Trend Trading For Dummies
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Trade triggers can be extremely useful to stock investors (and those who do options and/or track indexes). A trade trigger is any event that sets a trade in motion (stock or otherwise). The trade trigger can be a singular event (such as the movement of an individual stock) or a market-wide event (such as a major index reaching a certain level).

Use a stock as a trade trigger

A buy limit order tells a broker to buy a stock with its price hits a certain mark. Usually a time is attached, such as “this order is good for the day” or “this order is good-til-canceled.”

However, a more sophisticated trade trigger can be set in motion by a separate event that’s not directly associated with the movement of a particular stock. The trade trigger may be the movement of an entirely different stock.

With trade triggers, the activity or attributes of any stock can trigger an order for another stock. If you feel there’s a correlation between the prices of two different stocks, you can set up a trade trigger similar to the one in the following example.

Your creativity can take you to new levels of investing nirvana. Use triggers such as these when you come across opportunities in your favorite stocks. Do your research on stocks that you would like to buy.

Use an index as a trade trigger

The investor can make a buy or sell trade using a major market index (rather than a stock) as the trigger. If you feel that certain movements of indexes may influence or correlate to the movement of individual stocks (or options), you can set up a trigger to place an order if the conditions you specify are met. (Indexes include the Dow Jones Industrial Average and the S&P 500.)

You can do a sell order on a particular stock, for example, which is triggered when the Dow rises to a certain level. Or if, say, the S&P 500 index is reflecting a strong rally and you think it will be overbought when it reaches, say, 1650, you can set your order to sell a stock when this index reaches that level.

Very frequently, major market movements set up buying or selling opportunities in the stocks that you’re following. The idea that you can automate the process with trade triggers is very appealing. The timing is entirely up to you.

Use an option as a trade trigger

Call and put options can also be part of your trade trigger strategy. Options are speculative vehicles that have an expiration date, where you’re betting on the direction of an underlying asset; you buy a call option if you’re “betting” that the underlying asset will go up, and you buy a put option if you’re “betting” that the underlying option will go down.

For more information on options and how to use them, go to the educational sections of websites such as CBOE and The Options Industry Council.

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