DEFINITION of 'Trigger Line'

Trigger line refers to a moving-average plotted with the moving average convergence divergence (MACD) indicator that is used to generate buy and sell signals in a security. The trigger line, or signal line, is a nine-period exponential moving average (EMA) of the MACD indicator line used by traders to predict future price trends. Although the nine-period EMA is the trigger line’s default setting, traders can adjust the EMA’s length to suit their trading strategy.

BREAKING DOWN 'Trigger Line'

The trigger line provides technical insight on when to go long or short. Traders look for entries and exits when the trigger line crosses above or below the MACD indicator line. When the MACD crosses above the trigger line, a buy signal is generated, indicating that a trader should purchase the stock. Conversely, if the MACD falls below the trigger line, it represents a bearish trend, where the trader should short the stock. (To learn more about the MACD Indicator, see: A Primer on the MACD.)

In the below example, the arrows show five valid trading signals generated by the red trigger line:

Image depicting an example of the trigger line.

Benefits of Using the Trigger Line

Quick to Respond: The trigger line helps spot possible trend reversals early, which makes it a particularly useful tool for short-term traders. Because the trigger line uses a nine-period EMA, it responds to prices changes relatively quickly. This helps offset the lagging nature of the indicator.

Removes Ambiguity: Using the trigger line makes trading decisions systematic. Traders can remain in a position until the trigger line crosses the MACD in the opposite direction. For example, if a long position is taken when the MACD crosses above the trigger line, the trader can remain in the trade until the MACD crosses below the trigger line. Entering and exiting the market on signals generated by the trigger line stops traders second-guessing themselves and making discretionary decisions.

Limitations of Using the Trigger Line

False Signals: In choppy markets, the trigger line can frequently crisscross the MACD and generate many buy and sell signals. To avoid getting whipsawed out of positions, traders should confirm a trigger line cross with other technical indicators. For instance, when the MACD crosses above the trigger line, the trader could also require the money flow index (MFI) to be oversold. If the stochastic oscillator and trigger line are used together, traders might need the K line to cross above the D line before the MACD crosses above the trigger line. (For further reading, see: MACD and Stochastic: A Double Cross Strategy.)

  1. Moving Average Convergence Divergence ...

    Moving Average Convergence Divergence (or MACD) is a trend-following ...
  2. Coverage Trigger

    A coverage trigger is an event that must occur in order for a ...
  3. Histogram

    A histogram is a graphical representation that organizes a group ...
  4. Manifestation Trigger

    A manifestation trigger activates when personal injury or property ...
  5. OsMA

    An abbreviation for Oscillator - Moving Average. OsMA is used ...
  6. Dynamic Momentum Index

    The dynamic momentum index is used in technical analysis to determine ...
Related Articles
  1. Trading

    MACD Bearish Crossover in Downtrending Stocks (NWSA, URBN)

    The MACD is a popular moving average based indicator, and it is signaling the downtrend will continue in these stocks.
  2. Trading

    MACD and Stochastic: A Double-Cross Strategy

    Two indicators are usually better than one. Find out how this pairing can enhance your trading.
  3. Trading

    4 Stocks With Bullish MACD Crossovers

    These four stocks recently created a bullish MACD crossover, signaling the potential end of the pullback and the start of the next up-trending wave.
  4. Trading

    Spotting Trend Reversals With MACD

    Knowing when trends are about to reverse is tricky business, but the MACD can help.
  5. Trading

    Bearish MACD Crossovers With A Positive Twist

    These stocks are exhibiting bearish crossovers in their MACD readings, indicating potential short-term weakness, but also longer-term buying opportunities.
  6. Investing

    5 Stocks With Bullish MACD Crossovers for 2016 (COT, OCLR)

    Take a technical analysis look at five stocks that may be heading to the upside in 2016, based on a bullish MACD crossover buy signal.
  7. Trading

    Watch for Bullish MACD Crossovers in These Stocks

    These stocks are trending higher but recently experienced a pullback. Watch for a bullish MACD crossover to indicate upward momentum is continuing.
  8. Trading

    Forex: Keep An Eye On Momentum

    Using the simple MACD histogram could change how forex traders analyze currency pairs for good.
  1. What are the main differences between Moving Average Convergence Divergence (MACD) ...

    Learn the differences between the moving average convergence divergence (MACD) and the relative strength index (RSI), and ... Read Answer >>
  2. What are the main differences between Moving Average Convergence Divergence (MACD) ...

    Understand the exponential moving average, or EMA, and the moving average convergence divergence, or MACD, and their respective ... Read Answer >>
  3. What is the Moving Average Convergence Divergence (MACD) formula and how is it calculated?

    Learn the formula for the moving average convergence divergence momentum indicator and find out how to calculate the MACD ... Read Answer >>
  4. What technical tools can I use to measure momentum?

    One of the main goals of every trader using technical analysis is to measure the strength of an asset's momentum and the ... Read Answer >>
  5. What are the best technical indicators that complement the Relative Strength Index ...

    Learn some of the best additional technical indicators that can be used along with the relative strength index to anticipate ... Read Answer >>
  6. How do I create a trading strategy with Bollinger Bands® and the MACD?

    Learn how to establish profitable trading strategies using technical trader favorites such as Bollinger Bands and the moving ... Read Answer >>
Hot Definitions
  1. Business Cycle

    The business cycle describes the rise and fall in production output of goods and services in an economy. Business cycles ...
  2. Futures Contract

    An agreement to buy or sell the underlying commodity or asset at a specific price at a future date.
  3. Yield Curve

    A yield curve is a line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but ...
  4. Portfolio

    A portfolio is a grouping of financial assets such as stocks, bonds and cash equivalents, also their mutual, exchange-traded ...
  5. Gross Profit

    Gross profit is the profit a company makes after deducting the costs of making and selling its products, or the costs of ...
  6. Diversification

    Diversification is the strategy of investing in a variety of securities in order to lower the risk involved with putting ...
Trading Center