Important concepts in trading rules! What are setup and trigger? Technical Analysis Basics Course #7
Hello! This is SAKU!
Anyway, have you been using trading methods by guesswork up to now?
Previous articleWe talked about "trends," but today I want to discuss the important concepts of setups and triggers as you build a trading method!
Whether you haven’t established trading rules yet, or you’re looking to solidify them moving forward, or you already have rules—by clarifying which parts you automate and which you allow discretion, you might be able to elevate your same trading rules to a higher level!
What is a Setup?
There are many kinds of trading methods: trend-following, counter-trend, breakout, buying on dips, selling on pullbacks, and more.
Moreover, to trade, you also need situational awareness: whether you’re in a trending environment or a ranging one.
A Setupis, in these methods,「Under what circumstances and under what conditions would I take a trade?」is codified as a rule.
For example, in an uptrend, if a candlestick rebounds near the uptrend line, you might buy on the dip.
For someone who has such a rule, 「In an uptrend, if the candlestick rebounds near the uptrend line, that means the buy setup is in place.
If you hold a rule like, during a rising moving-averages-perfect-order, the candlestick temporarily undercuts the short-term moving average and then breaks above again, you would sayDuring an uptrend in a perfect order, if the candlestick dips below and then re-breaks above the short-term moving average, that completes the buy setup.
What is a Trigger?
A Triggeris the timing condition for entry, i.e., when you actually enter.
In the above example of the uptrend line setup, after the candlestick rebounds near the upward trendline, the trigger would be,“if the high of the rebound candles is broken to the upside”then you wouldlong-entry. This is what we call the Trigger.
Flow of Setup and Trigger
Putting it all together, you wait until a situation where you can trade (the setup is in place) and when the entry timing arrives, you enter (the trigger conditions are met).
To put it like shooting: you check wind direction and strength, surrounding terrain and obstacles (environment recognition), confirm the target, and ready the gun—that’s the setup. Then you align the sights and pull the trigger—that’s the trigger.
That’s the image!
Often, if the wind changes or conditions worsen, you skip the trade; if the target is stronger than expected, you retreat (stop-loss), right?
In other words, a trading method is to codify the Setup and Trigger as a rule.
However, many methods only codify the setup, leaving open the question of when exactly to enter. It’s recommended to also codify your Trigger conditions in your own rules.
Especially for part-time traders who cannot constantly monitor charts, they can’t always place market orders at the perfect moment, so setting Trigger rules helps you place limit orders more easily.
For example, if your rule is to enter when the candlestick exceeds its high, after confirming the setup, you can place a limit order at the candlestick high so you can enter even without watching the chart (and remember to place a stop-loss order as well!).
Until the Setup Conditions Are Met, You Stay Put
A common beginner pitfall is entering when entry conditions aren’t actually met, a phenomenon often called “Posi-Posi Disease”.
To prevent this, you should codify your setup properly and simply wait patiently until that moment arrives.
Let me say it again.
Until the setup is in place, please just wait quietly.
Of course, setups vary from person to person and from situation to situation.
Experienced traders often have multiple setups for trend-following and counter-trend, etc.
But for a beginner who already struggles to win, delving into many different methods would be risky and leave everything half-done.
First, thoroughly validate and master one setup, then learn others.
If you properly validate and internalize the conditions for the setup, you won’t be inclined to enter at odd places.
Discretion in Setups
The setup conditions may be fairly solid in your mind, but the actual chart often changes slightly, and may not match the exact same conditions.
In fact, that is more often the case.
As a solution,“wait until the same shape appears”or “decide by discretion”
About thiselement of discretion—as the saying goes, this is something that skill is built up over time, soit does not come overnight.
However, by repeatedly scanning charts for similar situations, pondering what differs and what to do, you can gradually acquire it.
For example, in a driving school, when practicing parallel parking, they say “turn the wheel when you see that pole,” but on real streets there aren’t convenient poles everywhere.
That means you must rely on your own experience, skill, and instinct to park.
The same can be said for trading.
With persistent effort, and when your discretion aligns with the setup, you’ll feel you’ve raised your level as a trader!
By the way, in my e-book (see link below),setups and trigger conditions are clarified, as well as stop-loss and take-profit methods, with their underlying reasoning and premisesthoroughly and concretelypresented, so it should help improve your trading skills. If you’re interested, please check it out!
For details of the author's trading method, see here ↓
【Limited-time launch campaign!】→ MMS Trading Encyclopedia—An analysis that reveals the “structural traps” investors fall into and the footprints of large players—Market Microstructure Analysis— (There is also a free trial version)
→The Art of MTF Multi-Time Frame Analysis (There is also a free trial version)
From next time, we’ll deliver an introductory article on MTF analysis (Multi-Time Frame Analysis) covered in the above e-book!
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