Trigger Mechanisms in Trading

Trigger mechanisms can fine-tune one’s trading by leaps and bounds.

There’s the buy stop. It’s used to only get into a trade above a certain price level. Below that price level, one isn’t bullish, and doesn’t wish to enter the trade.

Then there’s the sell stop. It’s used to execute a short sale below a certain level. One is bearish below that level only; above the level one doesn’t wish to enter the trade.

A short-seller can also use the buy stop to square off a short sale going against him or her.

Similarly, a person who is long can use the sell stop to square off a buy going against him or her.

How does the trigger mechanism work? There are two components: the trigger price and the limit price. Once the trigger price is “triggered”, only then is the order activated. This triggered order is then carried out within the range defined by the limit price. If the trigger price is not reached, the order is not activated.

This gives the trader the added advantage of not having to watch the screen all the time. In fact, some traders use the trigger mechanism while punching in their orders, and do something else the rest of the day.

More importantly, the trigger mechanism allows the trader to be where the action is when the action happens.

Trigger mechanisms are how professionals do it. You can use them too, because they are available on any and every trading platform doing the rounds.

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