Tools of the ‘Trade’ - How I Invest (2011 Edition)

UPDATE: 2012 Edition now live.

Before getting into results and details, it is important to note that I trade as a hobby. My other websites like StockBrokers.com and working for Covestor come before my trading. StockTradingToGo is an expression of my passion for trading and thus as the regular readers understand, posting varies depending on what time permits.

With that said, 2010 was a good year for me personally even though I didn't even make my first trade for the year until the end of April. I was still posting though when I wasn't trading, and readers like Dominick were making sick money off my picks and buying fun toys with profits like a new Lotus Sports Car. While I still need to do a full year recap of both accounts, overall my SEP IRA finished 2010 with a 13% return vs a 4% return for the S&P (over same time period of trading).

I currently manage my own SEP IRA alongside a personal trading account. Overall it is over $100,000 being traded. The SEP IRA is with OptionsHouse and my personal trading account is with TD Ameritrade Apex (Ive been with them over 8 years so I get heavily discounted commissions).

2010 Changes/Upgrades in Recap

  • Opened a SEP IRA with OptionsHouse
  • Started a subscription with Elliott Wave mid-year which I canceled later in the year after realizing that the Elliott Wave Theory is so complex that it always finds a way to be correct regardless of the markets actions (irony? I think not!).
  • Started and still running a subscription with Sentiment Trader.
  • Upgraded to a triple monitor trade station setup.
  • Less commotion - I used to watch my stocks like a hawk throughout the day using broker platforms. Now though, even as I work from home, I sometimes will check my stocks only 2 or 3 times a day.

My Computer Setup

As I stated I upgraded my trade station from a dual 22" LCD monitor setup to triple 24" LED monitors and it is simply awesome. Here is a screenshot with thinkorswim from TD Ameritrade maxed across all three screens (note though I very very rarely use all three screens for trading at once since I do not daytrade):

Just this past weekend I built a brand new computer to run everything with all the toys a tech junkie could want: SSD, Core i7, DDR3, SATA 6 GB/s, USB 3.0, etc. My brother (and partner) Brandon got my old computer and is running my old dual 22s now which is a nice upgrade from his 14.1" laptop :) .

Trade Strategy

Since my day is consumed by other web work, trading successfully for me personally is all about effective time management. Some weeks I literally have less than an hour of time to do research (less normal Sunday activities). There are a few keys to running a profitable portfolio:

  • I Never hold more than 4 or 5 positions max and have no problem putting 20 - 50% of my portfolio in one stock.
  • I Have a very strict set of rules for buying, managing a position, and ultimately selling (although I am constantly trying to tweak and improve them).
  • I Keep things as simple as possible. So simple that I've taught my wife and other family members how to conduct technical analysis in less than 15 minutes.
  • All emotions are thrown out the window. While I used to be a very emotional trader, now a days it is a very serene atmosphere.

I trade primarily CANSLIM stocks. I narrow my radar by following the market trend, then investing in top industry groups, then focusing in on top stocks (fundamentally and technically) within those groups. This gives me the best probability of success.

When it comes to success though, I rely on an ultra conservative profit to loss ratio. For me personally I go for 1:4, meaning if I am right once out of every 4 trades I will still be profitable. This is accomplished by simply cutting losses very tight and letting my runners run.

Lastly, I fully believe cash is a position. There is nothing wrong with sitting on a large cash position, absolutely nothing!

Subscriptions and Services

Here is a list of the paid services and subscriptions I currently have in order of importance:

  • Research - Will O'Neil's Investors Business Daily via investors.com - If I had more time I would read more articles from the site as they are usually really insightful and good. Right now the primary use of the site is for access to tools such as the IBD 100, stocks on the move, and the stock checkup tool.
  • Technical Analysis - MarketSmith with streaming quotes provided by eSignal (MarketSmith was previously dailygraphs.com which is also a Will O'Neil product *screenshot below*) - This software is expensive but worth every penny in my opinion. I can't even begin to figure out how many hours I've saved by having this, easily 1000+ per year because it is that good. When they finally release an iPad app for it I will be beyond ecstatic as just the thought of watching the Red Wings with my wife and doing stock research at the same time is mind blowing.
  • Pre-Market Analysis - Sentiment Trader. A lot of institutional and professional investors subscribe to this service. It is extremely educational and the writer is really good. The morning reports come early AM and are great to read to start the day.
  • Trade Ideas - Dan Zanger's "Zanger Report" (read my review). Since I do not have a premium subscription service myself I do refer readers to Dan's site as his analysis is pretty similar to mine. My only gripe with his service is that he features so many high quality stocks as "considerations" so when they hit big he notes his original mention as a "I called that" pick which kind of gets annoying. He is an absolute machine though and I have a lot of respect for him and his trading.

I also use the Yahoo Finance homepage religiously. It is a perfect overview of the market and I am a die hard fan. Long live YF.

MarketSmith Screenshot

Watch List

Everything is managed through MarketSmith. At the moment I have 201 securities in my watch list which obviously changes depending on the market. To put this into perspective, during the 2008 crash I had less than 40 stocks in my watch list.

My watch list is sorted by Industry Group ranking most often. I also flag certain stocks for patterns so I can find them with ease when desired.

Putting it all together

For me personally I am excited about 2011. The rally we have going is nice to take advantage of and while I do not have any clue or idea where we will end up at the end of this year, I am excited for the ride.

The more I focus on my strengths and tweak my weaknesses as a trader, the better off I am. It can be frustrating missing out on big winners when I have no time to do my research but overall I know that in the long haul I will make money. Pending I continue to stay "frosty", I am not worried about the market drama that will ensue throughout 2011. Bring it on 8-) .

Comments

  1. Posted by Woolly Llama on January 12, 2011 at 11:34 pm

    Nice post, thanks for sharing your setup.

  2. Posted by Cade on January 13, 2011 at 7:33 am

    Hi Blain,
    Thanks for the insight into your own trading.
    I like your point about keeping thing simple, and it can be easy to complicate your process when trying to improve your trading process.

    Cheers,
    Cade

  3. Posted by Stock Trader Dany on January 13, 2011 at 2:31 pm

    These are all great tips. I love Yahoo Finance too. One question. TDAmeritrade and the other trading sites offer pretty good tools. To Cade's point, how do you manage not to be overwhelmed by information? Is Marketsmith the secret?

  4. Posted by Blain Reinkensmeyer on January 13, 2011 at 3:12 pm

    Hi Dany, keeping it simple is the secret for me. I drown out as much "noise" as I can. No TV, no bloomberg radio, no twitter, etc. Hope this makes sense.

  5. Posted by Tim Chen on January 27, 2011 at 12:38 am

    Great strategy. I also never hold more than 5 positions and usually invest 40% or more of my money.

  6. Posted by Simon Martin on June 22, 2011 at 5:32 am

    Thats a nice setup of computers. Must get a bit confusing. I don't day trade either, I find I can't beat all the random noise.

  7. Posted by max on August 5, 2011 at 7:04 am

    I like your computer set up but your desk looks so small for 3 screens. I say upgrade your desk too?

  8. Posted by Blain on August 5, 2011 at 11:09 am

    haha, not a bad idea Max! The desk is, admittedly, pretty old. I like its simplicity though as it does its job very well. It will be hard to find a decent replacement :)

  9. Posted by www.canslimer.net on August 26, 2011 at 4:40 pm

    Nice set up

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  2. [...] Trader Mike: Get market recaps, trading and investing overviews from Blain, a trader who likes to keep things simple. Recommended Post: Tools of the “Trade” — How I Invest [...]