Thursday, February 16, 2012

February 16, 2012 - Brokers and Stock Tools

Two of the most important differences between a good trader and a bad trader are the tools they use and the broker they use. Let's get the obvious out of the way, don't ever use a human broker if you want to make money. Let me give you 3 of many reasons why this is a horrible decision. One, a human broker will always try and call you to give you tips on stocks. Usually, if not always, these tips have hidden motives. Brokers make money from commission, which means that the bigger the customer, the more they're worth. Brokers have been known to tip off smaller customers to increase bigger customers gains, then selling the bigger customers shares to report a huge gain and screw over the little fish. Two, human brokers are so slow. With the growing technological advances, you can buy and sell a stock in a tenth of a second and make a profit of hundreds of thousands of dollars (with the right capital of course). The time it takes to call up a broker and order 100 shares of stock could be the difference between you getting the stock at your requested price and a price 5% higher. Finally, the last, most disturbing part about human brokers is error. I know it is hard to believe, but I know of a couple examples where someone called up their broker to sell shares of a certain stock, and the secretary told the broker to sell another amount or even worse another STOCK. My friend lost 12% on one trade because of this mistake.

Let's talk about what brokers you should actually use. First you must decide whether you want to trade options, stocks, or both. There are different, optimal brokers for each choice. A simple search on Google with keywords like "low commission", "Option", "Stock trading" will yield you the usual brokers. Scottrade, E-Trade, TD Ameritrade and ING Sharebuilder are all very trusted and reputable sites. There are a couple new sites that are even better, but don't advertise on TV so they aren't as well known. Thinkorswim is actually owned by TD Ameritrade but caters more towards the modern traders (technical analysts). Options house has the lowest commission rates for trading stocks and is also a great place to do options. For stocks, I use Scottrade. It is reliable, has the second cheapest commission rates and is very easy understand. If you would like to sign up for a Scottrade account, please let me know. People who are referred get their first 3 trades free. For options, Options House is the way to go.

Moving on to which tools are the best for researching stocks. My suggestion to people who want to get in the stock market is to find a routine and stick to it. Usually I wake up and check pre-market trading, move to StockTwits to see what technical analysts are trading and then finally post up at FreeStockCharts for the rest of the day. There are 3 sites I go to every single morning when I wake up. They are:

Freestockcharts- Freestockcharts is my main tool for annotating charts. I have this open every single day from 9am-4pm.
Daily Finance- I consider this a more focused version of Yahoo Finance or Google Finance. General Market news and articles.
StockTwits - Stocktwits is basically the Twitter for the Stock Market. Instead of a # to denote a hash tag, twits use $ signs. Instead of searching for hash tags, you can search for stock symbols.

For after hours, the one site I check is Nasdaq. It has up to date bid-ask prices and volume for the after hours market from 4pm-8pm.

In addition to these sites, is great to check weekly. has a directory of all stocks and when their quarterly earnings reports come out. Nasdaq is the premier after hours trading site.

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