Step #1 Trend Trade Trigger Line Reading- Continuation
Building essential technical analysis skills for high probability trading
Correctly analyzing the trigger lines is "THE TOP PRIORITY". The following video will take you through the top trigger line looks for taking high probability trend trades. Please watch the video and refer to the material below. Thank you for choosing Nexgen for your technical analysis.
Watch Full Screen - Trigger Line Configurations for Trend Trading Foundational Lesson
Every profitable trader must recognize the trend. Nexgen traders do this by using the 13-2 chart Fibonacci and Trigger Line patterns. This will be rule number 1 for high probability trend trades. Take a trade when the charts have perfectly configured trigger line trend trades. With proper trigger line conditions in place on the 13-2 chart, trend trades will give a trader a very high chance of winning. Click on pictures to expand them for clear viewing.
Strong small trigger lines make trend trades higher probability
When analyzing for a trend trade on the 5-1 chart, start with the 13-2 chart trigger lines. Please pay particular attention to the strong small trigger lines and when they are crossed up or down. Small triggers need to be located inside or above or inside or below the large trigger. After the small trigger is located "inside" or on the "correct" side of the 13-2 large trigger, you must then check for termination conditions. Termination conditions tell you when it is time to stop executing trades in the trend direction on the 5-1 charts.
strong versus weak triggers
It is important to remember that even a strong trigger line look may stop at Fibonacci areas or with a termination condition. The location of the trigger lines at the Fibonacci areas is critical as learned in the following 5-minute Fibonacci and Trigger Line video.
Watch Full Screen -Fibonacci and Trigger line Lesson- Location and Termination Conditions
5-1 TREND TRADES ARE TO BE TAKEN IN THE DIRECTION OF THE 13-2 SMALL TRIGGER LINES. You will not execute trend trades when the 13-2 small triggers are on the wrong side of the large 13-2 trigger lines. There is one exception to this rule in a strong trend when both large and small triggers are crossed in the same direction. This usually happens after a resistance area, such as Fibonacci and or Mid-Bands holds, followed by the large triggers still crossed, favoring the trade. The following example shows a typical example in a wider view, including the trend up, the top, and the trend down.
After analyzing the 13-2 trigger lines for a favorable condition (rule #1), there is no termination condition present (rule #2), you will analyze the smaller 5-1 chart for a high probability trend trade entry area on the 5-1 chart. Let's review the 3 rules for a trend trade.
trend trade rules from the trading plan page.
To do high probability trend trades, you will want to make sure you have strong triggers on the 13-2 and the 8-range chart prior to taking a trend trade on the 5-1 chart.
The trigger line configuration that will help you really excel at trend trades is the 8-range chart trigger lines. These triggers follow the same rules as the 13-2 chart. When they are strong, in addition to your 5-1 and 13-2 charts agreeing, you will have very high probability trend trades. When reading the trigger lines, you will apply the same rules when reading the 8-range chart trigger lines. In the following example, you will see the expected outcomes for different trigger line looks.
click to enlarge - 8-range small triggers must agree with trend trades
click to enlarge- Make sure you have both 13-2 and 8-Range chart triggers strong for trend trades
The large trigger lines on the 5-1 chart are included in rule #3 entry areas. The smooth trigger line is the 5-1 large triggers. The "stairstep" trigger lines represent the 8-range large trigger super-imposed on the 5-1 chart to give you a clear picture of both charts' trigger line strength. You will buy or sell at Fibonacci areas, Mid-Bands, or One to One dots, ("inside") or ("at) the large trigger lines on the 5-1 chart. The following short at the magenta box and long at the green box represent typical trend trade short and long configurations.
5-1 trend trades should incorporate the large trigger lines to fine tune entry areas
When the 13-2 small trigger is inside the large trigger we call this a state of being "weak" which may end a trend at a Fibonacci area. When the 13-2 small triggers are outside of the large triggers we call this a state of being "strong". Strong triggers at a Fibonacci area may break the area. These two concepts will be important and will influence trade exit management. When the 13-2 triggers are weak, Fibonacci areas typically stop the market trend. When triggers are weak most traders elect to exit a trade at Fibonacci areas as the price reaches the area with a limit order. When trigger lines are very strong into a Fibonacci area, traders may elect to take 1/2 of a position at Fibonacci with a limit order, remain in the trade, and seek more profit if the trend continues. The 13-2 trigger read is combined with a 5-1 trend trade in the following picture. When short, the exit taken at the Fibonacci target was the best option for maximizing the profit due to the weak trigger. Due to strong trigger lines on the 13-2 chart, the market moved beyond the 5-1 Fibonacci resistance. We will review this in the next two pictures.
