HOW I TRADE AND TRACK THE MARKET

Periodically I receive email from subscribers who are interested to know how I trade and track the market. They want to know which broker I use and how I keep track of the market during the day. I thought that in this “Inside The Black Box” I would share that information with readers. First, here is a disclaimer. I have no financial interest in any of the web sites or companies I will mention. I do not receive fees from them and pay the same subscription rates as anybody else. This week I want to cover the broker I use and how I follow the market during the day. Next week, I will move on to both free and paid websites I rely on daily.

First, I believe it is vital for swing trading success that you deal with a deep discount broker where the trading fees are as low as possible. My broker is Interactive Brokers and their website is www.interactivebrokers.ca or, if you live in the United States, www.interactivebrokers.com. There are many deep discount brokers, so I am not necessarily plugging Interactive. However, for the most part I am pleased with them. 

I have been trading with Interactive for a year and a half. At my former “discount broker” the minimum commission was $29 a trade. If I bought a low priced stock it was more expensive. At Interactive, the commission is $1 for the first hundred shares and $0.50 for the next hundred shares. If I buy a 200 share lot of stock it costs $3 for a roundtrip to trade at Interactive vs. $58 at my former agent! I estimate I make approximately 100 roundtrip trades a year. By dealing with a deep discount broker I save approximately $5,500 a year. Unless your account size is huge that is a significant amount of money.

Further, I find that I am now psychologically freer to accept small losses. Let's say I purchased 400 shares of a $10 stock and it declined by 10 cents. My trading loss would be $40, but adding in commission, I would be down $100. Since there is a strong psychological tendency to want to break even (it's there in me even though I fight it), I would sometimes wait until I could recover my purchase cost plus commission. That was often a bad move, which on occasion led to staying with a trade longer than I should have. Staying in a losing trade is poor discipline and builds bad trading habits, something as costly as any money lost.

At my former discount broker, every time I wanted to trade I needed to open the browser window which would "time out" in about 20 minutes. Opening the window, checking the current quote, inputting my password and confirming the order took at least a minute. It was a very distracting process in which I would sometimes lose track of the "flow" of the market. My trades were also clouded by an anxious feeling because I didn't know if I was getting a good or poor entry price. That was particularly true on volatile Nasdaq stocks where I've seen prices vary by more than $1 in less than 1 minute! 

At Interactive, I have a page of real-time streaming quotes which is integrated with a trading platform. To cue up a trade I need merely input the symbol, number of shares, order type and hit the buy or sell key. It takes about 10 seconds to execute. Typically my order is filled in well under 15 seconds if I go in with a market order. At Interactive, I can short online, set limit orders, trade before and after hours as well as place buy and sell on stop orders. (There are also many other sophisticated types of order transactions). From subscriber email, I know these are not features that are included in everyone's brokerage account. I find them critical for successful swing trading. If they are not included in yours, you might want to do some research into brokerage options.

I do not mean to imply that Interactive is perfect. In order to set up an account it takes about a month. The form-completion process is time consuming and seems repetitive. You need to take a bothersome test which ensures you are knowledgeable enough to trade. There are no paper-based trade confirmations. Each night I trade I receive a statement, yet at year's end I need to print out monthly statements for tax purposes. My discount broker still sends me a monthly and yearly paper-based trade summary at no fee.

Another important drawback is that Interactive's charts are, in my mind, far too basic to make trading decisions. They don't stream as do the quotes and take several seconds to open. If you are trading with only one computer screen, opening the chart is a very distracting process. When I've tried, I've lost touch with the trading action for several seconds. If I'm trying to make a buy or sell decision this can be a very vital few moments.

My solution to this dilemma is to run a "split screen" system. If you are an active trader and work at home, this is an option I strongly recommend you look into. A split screen is inexpensive and a tech person can install it in well under and hour. My "war room" thus consists of the following. On one screen is www.livecharts.com a paid, real-time charting service run by Lycos which I will describe in detail next week. On my other screen is the Interactive Brokers streaming quotes/trading platform. On a T.V. beside my desk is CNBC (often muted). By running the split screen I can keep track of real-time charts at the same time I am watching approximately 40 stocks on an Interactive Broker page. If news breaks, I am instantly apprised by CNBC.

When you are swing trading you want to stack the odds as much as possible in your favor. Putting the probabilities on your side begins with having a proper brokerage service for short-term trading success. 

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