Tackle Today: Trigger Tradeoffs
July 6, 2022
«Here are 4 Entry Techniques.»
Coach Tyler here. We’ve spent the last month exploring the S.T.E.P. Swing Trading System in our weekly Coaches Shows. Last night our focus turned to the Bullish Breakout pattern and how to trigger into the trade. It reminded me of the inescapable tradeoff between confirmation and price. Recall that “confirmation” involves waiting for a stock price to move in the right direction to confirm the pattern before you enter.
It seems that more confirmation is better, but that’s not necessarily the case. More confirmation always results in paying a worse price; less confirmation results in a better price.
Take the Bullish Breakout, for instance. Suppose resistance sits at $44.48, and the stock has an Average True Range (ATR) of $2.77. Here are the potential triggers listed from most to least aggressive. Note the most aggressive has the least confirmation but offers the best price. The least aggressive has the most confirmation but offers the worst price.
- Buy when prices break 1 penny above resistance ($44.49).
- Buy when prices break 10% of ATR above resistance ($44.48 + $0.27 = $44.75)
- Wait until prices close above resistance, then buy when prices go 10% of ATR above that day’s high (? + $0.27 = ?)
- Wait until prices close above resistance, then buy when prices go 25% of ATR above that day’s high (? + $0.69 = ?)
Which of the four trigger techniques you use comes down to personal preference. While it may feel like there are a lot of choices, you can simplify them by simply remembering the confirmation/price tradeoff.
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Video Of The Day: Trading Concept Check: Entry Techniques
Entry Techniques are an important part of the S.T.E.P. Swing Trading System that will help traders avoid impulsive trading decisions and avoid fakeouts or failed breakouts by waiting for an appropriate amount of price confirmation above an identified trigger price.
The S.T.E.P. system offers three techniques for entry criteria ranging from conservative to aggressive. Disciplined application of these techniques will help traders be more systematic a disciplined about their approach to trading.
Chart of the Day: Bullish Breakout Entry Techniques
This bullish breakout example shows various ways of calculating the trigger on a bullish breakout trade.
Today’s line up
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