Set-up vs Trigger: "When to unfurl the Umbrella-ela?"
This will solve the INDECESION in your Trading
The secret of success in life is for a man to be ready for his opportunity when it comes." — Benjamin Disraeli
Do you often find yourself unable to press the buy button when the stock presents “the perfect entry point”?
Or are you often unsure if this is the right moment to enter the stock?
And, 5 minutes later
find yourself in deep regret when the stock is now 5-10% up?
And this happens even when you know your setup inside out!
If yes,
Then you may have been missing this critical element in your trading system.
An Entry Trigger.
In this article, I will explain:
What is the difference between a setup and a trigger?
The “unfurl the Umbrella-ela” analogy.
2 kinds of entries you can take after the trigger.
Why is a Trigger mui importante?
What is a “setup”?
A trade setup is a set of conditions. It's as simple as that.
A trade can be initiated when most (or all) of these conditions are met.
The setup can be as simple as having 1 condition or complex having 5-6 conditions (or more).
(PS: how good or effective the setup is, is a different question)
A golden cross is a simple setup where the 50-DMA crosses over the 200-DMA.
I trade a very common setup called FLAG breakout (I like a subset of these called High tight Flags more). A flag is a slightly more complex setup with more conditions viz. prior uptrend, sideways consolidation with tightness and a breakout of the tight area.
But at the end of the day, a setup is a bunch of conditions. Thats it.
Now lets come to what is a “Trigger”?
A trigger is one of the conditions of a setup.
Often times the last one to occur before a trader initiates a buy.
It literally is the “trigger” to buy the set up.
So what’s the trigger in the golden cross setup?
The cross itself is the trigger.
While in the Flag breakout setup, the trigger is: “price breaking out of the flag mast/tight area”.
If the price doesn’t breakout, no matter how beautiful the setup looks, there would be no entry.
(Some traders may enter before breakout. That would be an anticipation entry and not a breakout entry. Even in those anticipation setups, the trader would have a trigger.)
Not clear still?
Here is the “unfurl the umbrella” analogy to help you understand it.
Setup: In a rainy season Kaale Megha (dark clouds); Aandhi-Toofan (storm), Saudaamini (thunder),
There is going to be rain and you don’t want to get wet.
You have an umbrella which will help you from getting wet incase the rain comes.
When will you unfurl your umbrella?
What is your trigger to unfurl your umbrella?
What is it?
The trigger is the first drop of rain falling.
No rain, no unfurling the umbrella.
(like imagine this picture below without rain. Wierd right?)
Okay some examples:
Jwl: Flag
Triggered:
Chambal Fertilizers: Flag, not triggered yet.
2 kinds of entries you can take after the trigger:
An Early Entry (better price): When the price crosses the pivot (resistance) but the candle has not closed yet. This gives you a better price at the cost of a higher probability of fakeout.
A late Entry (higher confirmation): After the price has closed above the pivot (in whichever timeframe you take the trade).
This gives you a higher confirmation at the cost of a higher price.
As nothing in trading is perfect. There are pros and cons to everything.
Early breakout entries in Emudra (image below) would be very frustrating.
But a late (confirmation) entry in RVNL would have got you a price 10% more expensive.
Why is a Trigger mui importante?
I cannot overstate the importance of this enough.
It will solve all the indecesion you face in your trading.
The anxiety and stress that comes with it, will also subside highly.
Your decision making will improve and become faster.
You will have more time to think about other important aspect in your trading.
Clarity will improve which will improve your overall trading and with it your quality of life.
Its basically one of the most essential part of your trading set up and trading system.
Period!
That’s all for today.
Speaking of systems,
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I will teach you the basics of Technical analysis and Trading and more importantly how to “Build your own personal trading system”.
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Yours
Sakatas “unfurl the umbrella” Homma.