Choosing an Online Stock Broker

Stock Trading for Beginners - Choosing an Online Stock Broker

The first thing beginners to online stock trading will need to do is to find an online broker. There are dozens of online brokers out there but in my humble opinion you would do well to steer clear of TD Waterhouse. I found them very unreliable. Just my personal opinion but that's what makes a company's good or bad reputation, personal recommendations.

Nowadays all online brokers provide you with the data and tools you need to make informed decisions, if they don't then you shouldn't be with them. These tools include realtime quotes, realtime trades, realtime charts, streaming news, educational materials. There stock trading platform also needs to be easy to understand and use.

Bear in mind also that many brokers are adding cell phone features to their list of features. If this is important to you then choose a broker that offers this.

Features to Look for in an Online Broker

First off, your online broker's fees and commissions. Fees can soon mount up so make sure you know what you are going to be charged for. Everyone in the financial world makes money out of their customers, that is how they survive. Your online broker is not a charitable trust. So don't believe the hype. They want your money. Of course, if they provide a better service than their competitors then they will get more clients and more money. But it is the money that is the motivating factor, not helping you have a nice day. So watch out for basic fees and additional fees.

What can you trade in? Most online brokers offer stocks, options, mutual funds and exchange-traded funds. Many brokers also offer a choice of international markets in addition to investment services or packages for education and retirement saving. As a beginner to online trading or investing you will probably just stick stocks and shares to start with.

The tools that online brokers offer can include analyst reports, investment calculators, cellphone alerts, charts, will help both beginners and experts make intelligent trading decisions. It goes without saying that the quality of this information is essential.

How easy is the broker's site to use? The site needs to be easy to use for everybody, including the totally computer illiterate.

Last but by no means least customer service. Whether you're a beginner to online stock trading or an old hand you are entitled to expect an online broker's site to be accurate and reliable. It's no use the site providing so-called 'realtime' quotes that are a minute old. Realtime must be realtime. It is also important that customer service be rapid and reliable, you don't want a broker that is just going to cover up mistakes and pretent they never happened. Unfortunately you won't know how good an online broker is until you use them, which is why it is very important to get as many recommendations from clients a possible. To do this I would suggest you check out the online financial forums and ask questions!

For more information on stock trading check out this book - Online Stock Trading for Beginners

By the way did I say that I do not recommend TD Waterhouse?

Charts in Online Stock Trading

Online Trading Made Easy - The Importance of Charts in Online Stock Trading

When trading stocks there are basically two strategies you can use to decide which stocks or indices to trade. Fundamental analysis and technical analysis.

In fundamental analysis, as the name implies, you study the fundamentals of a company (i.e. company accounts and trading reports, competition etc...) to decide whether it is in good shape or not and whether its share price is unvervalued and should be higher. This is what Warren Buffett does, and he is very good at it. But it takes a lot of knowledge and work and also belief that the company accounts and trading reports etc... are accurate and believable.

The other strategy is so-called technical analysis. In technical analysis you don't need to know anything about the company or the index you just study the share price over time, and various technical indicators, such as moving averages.

Technical analysis does require some knowledge but this is knowledge you can gain quite easily from reading websites and books. Technical analysts say that all the news is already in the charts so studying the charts is all you need to do.
Stock charts are a reflection of price movements over time and the volumes of stocks traded.

Technical analysis is based on the following assumptions - prices are determined by supply and demand, supply and demand is a result of both rational and irrational behaviors, prices move in trends and these trends are generally long-lasting, changes in supply and demand can be spotted by analyzing the way the stock price behaves.

Why use technical analysis?
It is easier than fundamental analysis and faster. It does not make us of company accounts and therefore cannot be manipulated by companies, it tells you what to buy and sell and when. Technical analysis based on the behavior of crowds, if people expect a certain thing to happen upon a certain signal, then they will react in a particular way when they see that signal. If enough people react in the same way then the expected outcome is achieved and the analysis becomes self-fulfilling i.e. a stock price goes up because enough people buy the stock because they expected it to go up. Many hundreds of expert analysts use technical analysis and thus influence stock prices by reacting to the same signals.

