Setup alerts, triple moving average and Donchian crossover alerts, Bollinger Band squeeze alerts, breakout alerts, gap alerts, signals, surge alerts, and other watch list candidates. This scanner will, for example, generate an alert when stocks have had a Bollinger Band squeeze and a band penetration after the squeeze. Other sites may list stocks with a Bollinger Band penetration, but a band penetration without the preliminary squeeze is of little use. It is the squeeze that gives the band penetration meaning (see the explanation below). Our scan results are much more significant than what you find on other sites. For example, a gap in price without a surge in volume is not nearly as meaningful as a gap with a surge in volume our gap alerts occur when there is a gap with a surge in volume.
This page describes the use of alerts and signals in a disciplined strategy.
Current Alerts/Signals Are at 4 Other Locations on This Web Site.
Use "Directory" to see what's where on the site. Directory
Below, there is information about alerts and alert systems, Bollinger band squeezes and band penetrations, gaps with volume surges, Donchian signals, illustrations of stock "setups," and information about our StockAlerts subscription. Simply take what is useful to you and ignore the rest.
.Top Portfolio Performance Requires A Good Alert System
In order to have a list of stocks available so you can quickly replace stocks that have just been sold, it is necessary to have a "watch list." To create a watch list consisting of stocks that are about to surge you must focus on "setups." Develop strategies, disciplines, and systems that will enable you to find "setup" situations quickly and regularly. You should have an alert "system" that will flash alerts for turnaround setups, alerts for price setups that signal a pending breakout, alerts on setups that signal a new trend, alerts for setups that indicate a stock is likely to break down soon, and alerts when moving average setups occur (as when they signal momentum alignments that suggest the beginning of a new trend). The R.C. Allen triple moving average crossover system and its variants are such systems. You should have a heavy-duty real strength screener (see The Valuator), not just the RSI.
Use An Alert System To Build Your Watch List
The most successful traders and investors do not want to wait 6 months to find out whether a stock will perform. They plan their purchases so that they will know within a few weeks if their decision to buy was right or wrong. They do this by monitoring a variety of alert screens. An alert screen tells you that a specific "setup" has occurred that usually culminates in a significant move. Once the conditions of the alert have been satisfied, the trader puts a stock on his "watch list." He then waits for the alert to become validated by the commencement of the move or a "trigger event."
An example of a validated alert would be if a stock is placed on the "watch list" because an alert signaled that the stock has declined to its rapidly rising 50-day moving average. As the stock nears its rising 50-day moving average, you would put it on your "watch list." The confirmation occurs if the stock reverses its downward direction after touching its rising 50-day moving average (institutional investors tend to be buyers at such times). The alert announces "Here is one to watch!" The "trigger event" says "it's time to act!" The trader uses alerts because time is money. To achieve maximum returns on his money, the trader attempts to keep his portfolio fully invested in profitable positions. Any time a portfolio has a non-performing position, that portion of the portfolio exerts a drag on the result of all the positive work being done by the performing positions. Why buy a stock just because it has a "good story" and then wait for 6 months for it to make any progress, when a simple alert system can really direct you to stocks that are about to move now. By using alerts to create "watch lists," you can dramatically cut your wait time for performance. Traders at Stock Disciplines generally wait no more than 2 weeks for the expected move. If it doesn't occur, they know that the setup failed, and that it is time to look elsewhere. They have to have a very good reason to keep holding.
Let’s assume a trader (or investor) likes to maintain 10 positions in his portfolio. Each position is a "slot" or "basket." Every time a stock is purchased, a slot or basket is filled. If any basket has no position in it, that basket is non-performing. If our trader averages 7 positions over the year, then 3 empty baskets have dragged down the performance of the other 7. Instead of averaging 40% for the year (assuming each position gained 40%), the portfolio will gain only 28% (assuming little or no interest for the empty slots). If the trader has an alert system that tracks several thousand stocks while monitoring a variety of alert "setup" conditions, then when the portfolio sells a position, it won’t take long for the alert system to find another "setup." The alert system also increases the odds that the trader will not have to wait long for the new stock to perform. The alert system can notify the trader if either a "buy" or a "sell" setup is emerging. If the trader has sold a position but the alert system cannot find a replacement buy candidate among several thousand stocks while using a variety of alert strategies, then the market is probably not trending but simply moving sideways or declining. An alert system therefore has a "built-in" discipline that keeps the trader from filling empty portfolio slots with non-performing stocks. If the alert system cannot find any stocks that are setting up for a significant move, then why buy anything?
