Tools of the ‘Trade’ – How I Invest (2012 Edition)

UPDATE2013 edition is live.

With a brand new year among us it’s time for another epic edition of Tools of the Trade. 2011 was a year to remember (or to be blocked from memory) as somehow amongst $1 trillion+ in new US Debt and a whole heck of a lot of drama in Europe the S&P 500 managed to squeeze out a $.04 gain. What’s up with that?

I am not sure about you readers, but for me the market atmosphere was anything but ideal in 2011. I invest entirely as a hobby and only when free time permits (StockBrokers.com receives most of my undivided attention now a days). As a result, I spent most of 2011 sitting in cash amassing a thrilling return of .0000001%. But, for the times I did dip into the market in 2011, I almost always was stopped out for a quick loss as the market gyrated like the witches wheel ride at your local carnival.

Remaining optimistic however, perhaps this year will be different. I mean really who knows how far this “more debt, no problems” philosophy will take us in 2012. I for one am eager to see what happens. If worse comes to worse, I figure that atleast by the time my wife and I have a family and our kids are grown up everything will be back to normal. Here’s a toast to the future.

Stock market aside, I hope you enjoy this years Tools of the Trade post. After you finish reading please feel free to leave a comment and spread the love via Twitter and Facebook. I’d love to hear from you!

2011 Blog Highlights

  • Acquired TraderMike.net in January from the infamous “Trader Mike”. In November all stock market recaps were switched to being posted here at StockTradingToGo and the two blogs feeds were merged. This boosted the RSS count past 17,000 :) .
  • Was interviewed on WIOX Radio NY “Money Train” with Chris Gaddis in April (Audio). StockTradingToGo was also featured in Money Magazine that same month.
  • Had my first nationally published article in Futures Magazine, July 2011 (tip, blogging is much easier than writing a print piece!).

Computer Setup

October 2012 Update: I teamed up with iBUYPOWER to build the ultimate trading station on a value budget.

Three 24″ LED monitors on a Windows 7 PC with a 128GB SATA 6 GB/s SSD Hard Drive, Core i7 3.07 GHz processor, 6GBs DDR3 Memory, and two XFX 6870 video cards running in Crossfire mode. I also have a 50 MBps internet connection (5 MBps upload) to ensure that the internet is always flowing like cool-aide on a hot summer day.

Here is a screenshot with thinkorswim by TD Ameritrade maxed across all three screens (note this is definitely not my standard setup. Instead, I usually run MarketSmith on the far left screen with the center screen housing my web browser and the far right screen occupying thinkorswim):

Brokers

My retirement account is with OptionsHouse and my regular trading account is with TD Ameritrade. Truth be told I have brokerage accounts with over a dozen online brokers because we test them all throughout the year at StockBrokers.com. Every broker has its pros and cons and it really all depends on what matters to you most as an investor. If you are considering switching brokers, read my stock broker guide here on StockTradingToGo then head over to StockBrokers.com.

Investment Sites, Services & Subscriptions

Here is a list of the non-paid and paid services and subscriptions I currently utilize in no particular order. In full disclosure, because of the blog and the relationships I have built over the years, many of these services are provided to me for free. There are also many other services I am given subscriptions to but I do not use them regularly.

With that said, the services & subscriptions below are a part of my daily routine and the ones I personally recommend. There is no artificial marketing hype here; this is true love:

  • Investors.com – $259 per year – I am a big Will O’Neil fan. I use Investors.com, MarketSmith, and my favorite stock book of all time is How to Make Money in Stocks. As far as Investors.com goes though, I like tracking the IBD 50, reading the featured articles of the day, and if time permits I do enjoy browsing through the latest issue of Investors Business Daily (IBD) web edition.
  • MarketSmith -  MarketSmith ($999 per year) + eSignal real-time quotes ($34.95 p/m) + Pattern Recognition add on ($14.95 p/m) - MarketSmith is outstanding charting software that makes performing basic technical analysis very easy. There were many enhancements added in 2011 including an iPhone and iPad app (great to use before bed), the pattern recognition tool, and the inclusion of much more historical data which makes studying decade old charts possible.
  • SentimenTrader – $25 per month – Through SentimenTrader.com Jason provides daily market sentiment reports every morning which are a great way to start any morning email session. Jason analyzes every trade indicator known to man including seasonal trends and over 80 years of historical data to produce a daily report on the market. The reports are easy to read and highly educational.
  • ChartPattern.com – $89 per month – ChartPattern.com is home to Dan Zanger (Read my full Dan Zanger review) who is the world record holder for the largest portfolio return in one year. His claim to fame is turning $11,000 into $42 million during the late 90s. Dan sends out a nightly newsletter several times a week with technical analysis and personal notes. He also has a chat room for subscribers. Overall if you enjoy my easy to read charts, you’ll really like Dan’s newsletter.
  • StockCharts.com – Basic package $14.95 p/m – StockCharts.com is the site I use to produce all the stock charts for the nightly market recaps here on StockTradingToGo. The primary reason I have the basic package is so I can have access to more than three years of chart data and save my chart layouts. The free version is the exact same as any paid package less a handful of technically non-critical features.
  • FINVIZ Stock Screener – Free – FINVIZ’s Stock Screener is the best stock screener available on the web. Having it be free is like getting your birthday drink free each year at Starbucks. It makes it that much more awesome. Once you get the hang of using this screener you will bookmark and return in dedicated fashion. Really.

