I know you set price alerts at stop points. But will you possibly set an alert or look to enter BEFORE stops are hit? Like if you see a “strong support level”, maybe setting an alert just above it, so when price gets there you can choose to enter a long position before any stops are hit? Or when it comes to alerts….are you strictly setting them, and looking to enter, only once stops are hit…and not before?
The reason I ask is it seems often price will come close to stops but then reverse before setting them off…..and when that happens, is that simply a no trade to you or not?
I just set the alert at the stop point, which is usually 1 pip / 1 tick after the recent high/low. Sometimes I can set it directly at the high pip or low pip. So lets say the GBP/USD high is 1.6225, I will usually either set the alert at 1.6226 or 1.6225.
I understand what you are saying with regards to that sometimes the market doesn’t hit the stops and bounces off support for a nice trade, etc. So if you set the price alert at the stops, you could miss out on a trade.
My answer to this would be that price alerts are just one component of finding trades process. They provide a very nice passive feature for when I am not staring at the charts or a particular market as they work in the background and only if they trigger the alert pops up.
But they are just one way to find trades. I don’t just rely on price alerts. While I may have 50-100 price alerts active among 20-40 different financial instruments, I also scan the charts every 30 min or every hour or so to see if there are any opportunities. So lets say EUR/USD is consolidating between 1.45 – 1.50, and I have price alert on stops below 1.4500. If I also perceive that there exists a nice trade for a big winner (say 100+ pips) if the price gets near 1.45 support, then I will be flipping to the EUR/USD chart once or twice an hour or a few times per day to see what is going on and see how the market has been acting to the recent news, etc. And if the scenario clicks in my mind to place a trade even before market breaches support, then I will take it. Or sometimes I can enter half at the support level or above it, and the other half after/if it trips the stops.
Sort of like how Paul Tudor Jones does it when he liquidates trades: (from Market Wizards)
One thing I learned as a floor trader was that if, for example, the old high was at 56.80, there are probably going to be a lot of buy stops at 56.85. If the market is trading 70 bid, 75 offered, the whole trading ring has a vested interest in buying the market, touching off those stops, and liquidating into the stops – that is a very common ring practice. As an upstairs trader, I put that together with what Eli taught me. If I want to cover a position in that type of situation, I will liquidate half at 75, so that I won’t have to worry about getting out of the entire position at the point where the stops are being hit. I will always liquidate half my position below new highs or low and the remaining half beyond that point.
As to your question about what happens if the market comes close to stops but then reverses before setting them off: It depends on what type of trade and inefficiency I am trying to capture. If it is an intraday play to try to make 40 or 50 pips, then tripping of the stops is a big deal because it gives me a good entry point and raises the reward to risk ratio of the trade. So if it doesn’t hit the stops, then it is a no trade, because the tripping of the stops is a key component of the trade. The tripping of the stops can also help the win rate of the trade if the market snaps back as well. So the tripping of the stops can give you a better reward risk ratio, AND a better win rate, if the market is going to snap back. Other times, I don’t really care about the stops too much because a big global macro scenario is coming that may move the market 100 pips or 300 pips, etc, so trying to get a 5-15 pip better entry may be nice, but even if I don’t get the stops being tripped I can still place the trade because the perceived move of say, 100-300 pips is so big, that I don’t care all that much about a 5-10 pip better entry. But if the total trade inefficiency I am trying to capture is 30-50 pips, then getting a 5-10 pip better entry can be crucial.
When you trade order flow or information flow or macro, based on expectations, scenarios, etc, you can place a trade AT ANY PRICE, AT ANY TIME. Because the news/sent/fund/macro move can start at any price, and from any time, depending on how they perceive what is going on. You can place a trade to catch a falling knife, you can place a trade to fade the downside stops, you can place a trade to buy a support level. You can place a trade to buy a small intraday dip. You can buy directly at resistance. You can buy after it trips topside stops. You can buy after it runs up so much. You can go back and find 100 amazing trades that started from a support level that never tripped downside stops. And you can also find 100 amazing trades that the market first tripped stops below a support level first, then roared higher. Etc, etc.
As Livermore once said:
Well it would depend upon conditions. You can’t give any closer answer than that.
Just substitute in “news/sent/fund/macro” order flow for the “conditions.”
This doesn’t mean that you should paranoid about missing market opportunities every second of the day. You shouldn’t be paranoid. No one can catch everything. So I just try to have a certain process and structure with my daily habits, that I can catch some of them and have an edge that way.