Why do traders at Stock Disciplines consider StockAlerts scans to be superior to scans found on most Web sites? To begin with, StockAlerts is based on a pre-screened stock universe. That screening eliminated many (but not all) "junk" stocks. In addition, search algorithms are more complex, requiring more complete or better "setups." For example, some Web sites might find stocks that have penetrated a Bollinger band but StockAlerts finds stocks that penetrate a Bollinger band AFTER a Bollinger band squeeze (a period of low volatility). That factor alone makes a very big difference in the quality of the signal. Let's say you are looking for stocks that satisfy the 4-week rule originated by Richard Donchian. Some scanners will find stocks that close above their highest price for the last 20 days. That means any stock making new highs can satisfy the filter. Is that what you really want from the filter? That's possible, but there is something better. What you really want are stocks that have broken out of a 4-week consolidation pattern. The sideways pattern is important because it represents consolidation. That is, the old shareholders are nervous about the stock and are bailing out while new shareholders that are believers in the stock are replacing them. You want stocks that have been going sideways but that are now resuming their upward climb. Our Bollinger Band Squeeze alert delivers that. A squeeze results when a stock goes essentially sideways (during this consolidation time volatility is usually low because there is a relative balance between buyers and sellers). Our alert system is designed to signal an upper band penetration only AFTER a squeeze. This also satisfies the purpose of Donchian's channel breakout rule. We know of no other stock filter that can do that. Our algorithm does not specify that the stock has to consolidate for exactly 4-weeks. However, it does require some "consolidation" or a "quiet" period before the breakout. That filters out far more stocks than simply aksing for stocks that are making new highs. Let's take a closer look at why our alerts are superior.
For example, we have personal knowledge of an individual who bought a stock with low liquidity (small average trading volume) for about $5 and who then saw it rise to approximately $10 a share. He tried to sell "at the market" when it was about $10. Even though "at the market orders" are usually executed within a few seconds, this individual had to wait for more than 4 hours to get trade execution. During the wait, he watched the stock decline. By the time the trade was executed, he got about $5 a share. Imagine what would have happened had he bought the stock at $10 and tried to sell after it began to decline! He would not have been able to extricate himself until after the damage had been done.
First, there is the matter of the universe that is being screened. In constructing the universe of investment candidates for our StockAlerts subscribers, we assembled a database consisting of all the stocks listed on the New York Stock Exchange, the American Stock Exchange, the NASDAQ National Market and the NASDAQ Small Cap. The list includes all of the more than 3150 stocks in the NASDAQ Composite Index, the 500 stocks in the S&P500, the 400 stocks in the S&P Mid Cap Index, and the 600 stocks in the S&P Small Cap Index. Including some ETFs, our master list includes over 8000 securities. Investors sometimes hear of lists numbering 20,000 or more. Those lists are "padded" with thousands of "penny stocks," foreign stocks, and mutual funds. Our master list is not padded, though it does include Sony and some other major foreign stocks. We then discarded securities with an average trading volume of less than 90,000 shares a day. Average daily volume is important because selling a position in a stock with low trading volume can be quite difficult.
By the time we had filtered out stocks that did not meet our liquidity and price requirements, there were only a few thousand stocks left. There are thousands of stocks priced under $5 that trade fewer than 50,000 shares a day. Most experienced and professional traders will avoid such stocks. An excellent buy signal on a piece of garbage is also a piece of garbage. Of course all such stocks are not "a piece of garbage," but the concept here in less graphic terms is that a buy signal on a stock with insufficient liquidity is a buy signal that is worthless. The fact that we have reduced a list of 8000 stocks to less than 3000 does not mean we ignored more than 5000 stocks in creating our list. Rather, it means we have rejected more than 5000 as grossly unsuitable. You do not want them to be in your search results. That does not mean the remaining stocks are necessarily suitable. However, we have tried to do some of the preliminary vetting for you. Therefore, when you consult other Web sites to find stocks that have given a good signal, you will probably have to sift through many of the thousands of stocks (that we have rejected from our own lists) to see if they really meet your requirements. You should always do that, but at least we do a little of the preliminary work for you.
StockAlerts is one of the tools that company members use to find stocks that are about to move. It tracks thousands of stocks with a variety of alert systems. We create lists of stocks that have triggered any of six important alert systems. We believe the lists provided on a daily basis are worth far more than the price of a subscription.
