Pulling the Trigger By Abe Cofnas

Using the common refrain of “Ready- Aim- Fire,” you can view the trading decision as a sequence of (1) getting ready, which includes an overview of the markets, evaluation of trends, patterns, etc; (2) taking aim which involves deciding where the trade will occur, will it be near a trend line, key resistance or support? – and (3) actually entering your order.

Where and When to Enter a Trade

 

Using the common refrain of “Ready- Aim- Fire,” you can view the trading decision as a sequence of (1) getting ready, which includes an overview of the markets, evaluation of trends, patterns, etc; (2) taking aim which involves deciding where the trade will occur, will it be near a trend line, key resistance or support? – and (3) actually entering your order.

 

These parameters involve the geometry of the market. Assessing non-geometric conditions such as volatility or price momentum is also important. But entering on a market order; or an open stop order to execute a trade requires obtaining a price signal.

 

But you should not be delusional. You cannot know with certainty what the market will do. What you can know with certainty is what the market is really doing. Remember Newton’s Third Law of Motion that a body will continue in its path unless an outside force intervenes and changes the path. Similarly, the pattern the market is in is likely
to be continued, unless something changes. Putting on the trade, the moment of fire, is brought about by seeing a price signal. Let’s understand what a price signal really is.

 

At its basic level, a price signal is a break of, or failure to break, a key pattern. For example, when the market is continuing, a trend and the price is not creating a new high or new low but just continuing the trend, we have no new information. What happens if the price creates a new high, or in fact, reverses trend direction and breaks its trend line? That event shows something new has happened and, as a result, is a price signal. Similarly, a failure to break a pattern can be considered a bounce off a key support or resistance area. When a price signal occurs, it means something important has changed. It means that the conditions to put on a trade are aligned and in place.
When a price signal occurs, the next step is to be sure it’s confirmed.

 

Note: Please see Abe’s book "Understanding Forex: Trading to Win" for the remainder of the chapter. Copies can be obtained from the Freebie section of forexhound.com