What Is a Trade Trigger?

Jim B.
Jim B.
Man climbing a rope
Man climbing a rope

A trade trigger is any event concerning a specific investment security that causes an investor to make a trade involving this security. Once the predetermined conditions are met to trigger the trade, it is made by the investor without any reservation and often in automatic fashion. Day traders, who make several trades over the course of a single day to try to benefit from price fluctuations, are the most likely individuals to make use of a trade trigger. Several events can act as triggers, ranging from current events concerning the company issuing the security, overall market conditions, or, most commonly, the security reaching a specific market price.

Investors must choose the methods by which they decide to buy and sell various investment securities. Some investors try to make these transactions using instinct and gut feelings to guide them. Others might prefer to set certain predetermining factors beforehand for when trades should be made. In this way, any psychological impediments are removed and decisions can be made without much consternation. Individuals who prefer this latter approach might be more likely to utilize a trade trigger when making their investments.

Essentially, a trade trigger is anything that causes an investor to make a trade. It can be a piece of news about a company that the investor feels either improves or damages the company's prospects and thus affects the securities it issues. Investors might wait for prevailing market conditions before they act. Most likely, it is the price of a stock or other security that will act as a trigger. Many investment brokers allow investor to set triggers that will cause buy or sell orders to be executed as soon as a security reaches a certain price.

For a day trader, a trade trigger is an invaluable tool. Since these traders are generally making multiple trades involving various securities in the course of a single day, it can become cumbersome for them to watch all of the market movement for all of these different assets. As a result, day traders often choose to set triggers so that their time might be spent in a more productive fashion.

Using a trade trigger can be an effective method of trading, but investors must be wary of the drawbacks. For example, an investor with multiple buy triggers in place can have their account severely diminished if all of these triggers are set off at approximately the same time. In addition, there is little room for any second thoughts from an investor once triggers are in place, although some would argue that is one of the most beneficial qualities of having them.

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