The lists are available in the password-protected "Subscribers" section of this site. We believe this can be an extremely valuable resource for those who want to maintain a "watch list" that is continuously updated with a fresh supply of stocks that appear to be getting ready for action soon. What follows is a description of StockAlerts.
How could an alert be configured? Suppose that a stock has been in a trading range for 6 months, ranging between $22 and $27. What we are looking for is an alert system that will notify us when conditions suggest the probable penetration of the $27 barrier. Assume that our scanning computer has already identified the stock as being in a trading range. What are some of the other conditions that we might require before an alert is generated? We might want the stock to have diminishing volume when its price has been in decline and increasing volume when the stock has been rising. We may want the stock to achieve a new 4-week high or give some other sign that it is breaking out of its trading range. If we do, then we also want the volume to pick up dramatically as the stock penetrates the upper boundary of its trading range. We want the alert to say "watch this one, it may be about to break through the overhead resistance" or "check this one out, it has just broken through the overhead resistance." The alert should not say, "buy this!" Alerts are not "buy" or "sell" signals. After getting an alert, the trader might then wait to see what happens next. Does the stock immediately collapse back into its trading range? Does the upper boundary of its trading range ($27 in the example above) act as support after the breakout? The point is that the alert merely prompts the trader to place the stock on the watch list so that a quick response can be made if the "trigger event" occurs (if the stock succeeds in pushing through the resistance at $27, tests support there, and then begins to climb). Just because the stock breaks through the resistance at $27, there is no guarantee that the stock will keep rising. For some traders, though, the breakout is enough. For them, early entry is worth the risk of a breakout failure. That is, the "breakout" may be a "fake-out." That's why some traders require the satisfaction of additional conditions. The alert might also be designed to stay mute until the stock has remained above the resistance a certain number of days. Even so, the alert cannot guarantee a good result. However, waiting for the alert does increase the probability that the trade will have a successful outcome. A well-designed alert system also minimizes the "down time" for the slots in a portfolio when they become vacant.
All the stocks in the StockAlerts database are regularly scanned to determine if certain strategy "setups" have occurred. A "setup" is a stock pattern of price and/or volume behavior that is believed by many traders to precede a significant upward or downward move (with a relatively high level of reliability). If our scanning system "thinks" a stock may be completing one of these patterns, it will generate an alert and identify the suspected pattern. The StockAlerts output makes it much easier to find the stocks that disciplined strategies covet.
Once again, empty slots in a portfolio lessen the impact on the portfolio of the gains achieved by the other positions. Therefore, high performance systems and disciplines tend to keep all slots full--and making money. The level of performance achieved by your strategies by the end of the year will be determined by the percentage of time the portfolio is fully invested in accordance with your high-performance strategies. The most effective traders develop systems that keep their strategies invested by quickly filling empty slots with rising stocks (or declining stocks for short-sellers). To this end, many successful traders maintain a "watch list" of up to about 300 stocks that they constantly scan to see if any are ready for inclusion in the portfolio.
StockAlerts is intended to be a helpful tool in the development of the "watch list." It scans for stocks that have completed or nearly completed an attractive "setup." Thus, the stocks highlighted tend to be more timely than those of most lists. An alert-generating stock will soon follow through with a signal or it will not. Either way, it sould not take long to learn if the money is well-placed. This much shorter "wait time" is extremely important, because the saying "time is money" is particularly true for traders. Without this advantage, a person might be "involved" with a stock for months without a clear indication about its "intentions." A regular review of the stocks that generate alerts in StockAlerts should be a very useful discipline for traders in their efforts to maintain a list of stocks that are ready for action at any given time. Keeping and maintaining a good "watch list" is one of the more important stock trading disciplines.
The signals generated in StockAlerts are not recommendations to buy or sell. We simply report the output of various search algorithms. The reader will have to evaluate the signals generated with regard to their context (overall chart pattern, news related to the company, etc.). Even if a scan indicates that an alert has just been triggered, a careful analysis of the chart may reveal significant resistance just above the current price. Therefore, caution is in order. Never act on an alert without evaluating its context. The alert system cannot detect the difference between a great setup and something that looks good but is actually a dangerous "booby trap." If you decide the stock is not a "booby trap" and that there is no strong resistance that must be overcome, then it can be considered for inclusion in a "watch list" and monitored to see if an appropriate follow-through buy signal occurs. Our system currently generates the information and alerts listed in the following "EXPLANATIONS" section. Only the "UP" alerts are defined below, but our scanning system generates both "UP" and "DN" alerts. The "DN" alert indicates the existence of conditions opposite to those that cause an "UP" alert.
