What makes a good trigger?
Investopedia describes a “Trade Trigger” as any type of event that initiates a trade of a security or asset. This usually involves a market condition, such as a rise or fall in the price of an index or security. These instruments are used to automate certain types of trades, such as selling shares of a stock when the price reaches a certain level. We at Trigger, take this idea to the next level by allowing you to trigger on endless conditions and events.
Why do professional traders find triggers useful? Because they let you capture opportunities and help you limit losses, even when you are not watching the market yourself. Most of us don’t have time to check stock prices all day long (we have day jobs!) and even if we were to check prices frequently, most sources have a 15 minute delay. Having access to instant alerts helps you make better informed investment decisions. For example, I am rather forgetful and keep forgetting when earnings are for the companies that I own. Wouldn’t it be nice to set a trigger that allows you to sell AAPL an hour or a day before earnings? Or simply receive a reminder that the earnings event is happening?
This would be especially useful if, hypothetically, a stock that was building up to a big result misses it’s earnings target after the market closes. You don’t have to leave the beach knowing that even if you forget all about the event, you’ve eliminated a lot of risk for yourself by selling your stock beforehand, and can enjoy your beer poolside! And if you don’t forget — just amend the trigger the day of earnings! Now that’s cool since it adds functionality to just leaving a plain limit order.
Knowing this, then what makes a good performing trigger? To see what makes a good performing trigger, it only makes sense to look at what moves the market. Let’s look at some of the more obvious market movers and some ways to use Trigger to help you around these volatile events.
Let’s start with the basics: earnings reports move prices! Like I said earlier, I always forget about them. So in my case, a trigger that saves or makes me money by prompting me to make a trade ahead of an earnings report is a best performing Trigger. With earnings season coming up and most of my holdings about to announce I use a Corporate Events Alert to remind me the day of the event and then set triggers to trade to try and capture stock moves. You could also set a trigger to buy an Apple supplier’s stock if Apple earnings beat your expectations. Here you have a more tangible way to measure the effectiveness of your trading. Since most earnings are either before or after the bell, pre-emptive triggers work best here. Get ahead of the game and avoid trading after market hours!
Another obvious market mover is whenever Janet Yellen and the FOMC meet. We are finally in an rising interest rate cycle, while at the same time the rate of hikes remains glacially slow. This makes her speeches extremely important and market moving as they provide clues to how the Fed views the economy. However, say they do hike or cut rates (I know the latter is rather unlikely) and you have a Trigger set to act on a rate move, you are already miles ahead of everyone else, since you have already expected the unexpected and developed a trading strategy. Here anticipating the unexpected could lead to a spectacular performing Trigger.
Inflation is yet another indicator that more and more people are paying attention to these days. Did you read the news about the postal service reducing the cost of a postage stamp from 49 cents to 47 cents? That makes me think about deflation, something no one really understands completely, at least in practice. Japan has been struggling for decades. This also plays into the Fed’s interest rate decision. A low inflation print can act as a trigger in buying stocks as they tend to do well in a lower inflationary environment. Inflation reports come out at 8:30 A.M EST and can help you trade on the open and capture moves.
Payrolls and the Unemployment Rate
Last and not least in this week’s edition, the general state of the U.S labor market. We are currently at near decadal lows in unemployment and the labor conditions seem to remain buoyant to global forces. More importantly, in the absence of negative surprises out of China, stocks have started to react to positive jobs numbers. I love this report to set triggers to buy stocks at slightly outlier numbers in order to capture exaggerated moves.
With all of the examples triggers in this post, you can track hypothetical returns even if you don’t place orders when it fires. This will give you confidence the next time you want to execute on an event that you previously had!
Next week, we will take a look at the more tangible ways we can quantify best performing triggers and the boost it gives your portfolio!