The best way to use alerts for your trading charts to me are to put them above the market so that when the price trades at or through those levels, it alerts you. Then you can adjust your protective stop hire, not take off the winning trade. There’s no point in putting an alert in below because you wouldn’t want to adjust your protective stop. That’s something that has to be ironclad and rock solid. So if you buy something at 20 and you’re risking a dollar, your protective stop goes in at 19. Now, depending on your comfort level, which is really what this comes down to, because there’s again, financial and emotional payoffs, you might find it necessary to reset your protective stop every dollar move up, right? If that makes you anxious, or if you have too many positions, you might be able to set it at say two R, right?
If your R is $1, so maybe at 21 you set an alert and then it goes off and you go in and you adjust your protective stop. In that case to break even remembering to cancel the one at 19 and do it that way. Some of you might be, that’s too much work. I don’t want to keep looking at the machine all day. Obviously, if you set it for 25 cents, that’s manic behavior. You don’t need that either. You have to be watching every 25 cent move. It’s a little too much, so you might find benefit in doing it every two bucks. So this way if it goes to 22, you can adjust your stop to 21 and leave it at that. So it takes all different types. You really have to figure it out. Do a little experimenting to see what makes sense for you. If you’re trading only one instrument, it’s probably fair enough to use your R.
If you’re trading several instruments though, you don’t want it to become a full-time job, especially if you’re doing other things during the day and trying to work your job while at the same time keeping an ear to the tracks as you’re listening to the market watching your deal. The benefit of using alerts is that that allows you to not have to look at the screen. You have to go through it and make sure that you set it up right, make sure that it’s going to make whatever noise or it’s going to text you, and then you have your volume ups. So you go through that, like you set the alert, but you don’t have the volume up on it, or it doesn’t actually give you an alert proper unless you’re looking at the screen. That kind of defeats the purpose. So practice while the market’s open, put in an alert and see what the alert looks like when it does get triggered, especially if you’re newer. I don’t like the idea of using mental stops because the market can sell off and smack you for reasons that you can’t understand, and then by then, it’s too late. It’s also not the time to hedge. I talked about that last week. Should you hedge in another episode? Should you hedge or should you just get out? You got to remember, your first loss is always your
Best loss, and if you’re already down on your position, it’s too late to hedge, right? That to me, as a person, would need to show more emotional maturity and realize whatever you thought was going to happen with the name, it didn’t happen. It worked against you. It is possible that you could get out and it could rally back up, but you don’t know that and that might happen in the future. All right now is that you’re down and you have to manage risk right here in the right now, trying to manage risk about how you might feel next week if it rallies up, puts you in a different state of mind of trying to predict the future. Humans suck at prediction despite what you think. So if you’re a short seller, it’s the same type of a deal where you can just put in your protective buy stop above the market.
Then you could put in an alert below the market so that as the short sale works out, you can get the alert. Then you can adjust your protective buy stop lower at least to break even first and then into when it gets into zones of profitability. That’s how I always did it. I never really wavered. I didn’t set alerts above and below the market because again, if it worked against me, I would rather just have my stop order already. There. Again, I was trading commodity futures, which were highly leveraged instruments, which were appropriate for me, kind of always have been, and I knew the leverage was a sword that could cut both weights. So it was always my intention to be like, look, if my timing’s wrong, if I have bad luck, or if my analysis is garbage, it doesn’t matter to me if it’s against me, X, Y, Z movement, dollars cents, I just want to get out, protect my capital, and then I’ll come back and review everything afterwards and kind of see what did I do wrong when I do my postmortem?
How could I have improved my trading? How could I have foreseen? What was going to go down? Was there some type of an announcement or a report? What was the catalyst that caused the move against me? Sometimes it’s just a big seller, and that’s just the way that it goes. I had to use tighter stops the time because I didn’t have a lot of money, but I also didn’t want to have to be hypervigilant and get tied up looking at the market because my account was small and underfunded. I knew that that was going to eat me alive. Two, I also had a job to do. I had clients to serve, and I had to kind of do the political thing in the office to kind of keep the boss off my back. So the only way I could really do my trading was to go in, put my orders in, get filled. Once I got filled, my protective stops went in. Once those protective stops went in, I knew it was about adjusting the protective stops most likely upward as the name would start to work out. So I didn’t use good till cancel orders. I would enter protective stop. There wasn’t overnight trading in those days,
So certainly not on the scale or the availability that you have today for neither stocks nor futures. It was very, very limited, and so two, I didn’t want to bring the attention to myself what I was doing. I had to make it look and feel like I was actually acting like I was working for my clients more so than I was trying to trade my own account. And then I would basically go in and wait for those alerts to get hit, and then I would adjust my stops. If it would keep moving, I would keep adjusting my stops. Yes, and every once in a while I’d get knocked out, but the key was is that I wanted to know that I had someone watching my back. I had someone standing sentry on my equity of my account, and those were my protective stops, and I had protective stops in on any position that I had on in the market, and I always had alerts above where I thought it could go, and once those levels were achieved, again, I want it might not work for you, but I didn’t set alerts at where I wanted to remove the risk.
I set alerts so that I knew how to remove my protective stop hire and stay in the trade. Again. I always took things home overnight over the weekend. You might not have that ability just yet because you can’t handle the emotions around it. On the other hand, there were times when I would add to my risk, and so I would use that alert for two functions. One, I would adjust my protective stop and I could also use it to add another risk unit, calculate everything so that now I would have, again, if you look at the live stream, I would have a protective stop to now remove two contracts or something like that. Or if I had a hundred shares and I bought a hundred more, I’d make sure that my protective stop reflected the fact that I had 200 shares in inventory that had to go if the time got there.
There’s a lot of ways to do this. You have to find the way that’s most suitable for you for your trading style. I just know that if you put too many alerts in, you don’t necessarily know that they’re actually material price points. You see what I’m saying? I had everything worked out ahead of time, so I knew exactly what behavior I was going to execute of my own. When those price levels were achieved, either through my protective stop getting hit or the alerts going off above the market, I had it all written down. I say like, okay, if to stop, this alert goes off, I’m going to add a risk unit and then cancel my other stop or cancel and replace it and add a new stop to take into account the new inventory or this and that. So experiment and see what works for you.
Make sure that the alerts are going to get to you in the appropriate way. Maybe it’s going to be through an app and there’ll be a popup that comes on your screen. It’ll also make a noise. Make sure you have your damn volume up on your phone if you’re doing it that way. Same thing with texts. If you’re going to use text, make sure that your phone at least vibrates. Can you hear me now? So figure that out. You can have to do a little experimentation, but ultimately you’ll come up with something that works like this video.