The StockAlerts Tables
The following table resembles the reports subscribers would get with a StockAlerts subscription. The alerts shown below in the left column are fictitious should not be construed as related to the other data shown or to current stock patterns. Charts are not included with the alerts. Below the following table, there is a description of the alerts you might get and charts to demonstrate what those alerts might look like. Those charts do not represent stocks listed in the following table. Subscribers get tables resembling (in general layout) the following table, but it will be up to subscribers to enter the symbols in a charting program or Web site and evaluate whether or not the stocks should be bought, sold, included in a watch list, or ignored.
Currently, the following alert signals are included in a StockAlerts subscription. The alert signals do not come with charts. Subscribers get lists similar to the above table. We have recently limited lists to a maximum of 30 stocks a day (those with the greatest surge in volume on the day of the alert). We did that after a complaint about lists being too long. At any given time, there may not be any stocks generating a particular kind of alert. The signals generated are not recommendations to buy or sell. We simply report the output of various search algorithms. Even if an alert is triggered, a careful analysis of the chart may reveal that there is significant resistance just above the current price. If there is no strong resistance that must be overcome, stocks highlighted with an alert signal can be considered for inclusion in a "watch list" and monitored to see if an appropriate follow-through signal occurs.
The "UP" and "DN" alerts described below do not necessarily indicate that a stock has started to rise...yet. For example, an "UP" signal is an ALERT that a rise has begun or that the setup is nearly complete that could result in a rise soon. In other words, it is merely intended to be an attention grabber that draws your focus to a potential move and the probable direction of that move. Our system currently generates the following information and alerts. First we will show a chart, and then we will describe the alert.
HIGH DN & UP System. If a stock is at a new recent high that the stock has not seen for at least 6 months (for example, see the white arrow in the chart) and then "stair-steps" its way down with each successive high lower than the previous high (as between the white and blue arrows), an alert is generated when a high occurs that is higher than the previous day's high (the day after the day marked by the blue arrow). See if volume declined as the stock fell and increased on its rise. Declining volume on the price decline shows that it is probably only some profit taking rather than panic selling. The thinking behind this alert is that the stock has been strong and climbing to new highs. Then a wave of profit-taking set in that caused the stock to decline. After that, new buyers take positions and the stock resumes its climb as the demand for the stock once again overwhelms the supply provided by the sellers. Swing traders like to buy the day after the blue arrow (just above $75 in the chart) and hold for the surge in price that follows (up to about $95 in this case). Then they sell and look for other opportunities. The gains on such moves tend to be huge relative to the time invested. No "DN" alerts are generated.
GAP System. If a stock gaps or makes an aggressive move so that its low for the day is at least .25 above the previous day's high and if volume rises at least 50%, then an "UP" alert is generated. We had been requiring a .15 gap and a smaller volume surge. However, market conditions were such that too many meaningless gaps were signaled. The reverse conditions will trigger a "DN" alert. Expect a little pullback or consolidation shortly after such moves. In the above chart, a little consolidation takes place at $24 before the next surge. Also, be wary of overhead resistance nearby. That is, if there is overhead resistance just above the gap price, "Walk away."
NEAR 50-Day moving average (dotted black line). If the stock’s 50-day SMA (simple moving average) is rising at a good rate (we measure the daily rate of change for the average) and the stock declines to a point that is or was near it within the last 3 days and is now rising (but was recently declining), an "UP" signal is generated. Institutional investors tend to be buyers of a stock when it declines to its 50-day moving average. Therefore, the 50-day SMA will often offer support for a stock. Traders monitor such stocks to see if they begin to climb again when they touch or come close to this average. If the stock "jumps" on increasing volume, traders consider it a buy signal. If it does not rise after touching this average, the stock is not getting the expected support. This is a warning of possible trouble ahead.