When reading the 13-2 triggers, the stronger the trigger lines on the 13-2 chart, the more likely the Fibonacci area is to break. Based on the strong trigger lines on the 13-2 chart, the chart below suggests that the market was likely to move beyond the 5-1 Fibonacci resistance. The strength of the trigger lines will influence your trade entries as well as your exit management. Notice on the 13-2 chart below, the strong triggers broke above the first Fibonacci resistance. Ultimately, the market traded to the next Fibonacci resistance on the 13-2 chart once the small triggers were inside the large ("weak"). This was the best second exit for traders who like to hold a portion of their position as a "runner."
The final component to recognizing the best possible 5-1 trend trade is when you make sure the 13-2 and the 8-Range small triggers are "STRONG" simultaneously. The more spread out the 13 and 8 triggers and are headed in the same direction, the easier your trend trade on the 5-1 chart. When we look at the definition of a high probability trade from the glossary of commonly used terms we will see the following.
HIGH PROBABILITY TRADE- defined as when each indicator on every chart agrees with rules for the trade. Typically, this is when all triggers are their strongest, no termination conditions exist, and there are no trouble spots between your entry and your target.
Once all of the triggers are strong, you will enter the trade at support or resistance (Fibonacci, mid bands, or one-to-ones), "inside" the large triggers on the 5-1 chart. The following pictures are examples of how the following charts 13-2 and the 8-range trigger should look like when you enter a 5-1 trend trade. The buy entry is represented with the circles at the green arrows. To get the best long buy entry price, you must buy as the market is trading down "into" the support inside the triggers on the 5-1 chart. We have supplied you with execution videos to study in the plan showing the mechanics of a trade.
Strong 13-2 and 8-range triggers will make 5-1 trend trades high probability
both 13-2 and 8-range small triggers are strongly trending
both 13-2 and 8-range small triggers are strongly trending
It is extremely helpful when you copy-paste the rules, using snag-it, on your charts to double-check your understanding of the rules. You may also use the free version "capture" to annotate your charts manually. For more information on the process of capturing and sharing pictures please refer to the user guide pages. This page includes download links and instructional videos.
All 3 charts are perfect for a trend trade short.
As you progress through your education and spend more time reviewing chart history and doing market replay, you will see the same trend trade look over and over. The key to long-term success is the ability to recognize and execute the same trend trade patterns consistently and confidently.
Perfect 13-2 and 8-range triggers in addtion to large triggers and areas entries on the 5-1 chart.
When making trend trades, focus on the large trigger location when the price is trying to break out of a Fibonacci area when the color of the Fibonacci line does not change. You must pay attention to managing a trade when the large triggers are not yet beyond the Fibonacci area. Suppose you take a long at the circle (WHEN THE 5-1 and 8-range charts agree). You must manage the trade with divergences on the smaller 5-1 chart or if the 8 range triggers roll against you based on the location of the Fibs and triggers. (examples later)
recognizing great trades and those that require strict attention based on trigger location
At tops or bottoms, or breakouts, the trigger lines' location is critical. You may make a long trade if the smaller 5-1 and 8-range charts are perfect during the pullback to white circle below; remember that any 5-1 divergence or triggers rolling against your position on the smaller 8-range chart will end this trade long and the market will resume a downtrend. We call the market's inability to change the Fibonacci color a fake or failed breakout attempt. Trade management will be crucial when you see this 13-2 trigger look.
Location of Triggers at bottom and tops is very important
After a top or bottom, you may see a "GAP" greater than one bar, measured between the large triggers and the mid-band; the price will typically close the gap between the mid-band and large triggers. This is where the 13-2 REVERSAL BAR MARKER is useful so you can see the size of the gap. Normally this gap is closed when the prior trend was strong. Trend trades on the 5-1 chart taken into this gap have a lower probability of winning.
A second concept on the chart below is when small triggers are inside each other; we call this "weak" or weakening in the chat room. If the price is at a FIBONACCI area, the area may hold. If not at an area, there is considered TRENDING but weak. When 13-2 triggers get weak, you must be more sensitive to termination conditions on the 5-1 chart. The following chart is very typical during most trading days. Understanding the expected outcome for each look will be very important when deciding which trade rule to follow.
Traders who are unaccustomed to trading into Fibonacci areas need to pay particular attention to the strength of the trigger lines. The strongest triggers tend to break Fibonacci areas. Pretend the Fibonacci area is not there at first and keep taking trades in the trend direction. Just remember to manage those trades if termination conditions on the smaller chart happen, such as 3 divergences on a 5-1 chart. See the next two charts for examples of how the smaller charts may temporarily or permanently stop a trend.
