If you have been trading for any measure of time, then you are probably nodding your head in agreement; you've been there and done that. It is all too easy for traders to relate because we have all missed an opportunity which we, in hindsight, can see would have made a tidy profit. While you can take comfort in the fact that you are not alone, let's not take comfort in our mutual dissatisfaction. Take action, and learn how the pros do it.

Once a trading opportunity has been identified, the best way to take action on a trade is to use a trigger. A trigger, by definition, initiates a process or starts a reaction. When talking about trading, a trigger would be something that initiates the process of buying or selling the stock. That being said, what would qualify as a trigger? Let's take a closer look at what some traders might consider to be triggers.

Many traders look for indicator confirmation to help them make a decision to buy or to sell. Let's take a look at some of the tools, such as a Stochastics (see illustration 1below) crossing the 20 or a MACD 2 line cross, that traders use. Can these be considered triggers?

Illustration 1 Crossing MACD or Stochastic lines are NOT a trigger. Chart supplied by Edu-Trader™

No, not unless you have a broker who can auto-execute a trade from a technical signal. Since the vast majority of brokerage firms do not offer and are not even capable of that type of order execution, we may assume this is not the case. These types of technical signals are just that — signals — and cannot be considered triggers because they do not initiate a process or a reaction. At best, they make a trader think about buying and/or selling.

Since indicator signals cannot be considered triggers, what is a trigger? A trigger is a stop order. When most new traders think of the word stop, they automatically associate it with the commonly used application of a protective stop, like the stop loss; however, the stop loss is just one application of a stop order.

Stop orders are triggers that initiate either a market order or a limit order that your broker will then execute. When placing a stop order with your broker, the order ticket requires that you input a specific price. The price that you enter will then be used by your broker to trigger the specified action to either buy or sell at market, or to buy or sell with a limit.

Stops are used for both buying and selling. This concept is difficult for new traders because they most often associate the word stop with an action that ends a trade. The disciplined use of stop loss orders is pounded into the heads of new traders so aggressively that when they are introduced to the concept of entering a trade using a stop order, it fails to compute. A simple trick that often helps new traders get beyond the common usage of the word stop is closing their eyes and picturing a traffic stop sign. What do you do at a stop sign? Naturally, you stop. However, a stop sign is also where you start.

The word Stop = Trigger. A Trigger = A call to action. Therefore, a Stop Order = A call to action. To place a stop order, you need to specify a price and an action. The price you choose is the trigger that initiates the process or the action. The action can typically be an order to buy or sell at market, or buy or sell with a limit.

Proper use of stop orders in entering into trades will help mitigate emotions and automatically trigger the trade when the predetermined price conditions have been met. Let's take a look at this technique as it is properly prescribed in the Master Trader™ course. In the below example, we see a stock in an upward trend with a bull pullback pattern. In this situation, the master trader will trigger into the trade once price action resumes in the direction of the upward trend.

Illustration 2 Place a Buy Stop Order above yesterday's candlestick high. If in the event price action turns upward as is expected with this pattern, the trade will automatically be triggered upon our entry criteria being met. Chart supplied by Edu-Trader™

Too often, new traders sit impatiently in front of the monitor, reacting to price movement and chasing trades using either limit or market orders. This creates problems, not only with market timing, but also with the trader's psychology and emotions. Traders who are trying to tame an itchy trigger finger or who are frantically trying to react to an indicator confirmation are most often their own worst enemy.

Placing a buy stop or a buy stop limit order will initiate the trade when, and if, our price criteria have been met. By placing these types of orders before the market opens, the trader can get triggered into trades without having to be glued to the monitor.

Rather than kicking yourself for prior failure to act, get into the habit of using proper trading triggers by using buy and sell stops to enter into your trades. Don't forget to couple those trigger orders with proper stop losses and reasonable targets, and most importantly, don't let “Analysis Paralysis” keep you from getting into the game. Noah Davidson is a Stock Coach, Mentor, and an Instructor of the Master Trader™ Course for Wealth Intelligence Academy™.