Skip to main content

Inside Alert HQ - how we generate signals

For those who are interested in the details of how the TradeRadar Alert HQ software generates its lists of picks, this post will try to explain it in a way that is easily understandable by all.

The basic TradeRadar signal --

The proprietary TradeRadar signal analyzes price data to determine if a stock has reached a minimum price level and has then started a move upward that is significant enough to be considered a BUY signal. The mathematical properties of the TradeRadar approach cause a spike to be displayed on a chart if the signal is strong enough. For a SELL signal, things work just the opposite: a peak price level is looked for and falling prices may then cause the signal to be generated.

The software checks the strength of the signal and also determines if it is a clear signal. The signal strength is a very important indicator of whether the signal is significant or not. The Signal-to-Noise ratio is calculated to measure how sloppy or well-formed the signal looks. Both of these measurements are presented in percent for easy readability.

Because the software generates a spike on a chart, it is useful to measure how narrow the spike is. A narrow spike is a more definitive signal. A statistical technique called Kurtosis is used to measure narrowness.

The spike generated by the TradeRadar software is the indicator that shows we have a potential BUY or SELL signal. The software not only measures how high the spike goes but also whether it falls below a certain level as the shape of the spike is formed. This is referred to as the measurement of the trailing edge. When the spike falls below that level, the signal is said to be "in the zone"; either the BUY zone or the SELL zone. The signal may remain "in the zone" until the next change in trend occurs.

At this point, an example would be useful. Below is a chart of Apple (AAPL).

SELL signal for Apple (AAPL)
The trendlines are in yellow in the upper chart. The SELL signal spike is clearly visible in red in the lower chart. The "zone" is marked by the horizontal green line in the lower chart. Note that the SELL signal fell "into the zone" three weeks ago.

Trend Lines --

The software generates trend lines. As many investors know, when a trend changes direction, it is considered a reversal. In other words, when an up-trend turns into a down-trend, we have a reversal and a corresponding SELL signal. Conversely, when a down-trend turns into an up-trend we have a reversal that corresponds to a BUY signal. The TradeRadar software calculates trend lines and determines how steep the trends are and in what direction the trends are moving. This is an important part of the overall alert definition. The software requires that the trend lines meet certain criteria for steepness. How a new up-trend differs from the original down-trend, for example, is an important measurement as well as how steep from the horizontal the new trend is. In other words, for a BUY signal, we like a trend that is moving up quickly and steeply.

Moving averages --

The software calculates two moving averages: the 20-day exponential moving average and the 50-day moving average. They can be seen as the green and blue lines in the upper chart in the example above. To generate an alert we require that the last price be above the 50-day moving average.

As an added feature, the software tests whether the 20-day MA has crossed the 50-day MA. For a BUY signal, it checks whether the 20-day has crossed above the 50-day. For a SELL signal, it checks whether the 20-day has crossed below the 50-day. If the crossover has occurred, it is considered a confirmation of the TradeRadar signal. This information is provided for each stock in the alert list.

Daily data, weekly signals --

Alert HQ uses daily price data to generate the TradeRadar charts and signals. Alert HQ provides signals on a weekly basis. As a result, it needs to verify that the signal fell "into the zone" within the last week. Specifically, the software checks to verify that the signal fell at least 20% "into the zone." This ensures that the move is reasonably significant.

There are many stocks that remain in the zone for weeks or months at a time. Each week Alert HQ identifies only those stocks that have fallen "into the zone" during the most recent one week time period.

There is no reason that signals based on weekly data cannot also be generated. An alert list based on weekly data is indeed one of the initiatives we are pursuing for the very near future.

Conclusion --

Alert HQ is intended to provide an early warning of stocks that are reversing their trends. I hope this post has been able to shed some light on the methods we use to generate our lists of alerts. Knowing what goes into generating a signal will, I hope, reassure you about our methods and encourage you to try one of our lists. They can purchased each week at TradeRadar Alert HQ. And there is no requirement to subscribe.

For more posts on the TradeRadar software and Alert HQ, check the "Categories" section of this blog in the right sidebar.

Comments

Popular posts from this blog

Unlock Stock Market Profits - Key #1

This is the first in an ongoing series of articles where I discuss what I feel are keys to successful investing. It is based on a post that provides a summary of the ten keys that individual investors should use to identify profitable stock trades. ( Click here to read the original post ) There are two basic steps to investing. First, you need to find stocks that seem to have some potential. Then you have to determine whether these stocks are actually good investments. There are many stocks that at first glance look interesting, but further research reveals that there are too many negatives to warrant taking a position. This first post in the series starts at the beginning: getting good investment ideas. Key #1: If something special is happening to a stock, it will be reflected in some kind of unusual activity in the markets. As individual investors, we will never be the first to know; however, unusual activity can be an early sign that allows us to follow the Wall Street profess

Unlock Stock Market Profits - Key #4

This is the fourth article in a series of posts describing 10 tools to help you identify and evaluate good investing ideas. It is based on a post that provides a summary of the ten keys that individual investors should use to identify profitable stock trades. ( Click here to read the original post ) With this fourth post, we will continue another step along the path of finding stocks that seem to have some potential. The first post in the series discussed how to use unusual activity to identify investing ideas. The second post described how to use stock screeners. The third post described how to use lists of new highs and new lows. This post will focus on identifying social or business trends in order to find investing ideas. Information on new trends might turn up anywhere. In conversation with friends or business associates, in newspapers or magazines, on TV or though your work. The key is to be aware of trends and how they start, stop or change. We'll start by describing wh

Interactive Ads - Google one-ups Yahoo again

Google's ( GOOG ) press release describing the expansion of a beta program for what are being called Gadget Ads has again shown that Google is unparalleled at melding technology and advertising to benefit its bottom line. Gadget Ads are mini-web pages or "widgets" that can be embedded within publisher pages. I have written in the past on Yahoo's ( YHOO ) Smart Ads and how, by more precisely targeting site users and adjusting ad content accordingly, they provide a much desired evolution of the banner or display ad format. Though Smart Ads and Gadget Ads are not really the same, I think it is fair to say that Google has seen the challenge of Smart Ads and has chosen to leapfrog Yahoo by rolling out its own update to the display ad format. The evolution of the Gadget Ad -- One of the trends on the Internet over the last year or so involves software developers creating "widgets" which can be hosted within web pages and blogs. Widgets can be pretty much any