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Tools For The Trading - Aug 29 2006
I am celebrating one year of trading stocks as a “Professional”. That’s 12 months of buying and selling stocks for a profit. That’s the good side of the story. The bad side of the story is that I made my first trade in 1989. Sixteen years is a long time as an “Amateur”. So what’s the difference between and amateur and a professional?
Most importantly a professional gets paid for what they do. Don’t get me wrong, I have made money over the 16 years I considered myself an amateur. The problem was inconsistency. Some years would have 10 or 20 percent gains and some years would have 10 or 20 percent losses. There were even periods of time where I gave up and just stayed out of the market.
I have a good network of contacts who also trade including Andy Sirski who I talk with on a regular basis to share ideas. I read a lot of books. I watch several TV shows on the markets and investing like ROB-TV. I have subscribed to a number of newsletters over the years to identify stocks to buy. I have used several charting programs based on technical analysis to try and time my buy and sell decisions.
Last year I made a New Years resolution that I was going to start managing my investment portfolio more seriously. It had recovered from a 40% drop after 9-11 but I wasn’t making the kind of gains I had been leading up to the market collapse. I had pretty good success during the mid to late 90’s when I was using a software program for technical analysis called Windows on Wall Street. It cost me about $500 plus $50 per month for the data subscription and was well worth the investment.
So I started asking around about current software for charting and technical analysis. I mentioned this to someone I was playing racquetball with at the time, Denis Hamel. He told me about a program that he was a distributor for called TraderZone, and offered to give me a demonstration on the program.
I had already looked at a number of programs including some very high end packages that are used by professional traders and within a few minutes of looking at TraderZone I knew it had what I was looking for. It has the three key indicators I use to trade, and it has real time data. That was enough for me. I decided to try it in March and have been using it ever since.
Before I tell you all the good stuff about the program I have to tell you the price. The program is $4000 for the initial investment. The monthly access to real time data is $180. When I initially heard this my first reaction was, that’s a lot. Some of the other programs I was looking at were only $500 to $1000, and some were even more in the $8500 to $10,000 range.
As I was thinking about this I recalled the reason for conducting this search was my goal to be a professional trader. The second big difference between a professional and an amateur is the quality of their tools. This was a “Professional Grade” tool, so I shouldn’t expect it to be cheap. At the time I was using a free charting tool that was offered through my discount broker and it didn’t have real time data. Using day old data is no good when you are trying to buy and sell stocks in a short term trading window.
If you want more information on the program you can check out their web site at http://www.MyMoneyMagnets.com or call their toll free number 1-866-709-2026. I actually signed up for a three day demo for $20 before I purchased the program and having access to real time streaming quotes was amazing for someone who was used to 15 minute delayed quotes. It really helps to make decisions as to where I should set my buy and sell limit orders.
I like to use a graphical view of a chart to identify opportunities, so I enjoyed immediate success using the program. There were two big bonuses I discovered as I used the system more. The first is the training they provide. It was several phone based sessions with a trainer and one on one service. The trainer I had was excellent. She had years of experience and was a very active trainer so I wasn’t getting lessons from someone who was reading out of a book. She gave me two tips… one on setting buy and sell prices and another on using the time of day to create a better sell point that make me a little more margin on every trade.
Margin is actually a really good way to describe the system they use. Most people don’t make money trading stocks because they are trying too hard to always hit the home run. I recall one of the first trading books I read described how to get a “ten-bagger” which was a stock that went up ten times, so if you bought at $10 and sold for $100, that’s a ten-bagger. It is a great concept and there are lots of people chasing elusive ten-baggers, but very few who can consistently find them.
In baseball when you swing for the fence every time at bat you have to be prepared to strike out a lot. With this system it’s like walking up to the plate with a based hit in mind every time. It may not make for great bragging stories at the end of the day. But it does give you a much better opportunity to make a margin on every trade. Even if you only gain 1% per wee that is 52% per year which does make for a good story!
While it might be more efficient to but one stock for $50 and sell it for $75 at the end of the year to make a 50% gain, it is a lot easier and less risk to make 50 trades (1 per week) for 1% over 50 weeks in the year to get your 50% return. So why don’t more people do this? There are a couple of reasons why, and one is the myth that you can’t time the market, and its extension to, you can’t time your buys and sells on a stock. BS, that’s what professional traders do all the time. The point is there are lots of way to make money in the market.
I manage my portfolio like a store. The money available is my inventory. My goal is to turn my inventory over as frequently as possible taking the small gains that are available on a daily or short term basis. Sometimes I make a wrongly timed purchase and decide to sell at a small loss rather than have my money tied up or end up with a larger loss down the road. It’s a pretty simple system and it works for me.
So what is the second big bonus the program has to offer? Each day there are several lists of stocks that are filtered out of a master list that have been identified as having a high probability of going up in a very short time frame. There is a list for the Toronto, New York and NASDAQ markets. This list is updated during the morning. Some times the lists are long and some times there are no stocks in the list.
I have a list of about 30 stocks I follow and I use the watch list to alert me to opportunities in the stocks I follow. This list is amazingly accurate and helps me by saving time. If I see one of my favorite stocks in the list I click on the chart and within seconds can make my decision if I want to buy. If you are looking for stocks to follow this list is a great way to identify opportunities without spending hours pouring through lists and charts on your own.
Buying the right stocks and even buying them at the right time is something I have always been pretty good at, it was the selling decision that gave me trouble. For two reasons: Fear and Greed. With this system I am taking less risks which helps with the fear, and the greed is something I have to admit still causes problems from time to time. The easy answer to that would be to place a sell limit order as soon as I know the buy order went through. I’m working on that.
When I was in the early stages of my training they got me set up to do “paper trading” where you track your trade on paper and monitor the outcome. There is no actual cash involved so it gives you a chance to get comfortable and confident with the system. This was a valuable exercise for me and I have expanded that into a trading journal where I record each of my trades and on the occasion where it doesn’t work out I can comment on the reason why so I continually learn and improve.
Having the watch lists is an excellent start when looking for opportunities. It saves me a lot of time screening hundreds of stocks. The system is set up so I can easily click on the chart icon to see if the stock is “in the zone” and ready to buy or sell. There is a unique set of colour coded flags and indicators which makes it very simple for users to scan for buys or see when a stock has peaked and is turning down.
The absolute best part of using the program and this system is that it is so simple. I was discussing how it worked with a friend and saying I couldn’t wait to pass this knowledge on to my children. Maybe they won’t have to spend 16 years as an amateur riding the roller coaster of ups and downs.
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