3. Trade - Trading An Event

The Trade event is primarily a rule that tells you ‘how or when’ to enter the market. It can also be a chance to add a second or even third trigger.

In the brackets above, it says “the 4 T’s system uses a 3 day breakout”. The 3 day breakout is the second trigger, so the 4 T’s system is using 2 triggers (RSI (5) overbought/oversold zone and then a 3 day breakout), however the sequence in that the RSI (5) trigger must come first. The final part of the trade event is the ‘how or when’.

As a trader you will need to decide when you are going to enter the market and how.

The possibilities are as follows:

• Enter at the close of the day of the final trigger
• Enter at the open on the day after the final trigger
• Enter on intraday breakout

Enter At The Close Of The Day Of The Final Trigger

Let’s say you’re using a 3 day breakout, and this occurs today, you will enter the markets at the close of today, possibly in the last 15 minutes.

This is beneficial to those that can have access to the markets and their broker at this time of the trading session. Although not as easy as the intraday breakout (more on this soon), you also have a far better idea of your risk because you know where your entry is.

Enter At The Open On The Day After The Final Trigger

Let’s say you’re using a 3 day breakout, and this occurs today, you will enter the markets at the open tomorrow. If you do not have access to the markets and your broker at the open then you can place a limit order with your broker online the night before. There are two important considerations with this method.

  - The market may gap up too high.
  - The market may gap down too low.

The markets these days rarely open where they closed. This is just a fact of the markets in today’s global market place; however some markets are a lot worse than others.

I am firm believer that over time the gapping up and gapping down trades will even out, but you still need to implement some rules so as to not be swept away by a market that gaps too much on you.

Limit orders will serve to prevent you entering a market that has gapped up too high. For example:

If your trigger bar closes at a price of $20.00, you may want to place a limit order where you’ll only enter the market if price opens below a certain level, say price + 1%. This means if price opens above $20.20, you will not enter the trade.

This has the added benefit of enabling you to know your worst case risk based on the limit price less your initial stop loss price.

If the market gaps down, there must be a limit on how far down it can go before you decide not to enter. It’s all good getting something cheaper, but a gapping down of large proportions could also suggest the immediate trend is turning down.

If you use a % of the price, you’d enter the market if price opens above price – 1%.

Another way is to use recent price action as a floor to how low you’ll let price go before you decide against the trade.

For example, if you are using 3 day isolation then the low of the isolation could be your floor.

Another example is to just use the previous day low, where if price opens lower than that, you won’t enter the trade.

Enter On Intraday Breakout

This approach is to enter intraday on a break of the high (if long) or low (if short) caused by the trigger bar.

Let’s say you’re bullish, using a 3 day breakout and this occurs today. You’ll place an order with your broker to buy when the high of today is broken to the upside, regardless of when it happens.

With this method, because you know you exact entry price, you are able to work out your risk and position size with very little margin for error.

The downside is that price may gap above your entry price, so once again you need to know your limit.

Move on to Step 4 - Module 2 > Trading System Builder Tool Kit: Trading Rules > Terminate