A trade trigger is any event that satisfies the criteria for initiating an automated securities transaction that does not require additional input from the trader.
It is usually a market condition that triggers a sequence of trades. For instance, a rise or fall in an index or security price. It aims to automate certain types of transactions, such as selling shares at a certain point when the price hits.
Understanding Trade Trigger
Trade triggers help the traders optimize their strategies for entry and exit. Trade triggers are often placed using contingent orders which involve both a primary and secondary order.
The second order is activated automatically when the first order is completed. In addition, it is available for execution depending on all other conditions.
For example, traders can straddle the current market price by placing a one-cancel-other (OCO) order where the execution of one side will cancel the other immediately. Thus, it allows the trader to enter the market, hopefully with momentum in the direction.
Trade Trigger Example
Trade triggers may be helpful in automating entry and exit strategies but when using them, traders should be careful. After all, forgetting positions create more than a day ago is simple for traders. Also, the execution of old trading ideas can lead to losses.
Traders will be sure to review any open trading triggers at the end of each day. And then, consider using only day-long orders to set these strategies as opposed to good-tilled or other longer time-frame order forms.
Trade triggers can add a disciplining component to the trading process by implementing guidelines identified by the trader. Traders will often use trade triggers to position compound orders which depend on a number of conditions that fulfill it.
Over time, traders will ensure their trade triggers remain relevant.