There is this undying belief that you should use price alerts to be notified when you should place an order to buy or short a stock.
I’m here to tell you that price alerts will create turmoil for your portfolio!
I have been trading for more than two decades, and for the large part of that time, I haven’t used a single price alert whatsoever, not even once – and I am better for it.
I know there are tons of people out there that will tell you otherwise, that every day you should have your price alerts in place and ready to pounce on the stocks if triggered. However, those price alerts usually are nothing more than false alarms, that often find traders ignoring overall market conditions.
For day-traders and swing-traders alike, the need to use price alerts has always seemed like a given, but have you ever really questioned for yourself, whether you should be using them in the first place?
- How do they add more profits to your bottom line?
- Have you ever thought what trading might look like, if you didn’t use them?
- Why are they necessary for your trading?
Be honest with yourself…
So let’s talk about it, shall we? Let’s talk about why using price alerts do not help and why you should actually avoid them at all costs.
“Fear of Missing Out” (FOMO)
Have you ever actually considered the impact of FOMO on your ability to trade? In essence, that is what a price alert is. It is there to make sure you don’t miss out, and guess what happens when a price alert goes off, notifying you, that the stock is at your ideal entry point?
You hurriedly rush to figure out how many shares to buy, you pull up an electronic ticker order, while making a few mistakes and making good use of the backspace key in the process.
You’re hurrying, you don’t want to….wait for it… “MISS OUT”.
You see where I’m going with that? Those convenient little price alerts gets you into the FOMO mode, where if you don’t get your order in as fast as possible, you just might miss out.
The Fear of Missing Out is a rampant problem among traders, and when a price alert goes off, you find yourself instantly going from being dormant, to thinking about whether you should be trading a stock, to instantly believing you have to.
Trading and the belief that you should be acting on a trade shouldn’t go from 0 to 100 in a moment’s notice. A price alert and whatever sound that you have it making, instantly makes you believe you need to make the trade, and do so because missing out on it, would simply be too much to bear.
A Top Down Trading Strategy Should Guide Your Decision To Trade Or Not
If you are using a Top-Down Trading Strategy that I have always argued for here on SharePlanner, then the need for price alerts are not necessary. Yes, I keep an active watch-list, modifying it each and every day, making it the best it can be with the best trading opportunities possible, but unless the market is working in my favor, and just as importantly the sectors of the stocks that I am considering trading, also working in my favor, there is no way I am going to actually trade any of the stocks.
It is only when the market, sector and industry conditions are working together, will I actually trade a stock.
All three components are necessary, because, for example, the market could be bullish, and the tech sector as well, but semiconductors (industry) are selling off, and as a result the market may continue to rise, but your stocks that you are trading will struggle to follow. Now if you followed a price alert and simply go in because the alert itself went off, you’d be up a creek.
RELATED: How To Use Top-Down Stock Trading Strategies To Maximize Profits
When you use my top down trading strategy, in all of its simplicity, you decrease the chances of getting into stocks that won’t cooperate with the market and increase your likelihood of success with each individual trade you make. Price alerts creates an environment for the individual trader that compels them to trade regardless of the market conditions as a whole.
There’s Plenty of Stocks in the Sea
This will come across as obvious, but its application is much more difficult. That’s because often times we might track a stock for week’s at a time, much like a hunter tracks his game through the woods or mountains. But even when the stocks and their price alert is triggered, it’s not the only show in town. Despite the FOMO emotion, and the need to trade, it is totally okay to pass on a valid trade setup when the overall market conditions don’t warrant making a trade.
Here’s the thing, there are plenty of trades to be made – I mean tons of them. If you have to pass up on a quality trade setup when a price alert goes off, that is okay. At any time, I can always find a quality trade setup to be had, but that doesn’t mean I take them, and most of the quality trade setups out there, I pass up on because the conditions are not right for them.
Here’s the thing, it isn’t hard to find a good trade setup – what is hard is knowing when to trade them. If you are doing it simply off of a price alert, you are setting yourself for ultimate failure. It just doesn’t work that way.
Price Alerts Lead To Over Trading
Take a trader that uses price alerts and one that doesn’t, using a similar trading strategy, and I can certainly assure you that the former will outpace the latter in terms of trade frequency. The need to trade the alerts when they are triggered versus only trading the stocks when the conditions are ripe, and taking a trade then when the conditions are favorable will always lead to a better approach to trading, and fewer $$$ in commissions.
Stocks, particularly early in a trading session, can have false alarms triggered by rogue price moves that cannot be sustained. As a result, when you trade a stock simply because the alert has been triggered (like most do) you are simply setting yourself up to potential head fakes where you’ll lose 2-3 times as much on the trade, then you would have if you simply waited on market conditions to confirm.
You May Miss Out On A Trade
Not using price alerts and therefore not taking every trade that tickles your fancy, will ultimately mean you miss out on some trades that could provide a very quality return. That’s not the worst thing in the world. Again, it goes back to FOMO. Yes, you may pass up on some trades that provide a great return. In fact that will happen frequently.
What your job is as a trader is to be a risk manager, not a pursuer of profits. Profits come when you manage the risk, and you manage the risk by not taking every trade in the world. Instead you have to be particular about when you trade and what you trade.
So if the market is tanking with no end in sight, that doesn’t mean you buy a random stock that might have randomly triggered. In doing so, you are putting yourself in a position where you have to fight a market that is falling, and likely to get into a stock that will quickly reverse course as the market doesn’t support the move it made earlier to trigger that price alert.
Yes, you may miss out on a trade here and there, and some of them may turnout to be quite profitable, but the key here is about trading what gives you the highest probability and simply trading because an alert goes off, gives you the greatest chance of losing long-term in the market.
You are far better off waiting for the trades to come to you, confirmed by the analysis you do on the market as a whole, and the sectors and industries too.
Pulling it all together
This post certainly goes against popular belief. Nearly everyone thinks price alerts are necessary, but I am here to tell you that they are not and for most traders, price alerts are more of an agent of chaos than a mechanism that will help you manage profits and trade at the right time and place.
Following a top-down trading strategy instead, will allow you the trader, to trade, not when the stock dictates its, but when the market, sector and industry initiates the reason to start trading a stock. When that happens, you simply go through the stocks that you are watching, and find one that not only sets up well, but also falls inline with a favorable sector and industry as well. Then you determine how you will manage the trade and minimize the risk going forward.
If you’d like to learn more about swing-trading in a consistent and profitable manner, I would encourage you to try the Swing-Trading Splash Zone where I manage my portfolio live, and for all traders to see. For each trade I make, I provide members with my entry price, stop-loss, target and the “why” of the trade. Each trade gets sent out via text and email alert.
The best part is, you get to try it out for FREE with a 7-Day Trial. So sign up today, and let’s start trading together in the Swing-Trading Splash Zone!