Near 50-day moving average (with average declining rapidly). This is a pattern attractive to short sellers. This setup is the reverse of the conditions in the previous chart, and these conditions will trigger a "DN" alert. Here, the rapidly declining 50-day SMA (dotted black line) acts as resistance that turns the stock down each time it "tries" to rise. Our StockAlerts system flagged this stock with "Dn" alerts as it approached the 50-day moving average from below. Those alerts would have been very helpful to a short seller. However, now that the stock has risen above the 50-day average, short sellers will not have much interest in the stock. [Additional comments: A beginning trader might look at the last days of this chart and conclude that it is a good time to buy. However, notice the resistance where we drew the blue line. When the stock was above the line, that line acted as support. Once the stock plunged below the line on heavy volume, the line became resistance. Therefore, we would reject the stock as a buy candidate. We would not be interested in this stock unless it managed to move above that line, preferably on a surge in volume. We might even wait for the stock to test the support of that line after it climbs above it. As it is, we think the highest probability scenario is for the stock to continue consolidating below that blue line a little longer. We would look for a pattern in which volume increases as the stock rises and declines as the stock falls. Then, a surge in price through that blue line on a surge in volume would be of interest to us.]
.BOLLINGER BAND SQUEEZE. A period of low volatility often precedes a strong move by a stock. The ensuing move may be a downward thrust or an upward thrust. Traders monitor stocks that have a Bollinger band squeeze (showing that the stock is experiencing a period of low volatility), waiting to see if the expected breakout is to the upside or downside. A "squeeze" is taking place when the upper and lower Bollinger bands are close to each other relative to their recent separation (in the above image, the Bollinger bands are the lavender lines that envelop the stock's price pattern). After a squeeze, a thrust above the upper Bollinger band is seen as bullish and a thrust below the lower Bollinger band is seen as bearish. If the stock thrusts above the upper Bollinger band, the "UP" signal is generated. If the stock thrusts below the lower Bollinger band, the "DN" alert is generated. Because what constitutes a good Bollinger band squeeze is relatively subjective, we add the following notes.
Richard Donchian's 5x20 Dual Moving Average Crossover System (a variation). If the 5-day MA (moving average) crosses from below to above the 20-day MA, if both moving averages are currently rising, and if the 3-day moving average of the volume is greater than the 30-day moving average of the volume was before the last 3 days, an "Up" alert is triggered. The opposite conditions with an increase in volume triggers a "Dn" alert.
5x10x20 Triple Moving Average Crossover System (a variation on R.C. Allen's 4x9x18 system). Our tests on thousands of stocks over many years and under a variety of market conditions has convinced us of the power of this system. The volume surge requirement for our 5x10x20 Triple Moving Average Crossover System is the same as what we require for our version of Richard Donchian's 5x20 Dual Moving Average Crossover System. Our lists of alerts also show the 1-day percentage change in volume for all stocks generating an alert. Each of the alerts also includes a 14-day RSI reading.
Note: R.C. Allen's original 4x9x18 system is available as a separate subscription, and is not included with StockAlerts.
StockAlerts is also attractive because...
Our daily StockAlerts subscription costs less than the price of a subscription to the average monthly stock market newsletter. On January 22, 2001, Money reported on a survey it made of 61 market letters. The average annual subscription price for these newsletters was $220.46. In most newsletters, the author states that he or she thinks a particular stock should perform well over the next year. This is an opinion. It may take the stock six months before it even begins to make a move. StockAlerts, on the other hand, lists stocks that have just triggered an alert (this is a fact, not an opinion). If there is follow through, it will be evident shortly (usually within 2 weeks). You will not have to wait for a year to see if it performs as expected. This should make it easier to find stocks that satisfy the particular requirements of your own discipline. You have our permission to print your own hard copy of the lists from this Web site (for your own personal use only). Based on our regular pricing schedule, an annual subscription to these lists (when published weekly) should cost $260. The price would normally be much higher for daily lists. Six-month subscriptions are currently available for $75 (for daily reports).
A variety of alerts based on different pre-surge conditions is more likely to provide some worthy candidates for your watch list. The kind of "setup" that produces the best candidates varies over time with changing market conditions. For example, gap alerts may yield the most attractive candidates at one time, but Bollinger Band squeeze alerts may yield the most attractive candidates at another time. In other words, at any given time, a particular alert system may not yield many attractive candidates but may do so at another time.
For a brief summary of the main features and an opportunity to place an order, click on the word "Summary" in blue text. Summary
Click here to return to the top of this page.
All pages on this Web site are protected by copyright
Copyright © 2008 - 2014 by Stock Disciplines, LLC
No part of this publication may be reproduced or distributed in any form by any means.
Stock Disciplines, LLC
1590 Adams Avenue #4400
Costa Mesa, CA 92628 USA.
"But thou shalt remember the Lord thy God: for it is he that giveth thee power to get wealth." Deut. 8:18
"For God so loved the world, that He gave his only begotten Son, that whover believes in Him should not perish, but have eternal life." John 3:16 .