Tuesday, November 01, 2005

Ask The Investing Monkey

And now for the newest section - Ask the Investing Monkey

I saw on one of your blogs (Investing Monkey?) that you had used "trade triggers." I'm working on a story about these, mostly focusing on Ameritrade, and was wondering if I could talk to you about how you've used the tools (tied trades to move in volume, index, etc.)? Or just like stop-loss trades? Let me know.
Worth Civils

The Wall Street Journal Online

Well first let me mention that I'm very proud to have a new reader to my little corner of the internet world. Now to get to your question. As to the name of my blog, it is "Unleashing The Power Of Mediocrity", Investing Monkey is just a user name I came up with because my desired one was taken.

As far as I'm concerned Ameritrade's "Trade Triggers" feature is an effective marketing ploy in order to draw investors to their site and consider them as a brokerage. I once considered them as my brokerage but didn't like their higher trading commissions and higher minimum account value and instead chose Scottrade, which I also note is not on Ameritrade's selective research. But I found the actual trade triggers system is for any of my trading purposes, useless, and basically an overglorified stop/limit order system.

If I were to invest in a stock, I would not base my investment on how the S&P 500 is doing, often my portfolio stays flat when the S&P is down, moves up 1 and a half percent when the S&P goes up one percent, and when it goes up a half percent my portfolio seems to go down a percent... I can't predict the days actions to a very good degree, but that's what makes investing fun when you can detach your emotions from your money. There are way too many factors to base purchasing an individual stock on the moves of the S&P 500, NASDAQ composite, or DJIA is doing.

As to investing based on volume, if I were to do that I would not base base my purchases just on volume, there are numerous 3rd party programs and organizations (mostly as annoying 3 am infomercials) that have written programs that will do this technical analysis for the day trader to the novice trader. Often these moves can happen within minutes and require constant attention and more complex algorithms than what it seems Ameritrade's trade triggers allow you to do.

Basically if I were to set a stop loss trade based on an index fund, the only thing I would be buying is the ETF based on that index, or sector I was interested in, couldn't I just as easily put a limit/stop on that ETF? Seriously what's the purpose?

As for basing a purchase on % change, I'm sorry but most of the math I can either do in my head, and I also tend to run some chart analysis before setting a bottom, but if I'm going to sell based on say a stock I own drops 8% from my cost basis I just use a calculator, its really not that hard and takes longer to find the calculator in your start menu than to actually do the calculation, then set the limit to sell at that actual number.

Also this tool is of no advantage to the long term trader, I tend to have 4 long term positions and have 3 short term positions in my portfolio at all times, and my selling of those 3 short term positions is mostly based on research I've done while I own the stock and its fluctuations since my purchase. I'm fortunate enough to have access to the computer around 5-6 hours of the trading day and take at least 30 seconds out of every hour to check my stocks. Currently the only stocks I do have limit orders on are 2 of my short term positions millennium Pharma and Time Warner, which I've speculated that I will see a Dollar jump from the price I purchased them at, and respectively have limit sells on each of them at those prices in order to lock in those gains, because I always decide at what price levels down or up that I'm willing to liquidate a short term position before purchasing.

The one thing I do like that ameritrade has is that you can set the triggers to expire on any specific date, something that is not offered by Scottrade, which only lets you set trade to expire at the end of the day or good until cancelled.

Hope that helped you some Worth,
Have a Bullish Day


At 1:05 PM, Blogger mazy said...

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