Trading into Fibonacci is OK as long as triggers remain strong
Although the triggers are STRONG, you must continually pay attention to termination conditions on the 5-1 chart. You won't be able to see "CHANGE COMING" on one 13-2 chart bar. If needed, manage your trades with termination conditions on the 5-1 chart. Initially, you will anticipate the trend will end when you have a termination condition on the 5-1 chart. If the 5-1 chart termination condition is broken with-5-1 large triggers up again, while the 13-2 trigger remains strong, you will see a resumption of the trend. If 5-1 large triggers remain crossed against the 13-2 direction, wait.
know when to give up on a strong 13-2 chart trigger line
The following 5-1 chart went from RED to GREEN showing termination of the downtrend. Assuming the large charts have not changed their expectation of the downtrend to continue, you can take another sell setup (at Fibonacci, Mid-Bands, or One-to-Ones) after the small trigger lines are "LOCATED BELOW" the large triggers. This is called a continuation style trend trade. It is important to note that the 5-1 large triggers will not be crossed in the direction of the "trend trade". This is one of the 2 times (continuation and 13-2 Fibonacci edge trades) when triggers lines on a larger 21-3 chart "trending strongly" will be used; otherwise, the 21-3 chart is not needed for 13-2 chart and 5-1 trend trades.
The importance of termination or continuation is witnessed in every market and every time frame most days. When deciding to trade a continuation of the trend, a trader must pay attention to what the large chart is saying at the highs and lows. In the following ETHEREUM cryptocurrency chart, you will see the termination of the uptrend after the 3rd divergence on the 5-1 chart. This same 3 divergence termination condition stops the selloff, however, only temporarily due to the larger chart Fibonacci and trigger line pattern. This chart is not presenting a "momentum style" entry so we must use another method of entry such as the T3 Market Flow. (examples in the following slides)
When trading a continuation of the trend, you have three choices, the trigger line momentum style entry discussed in the first picture, a "spot entry" at a key Fibonacci or one-to-one or prior divergence line, or enter after the trigger lines roll down after a pullback. In the following Ethereum cryptocurrency chart, the T3 Market Flow chart helps define an entry technique. There are two opportunities for entry using a market flow signal. The first entry is after the pivot stop run of the 8-range divergence high, followed by a market flow short signal (highest white circle). This would be a "spot entry". The second is after the small triggers roll down and after the market retraces close to the Fibonacci areas using a market flow sell signal to time entry. (second white circle) This is more of a conditional entry. New traders typically wait for the small triggers to roll in the direction of the trend on the 5-1 chart until they gain more confidence in the areas. There are advantages to each type of entry method depending on the strength of the trend and the quality of the areas used and if a momentum style entry is present or the market flow must be used.
To stress the point of fine-tuning the trade entry location on the 5-1 chart. You will focus on the 5-1 large trigger line location combined with support or resistance. The best 5-1 chart trend trades happen when Fibonacci lines, Mid Bands, or One to Ones happen INSIDE OR AT the 5-1 large triggers. Do not forget to incorporate the 5-1 large triggers and the entry area: Fibonacci Mid Band or One to Ones. THIS IS A KEY COMPONENT FOR NEW USERS TO LEARN AND WHY WE COVERED IT TWICE!
wrong vs right 5-1 trend trade
The following example shows two long trend trades on the 5-1 chart. Notice that the focal point for an entry is the "support" areas inside the large triggers. This will eliminate guesswork when it comes time to place your orders for the trend trade.
5-1 trend trades at areas inside the large triggers
The following was a live chart example from our class as the market unfolded. Once you are confident in your trigger line reading and have enough repetition to know what should happen next, trend trading the very best looks will be intuitive, obvious, and yes, even EASY! The following look will build a solid, profitable foundation on which you will start to add other trades in the Nexgen plan. When we have a small issue such as termination area pivot stop out potential on the 13-2 chart, and a prior divergence high on the 5-1 chart, but the smaller charts suggest taking the trade we have a medium probability look.
MEDIUM PROBABILITY- defined as when most indicators line up for a trade, however, a small issue exists. This will be the vast majority of your trades. When executing medium probability trades, you will take these trades and manage them assertively. If there is trouble in your way, you may take a portion of the position off at that trouble spot, and reduce risk to a zero loss level.
strong trigger lines on all charts for high probability trend trades
Trend Trades that will require the market flow entry signal will be addressed in Step #4.
Confident Fibonacci and trigger line reading skills will improve with repetition. The longer you have the software and the more hours you put into studying your charts, the more your confidence will grow.
T3 trigger lines, direction, strength, and location play a vital role in everything you will do with Nexgen's trading plan. Please dedicate time for studying trigger line interaction with Fibonacci support and resistance by viewing historical charts using market replay.
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