My stock market thesis is still not ready; in the meantime I thought I’d talk a little about some good online sources to find stocks with actionable trades and the pros and cons of doing this research.
First off, a little history about how I learned about stocks. I really started researching about stocks when I got my first job with a 401k. I learned that stocks were a risky investment vehicle which was apparently good for a young kid starting out, so I slid my investment allocation towards those. Luckily I caught a lot of the dot-com boom with these, so I felt pretty good. It was then when I found The Motley Fool which had some really good insight and strategies that advocated a measured investment methodology combining index funds and low-turnover buy-and-hold stock investing. I think these strategies made a lot of sense at the time as the market was breaking to new highs all the time. Recently, though, the market’s been in a lot of confusion about which direction it’s going, and as I learned more about tehcnical analysis I needed new sources.
I’ve mentioned before that the primary source for stocks for me initially was the big names related to the work I was doing which meant a lot of technology stocks. That’s all well and good, but there’s no diversity in that. Luckily the dot-com dollars were everywhere at the time, so I didn’t make too many mistakes other than not investing enough when it was big-time. I think because I wasn’t that invested it kept me on the sidelines for the drops which was definitely for the best.
My stock interest came back hard with the advent of Twitter. Yep. Social networking got me back into the stock market. Specifically Stocktwits. It’s built on the Twitter API but it automatically snarfs when you tweet a stock ticker and links that to a chart of that stock’s price action along with all the tweets of that stock by everyone using the service. If you believe in the power of Twitter as a way to listen in on the masses, then Stocktwits sounds like a wonderful idea. If, however, you subscribe to the idea of the “Greater Internet F*ckwad Theory” (link not safe for kids) then you might think Twitter (and Stocktwits) is just a big noisy room that may have some opportunists running pump-and-dumps like in the penny-stock madness of the late 90s. As in all things, it’s in the middle. There is cream in there, and Stocktwits does try to help it rise to the top by identifying Recommended users who are very helpful in their information. I will admit that some of these are very good:
There are some others that run their own trading-ideas websites like @tickerville who has a regular three-times-a-week “tape talk” as well as a subscription-based trading ideas community. Also @alphatrends who also maintains a trading ideas community and has written a pretty cool book about Technical Analysis.
While you do have to sift through the noise on stocktwits if you use it, besides the insights from the aforementioned users are a lot of good (and free!) tools for people in trading. These tools form a very good toolkit that I am currently using, so let’s look inside:
My current big one is Free Stock Charts which I mentioned previously. I still dislike the need for a silverlight plugin (especially running on my mac), but it does run well, and one of the nicest things about it is the ability to quickly pull up charts on the component stocks of the Dow, Nasdaq, and other indices.
Another good one is Finviz.com Financial Visualizations. For the visually oriented, this gives a multitude of ways to screen stocks including my favorite the S&P 500 Heatmap showing the market as a series of nested boxes sorted by sector and market capitalization and showing them in degrees of green or red to show the day’s gain or loss. Interesting when a sector is taking off (like oil or technology) and looking fo leaders or laggers. They also have a stock screener where you can put in a bunch of parameters to narrow the list of stocks down.
A tool I heard about, but not in any specific place is a trading journal. This can be as simple as a notepad entry or a few lines in a spreadsheet program. The things to capture are the price and quantity purchased, the exit points (stop and profit targets), the reason why, and changes to the stop or profit targets as the trade evolves. This isn’t for tracking profit and loss; any trading program worth its salt will do that. What the journal will do, however, will act as a record of how trades went and is used to refine (or expose your lack) of a market thesis regarding the specific trade. Sometimes you do just get a stock tip, and sometimes you do the research or draw the lines or whatever you might do. The journal takes that out of your head and puts it in writing, so you can be a better trader.
You’ll notice that I don’t look at any specific financial news sources, and no TV at all. The main reason for that is that most financial news sources are value-based information and as a budding technicals trader, I see that news as noise. TV rots your brain and your wallet. I can’t watch financial TV with its scrolling tickers and multiple pop-up insights on top of already dense conversations by “experts.” I put that in quotes because what I think would increase the viewership dramatically would be alongside the names of the commentators or announcers their YTD profit and loss numbers. Put your money where your mouth is, and maybe I’ll listen to you.
There are a number of other sites that seem like good things, but I haven’t researched them enough to have an opinion. Among these is actually back at what started it all at The Motley Fool – The “CAPS” site collects stock picks by users and the effectiveness of those picks are rated against market performance and the users picks are elevated and weighted by past performance. It seems like a good place to start for trading ideas…
But remember, these are all just ideas. Blindly following a trade is a surefire way to get broke. It’s still necessary to form a plan to trade showing entry and exit points for booking profits and protecting capital.
The danger here is to get caught up in the noise, so I err on the side of less is more. The way I use them is to make a big list then examine each of those more closely to put in the risk/reward values and draw lines. That usually eliminates half or more once the lines are drawn. Then I check them all out with an eye towards my theory of the market. That last bit’s the hard part, but next time I’ll take a detailed run through a trade I did, and we’ll see what to draw from it.