There are many indicators that are used in technical analysis, but one of the principal indicators is the 200 day moving average. If a stock falls below its 200 day moving average this is considered a bad signal and people tend to sell the stock. If a stock goes above its 200 day moving average this is generally considered a good sign and people tend to buy.

If 80% of stocks in the stock market are above their 200-day moving averages, this is considered to be overbought and so people tend to sell the market. If less than 20% of stocks are above their 200-day moving averages, this is considered to be oversold and a signal to buy.

3 Year Chart of Lloyds with the 200 day moving average in Red - showing how the stock felk sharply once it crossed below its 200 day moving average back in 2007



6 month chart of Lloyds with 200 day moving average in red - the share price is above the moving average which is positive but it could easily fall back below it


There are many other indicators used in technical analysis such as the relative strength index, Bollinger bands etc... and any online stock trading site will allow you to include them automatically on any charts you may wish to look at.

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Related Post : Stock Market Charting for Beginners

Stock Trading Tips

Stock Trading Tips - Stock Charts DOW Theory Part 2

Yesterday's video explained the first 3 tenets of Dow Theory today's video deals with tenets 4, 5 and 6 . All 6 tenets of DOW theory are very important when it comes to stock trading, online or otherwise.

Tenet 4 states that averages must be nutually confirming

Thus a rise in the DOW Jones Industrial Average needs to be confirmed by a rise in the DOW Jones Transportation Average. Any divergence in these two indexes signals a pending change - otherwise it confirms the trend. Although this tenet is not so relevant nowadays as the US is based more on service on manufacturing.

Tenet 5 states that trends need to be confirmed by volume

This still applies today. If the price change is accompanied by volume it means lots of people are taking part

Tenet 6 states that until signals prove otherwise

"The trend is your friend till the bend at the end" It is very important when trading stocks short-term and medium-term to find signals that show that a trend is coming to an end .

According to Dow, the trend should be followed until it is obvious that it has ended. Deciding when the trend is over is of course the hard part and analysts tend to disagree.

Currently (OSeptember 2009) many were expecting the markets to fall back to re-test the March low of 6500 and some were saying it would go down to 4000 ! So far it hasn't, and has rallied back to 9700.

1702 was important on the NASDAQ, but it didn't fall back through 1702 which was seen as very bullish and a sign that markets would continue on upward, which they did !

Technical analysis i.e. understanding stock charts is absolutely essential for stock trading and to try to trade stocks without some basic understanding of stock charts would be unwise.

Dow Theory Part II by informedtrades.com




See also Stock Charts for Beginners

Stock Trading Charts for Beginners

Online Trading Made Easy - Stock Market Charting for Beginners

Stock trading appears to many to be at a crucial turning point at the moment. In the past few days I have seen 3 people predict a stock market crash. Rod Huusinen says it may have already begun, Enzio von Pfeil and Bob Flower independently say it is coming in October and it will be big.
The markets however sem to be determined to keep on going up - the DOW was up another 56 points today and the S&P was upanother 3. Stock markets have been rising steadily since the lows on March 9 and the S&P has risen over 50% in just 7 months.

So who is right are the markets going to carry on up or are we headed for an almighty crash. Well, I don't know, but I am convinced that whatever happens we will see it in the charts first. If you don't know how to read stock market charts then you really need to learn a minimum, as all traders use them and more often than not base their investment decisions on them. So to attempt stock trading online without understanding what other people are doing is suicide !

With this in mind here is a short but very informative video on DOW theory to introduce the basics of stock charting - by the guys at informedtrades.com. - the basic concept to retain is that technical analysis can help you get ahead of the market whereas fundamental analysis can't, news is of little use, as it is nearly always already reflected in the share price. Unless you are the next Warren Buffett that is and are ready to invest for the long term using only your knowledge of the fundamentals of a company.

Stock Trading Technical Analysis - DOW Theory




Related posts on stock trading :-


Part 2 - Stock Charts for Beginners
Online Trading
Technical analysis
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