has been done prior to that.

Do you use triggers? Which triggers do you use most often? Let us know down below!!

Thanks for sharing this article!

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Chris is the head of the mentoring program and trading room at Winner's Edge Trading. He has a passion for technical analysis and helping Forex traders achieve their goals in trading. Chris has been trading for almost 10 years and is most fond of the Double Trend Trap (as a strategy), moving averages (as an indicator) and Fibonacci (as a tool).
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  • Phoebe Ejimbe

    A great article, Chris! You have outlined in great depths the TOFTEM model. A great help!
    Yes, I use triggers. For confirmation style trades I use bullish/bearish candlestick formations such as hammers, hanging man, tweezer tops/bottoms, engulfing candlesticks etc. For anticipatory trades I use either 50%, 61.8% or 78.6% Fib level.
    Many thanks for sharing!

  • Chris

    Hello Fabrice!

    Thank you for your kind words – it is much appreciated! :) I am very glad to read that you find the material useful and good learning. And yes, totally agree that charts sometimes are like works of art :) Good thing is that by using these steps they will help us traders with processing the info and following the plan.

    Thanks again for your feedback!! Chris

  • Fabrice Goeyvaerts

    Another great article, Chris!
    I very much like how you have structured all the process before taking a trade with the TOFTEM Model. High probability trades is the reward for a well defined Model.
    Your 1st chart shows so well how price moves and what we should/could do if using a trending strategy … beautiful piece of art ;-) (I’ll print it and have it next to my computer)
    Yes, I use triggers. One with confirmation = Daily Pin bars. One without = 61.8 Fib. retracement.
    Tks a lot for sharing your knowledge.
    Enjoy your weekend,
    Fabrice