Top 5 Favorite Stock Blogs

Improving upon last years Tools of the Trade post, I want to include a list of my favorite stock blogs this year. There are many fantastic writers on the web today. Here are my favorites in order:

  1. ZeroHedge
  2. The Big Picture
  3. MarketMontage (Previously FundMyMutualFund)
  4. Bespoke Investment Group
  5. StockCharts.com Blog

I could probably push this list to ten, but I want to keep it to my absolute favorites. ZeroHedge reigns supreme because it is the only blog that can actually make me “giddy” before reading each day. The writers, in particular Tyler Durden, are unbelievably talented and so ridiculously smart it blows me away. I also love the subtle humor tied in with most posts that only a super star blogger can achieve. Not to be excluded though, Barry Ritholtz of The Big Picture is also an all star. So is Mark of MarketMontage alongside the Bespoke and StockCharts.com teams.

Screening & Watch List

The majority of stocks that make it to my watch list are discovered within blog posts or on websites like investors.com. If I am screening though, it is done with FINVIZ or through the MarketSmith screener (great because you can include IBD ratings criteria).

Overall my watch list total on MarketSmith fluctuates. Right now I have 150 securities in my watch list. For most of 2011 though the number hovered around 100 or below as the market offered little opportunity.

Investment Philosophy

I am a CANSLIM investor at heart. I have learned to respect both fundamental and technical analysis equally, and I leave the fundamental research predominantly to the investors.com team. Success revolves around going long when the market is moving up and buying the absolute best stocks (fundamentally and technically), adding to my positions as they prove themselves correct.

I always use stop losses and typically I shoot for a profit to loss ratio of 1:3. This means I can be wrong three times in a row, have one winner, and still be profitable. Any success beyond that is just icing on the cake.

Allocation wise I run a concentrated portfolio. When the market is favorable I have no problem investing 50% of my portfolio in one stock (buying in increments as it moves up in price and presents follow up buy points). If I go on a losing streak I try and cut back my initial position size until I get a winner. This prevents me from losing more money if I start making undisciplined decisions. Overall I very rarely hold more than five positions at a time.

Looking at the market as a whole, I see it as a life long game and a source of quality education that can usually be applied to life. Every trade is another lesson to be learned and even though I have over a decade of “experience”, I am anything but perfect and am often making repeat mistakes. Staying disciplined is probably the toughest aspect for me, but each year I get better.

So that’s that. I hope you and enjoyed and please feel free to share your own tools of the trade via comment below. I’d love to hear from you. Stay frosty out there and I hope 2012 brings all of your portfolios great success. Thanks for reading! :)

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Comments

  1. Bernard says

    You may be a good source for what you know but you lost me at the header. I cant give any credence to anyone that uses the word “invest”. It shows a total disrespect for the millions that were broken and reamed by a corrupt system and government so that some could be so glib as to use that word. Its tantamount to ” let them eat cake” in its diatribe. Invest? thats still a valid word?

  2. colodude says

    THANKEW! Question: I’ve never used more than one screen at once. Can you give an example of an instance where your setup has made or saved your day? It looks cool, but I may not have multi-screen reading skills.

    I have a 70% successful system, in theory, but my execution eliminates my advantage. That’s what I’m trying to fix in my life-indecision under pressure…..

    Feliz y prospero “anyo” (wish I had a tilda n symbol).
    Regards

    Oh, and Bernie, I also distinguish between direct investment of capital into an enterprise and the trading of stock certificates (well, data tags). But I agree with Blain that IBD gives you a ready source of momentum stocks where you can trail the big guys when they invest. And the big guys DO invest.

  3. says

    Overall multiple monitors just gives you much more room to watch the market and make trades when needed. For day traders it is required and that’s why you’ll see them use even a dozen monitors or more at once. For example, http://www.stocktradingtogo.com/2007/08/29/the-ultimate-trading-system-a-24-monitor-setup/.

    A 70% success system is absurd, you should be making money hand over fist. What broker are you with right now? Feel free to email me and I can help you find a better broker for getting good executions.

  4. says

    RE Bernard thanks for commenting but I think that is a bit steep. Many millions of people “invest” their money and it goes beyond stocks to homes, equipment, staffing, or really anything that could possible be resold at a later date for a return. :P

    I agree however that the government does have a lot of problems and corruption is seen within certain areas. That’s a whole different post for another day. In fact I simply revert to Barry Ritholtz’s epic rant he made a while back on his site about this topic. I wish I still had the link somewhere!

  5. says

    A great article and breakdown of your trading!
    The first time on your site and I find it both inspirational for my own trading and aspirational for my new blog. Thanks Bain!

  6. says

    Sweet set-up on the CPU! This last summer I bought a property without confirming internet connectivity….ouch….no internet except a data card! Very painful.

  7. says

    That was pretty informative. I am new to the US day-market, being an experienced trader from UK/Australia. So thankyou for the above links.
    From what I have found so far the US market is totally different, especially to Australia which is a much smaller and concentrated pool of tiny companies, which leads to alot of insider/false information flow.
    In regards to research tools, I primarily use ThinkorSwim. It is one damn powerful application. Has anybody tried Schwab? Am interested to compare.
    However, my Equities strategy primarily involves a mix of options and stocks, using synthetic long/shorts, continual portfolio written calls and other strategies. I will most commonly enter a position by only buying half the position and selling puts as the other. Inverse for exits.
    But at the end of the day, Equities is only one component of my trading as I run 2 forex automated algorithms as well as a punting forex account.
    Has been a nice start to the year +56.25%
    Good luck to you all out there.

  8. says

    Jaison I reviewed Schwab for the StockBrokers.com 2012 Broker review. They are great for research and have fantastic customer support, however they are not a good choice for active trading. Their platform isn’t that great and commissions uncompetitive with say OptionsHouse or MB Trading or Interactive Brokers.

    What broker do you currently trade forex with? thinkorswim by TD Ameritrade? Their platform is #1 definitely, best on the market!

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