2 Live Examples of How to Setup Trigger Levels to Avoid Over-Trading

The Australian Dollar is dominating today’s market with major weakness across the board as the GBPAUD plus EURAUD rise and the AUDUSD, AUDCHF, AUDJPY and AUDCAD fall. Even the AUDNZD is falling, even though the New Zealand Dollar is almost just as a weak against the same currencies.

The AUDNZD is in fact at an interesting decision point and is worth monitoring for a potential breakout or bounce trade setup.

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Let us review both scenarios:

  1. Bearish break: the downtrend and bearish momentum are clearly visible on the weekly chart so a bearish break below the support line (orange) indicates the potential start of another fall. In this case I would consider the trigger to be valid when a) a clear weekly candle is below the trend line (at least 50% below) and b) a weekly candle close is near support (not more than 30% off).
  2. Bounce at trend line: the trend line has multiple hits and in fact could be a bouncing spot for more upside corrective price action. Last week’s weekly candle in fact hit the trend line and made a first bounce. The weekly candle was also a Doji which indicates indecision. The trigger is either another weekly candle with a bullish character (at minimum a wick at the bottom of the candle) or zooming into lower time frames and looking bullish price action on the 4-hour and/or daily chart.

The difference is that now the currency pair is in a “non-trading zone” for me, but when price hits the trigger then I would be looking for actual setups. Basically after a trigger level has been triggered, I will look for either short trade(s) or long trade(s) by waiting for a pullback, breakout, Fibonacci retracement, etc. This could be on a lower time frame as well.

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When I zoom in to the 4-hour chart the recent bearish momentum becomes very evident and a break of the support trend could also be a break of a bear flag. Then again, a bounce at the support line could equal to the right shoulder of an inverse head and shoulders (H&S) pattern as well. A break of the H&S pattern could signal the reversal back up (green arrow). A currency pair to watch…

The same trigger philosophy can be used for (almost) all scenarios. It does not have to be a trend line either. On the next pair (NZDCHF) I can use a Fibonacci target as my trigger. Once price approaches the -61.8 Fibonacci target, then I can monitor this currency pair and check whether any clear 4-hour (or one-time frame lower) candle stick patterns appear. If yes, it could be worth trading a bounce trade from this level. If not, then it would probably be best to wait not to trade short upon the break because of the bigger daily support level (magenta). Just because a decision spot could be a bounce or break spot, it does not mean both directions are tradable (see post on limiting mistakes).

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Thanks for reading this post and any sharing is highly appreciated! Do you use triggers for your own trading or do you skip confirmations?

Happy Hunting!

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