When it comes to trade ideas there are almost too many choices available for traders and investors. By my estimates there are probably over 10,000 stocks you can trade in the USA and that’s not including, ETFs, futures, or Over the Counter Pink Slips (penny stocks). Alerts are more than just a quick way of identifying potential trade setups. Just because an alert triggers doesn’t mean I have to make a trade. I probably only initiate trades on 10% of my alerts that trigger. My alerts are purely “alerts” or indicators that give me information about what’s happening on the stocks that I follow. Whether your preference is to to stick with a handful of stocks you’re familiar with or go hunting for the next setup here are some tips on how you can use alerts to optimize your trading.
1. Alerts to notify you:
Probably the most obvious reason to set an alert is because you cannot monitor the price action of a stock every single minute of the day. Alerts can trigger and notify you through email, text on through the trading platform when the stock is at a point where you’d like to buy or sell. However, investors and traders who cannot quickly act alerts are at a disadvantage. One remedy to this problem is to use a conditional orders which will execute for you when a stock meet your price objective. I’ve found that conditional orders are limited, clunky and don’t always execute in an orderly fashion. In my recent blog update I notified you that my partners and I are developing a software program which will let more people actively participate in their trades without having to monitor the action each and every minute of the day! We believe this solution will give people a better experience than any alert or conditional order can offer.
2. Alerts to identify your exit point:
I HATE setting real stop losses. A stop loss is an open order, or as I like to put it, a public announcement saying “I will sell here”. Market makers see stop losses and if they want can push the stock lower to take your shares then buy them right back up! This has happened to me more times than I’d like to admit which is why I don’t set stop losses. Getting whipped out of trades is not fun and rather than showing my hand by setting stops I prefer to have an alert that tells me the stock is at price where I want to sell. On a side note, for more info on how Market Makers control the price spread check out my blog here.
3. Alerts to identify breakouts:
Alerts that trigger above prior points of resistance may help notify me before a breakout develops. This is a good way to get into a trade before a big move ensures. If a breakout occurs I can take a position and set a new alert at the next resistance level where I will take profits or add more depending on market conditions.
4. Alerts to identify support:
Setting alerts at multiple support levels is one way I identify potential entry locations. When an alert triggers where I believe a stock has bottomed I can take on a position and then set another alert below that. If my second alert triggers than I might be wrong and should get out of the trade. However if I’m not sure where the bottom will form I can set several alerts around the location where I think the stock will bottom. Each time one of my alerts triggers I can lightly scale into a position until I have on a full trade.
5. Alerts to identify market tone:
The more stocks you set alerts on the better idea you will have about the direction of the overall market. This can help you understand whether your alert triggered because of a unique move in the stock or because the broad market breath is trending higher or lower. If several of stocks I have alerts on are triggering at the same time it’s usually the broad market strong moving in one direction or the other. So before jumping into a trade, make sure you can decide if your alert is unique or because market forces are pulling/pushing all stocks in a similar fashion. Another way to measure this is by looking at the $ADD (Advancing vs Declining stocks) or $TICK. See link for more info on these.
6. Set alerts to selectively choose which stock you should buy or sell short:
Part of my homework every nigh when I review stock charts is to set alerts at key levels. Having multiple alerts set on a variety of stocks gives me more trading options when the market opens in the morning. A majority of my alerts will trigger in the morning and I can choose which trades make the most sense based on the alert.
7. Alerts for technical indicators and calendar events:
If you’re looking to optimize your alerts beyond price action many trading platforms let you set alerts on technical indicators like the MACD oscillator, Volume, Bollinger Bands, moving averages, etc. And calendar events like dividends, earnings, etc.
8. Alerts for portfolio metrics:
Many traders will also choose to set alerts on metrics like Net Liquid Day Change, Margin Requirements, Portfolio Delta, and more.
9. Alerts over time:
Once I set an alert I usually don’t remove it just because the price has changed. If I set an alert at a critical juncture on a stock I will usually keep that alert in tact even if the price has moved significantly above or below the price where I set my alert (see AMZN chart below). Many times this comes in handy for stocks that I haven’t monitored in a while. When these alerts trigger, those stocks are then added to my watch list.
10. Alerts shouldn’t be noisy:
Although I’m encouraging you set alerts on multiple stocks it is good to clean up your alerts and only have them set at meaningful locations. Too many alerts may cause you to forget the reason behind why you wanted to monitor that stock in the first place.
11. Alerts should be checked against news:
For alerts that trigger because a stock as increased or decreased beyond the average price range of a stock it’s important to understand why that stock has moved more than usual. See Average True Range for more info on this indicator. The increased volatility in the stock may have been induced by company specific news such as a downgrade or earnings event. In these cases its good to re-evaluate the reason why you set that alert and decide if it’s still worth the risk.
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