Stock trading generally is considered to be a short-term approach to investing. Successful stock traders can make outsize profits, but there is a lot of risk involved as well. Taking advantage of tools designed to help traders analyze potential investments can minimize risk and provide an edge in earning profits.
Here is a look at six common types of trading and analysis tools that a shrewd investor may want at their disposal to guide them in their trading decisions.
Traders often turn to research to help them make buying and selling decisions. Research encompasses the analysis of data, whether quantitative or qualitative, to help drive informed decisions about future events in the markets.
There are a number of online resources that provide detailed research and analysis for an audience of traders and investors:
Charting is a way to look at trends in a stockâ€™s price over periods of time. That might be as short as a day or a few weeks for active traders or as long as years or decades. The best charts allow investors to compare the price of a stock over time against market indexes like the S&P 500, the Dow Jones Industrial Average and others.
Additionally, many of the better charting tools allow investors to track stocks against moving averages of their prices over periods of time. The 50-day and 200-day moving averages are popular technical analysis tools. If the price of a stock is trending above or below its moving average, it might be a buy or sell signal for traders.
Many brokers offer charting tools to customers to help them analyze and track movements in securities.
A number of financial sites offer free charting as well:
Margin loans allow you to borrow against securities already owned in your portfolio. The money can be used for any number of purposes, including to finance the purchase of additional stocks for your portfolio, whether those stocks are part of a short-term trading strategy or a longer-term holding.
Margin loans offer flexibility, but the interest rates on margin loans often are higher than the interest rates on other personal loans. You certainly would not want to have a margin loan outstanding for a long period of time.
There are risks to borrowing against your portfolio. If the value of the securities that were borrowed against decline in value, you could be forced to liquidate some holdings to cover a margin call on your outstanding loan.
You probably will want to choose a broker that offers a variety of order types from which to execute trades. All brokers generally offer the basics, such as a market order, a stop order, a stop limit order and other order types.
Depending on your holding period and trading objectives, you might need more advanced orders, such as:
Using a robust trading platform â€” like those offered by a number of major brokerage firms, such as TD Ameritrade and Fidelity â€” can pay off for investors. These platforms go beyond the basics of allowing traders to buy and sell shares; they offer tools that allow traders to take it to the next level in terms of analysis and the ease of making trades.
TD Ameritrade offers four versions of its online trading platform, including:
TD Ameritrade offers trading accessibility on a 24/5 basis, meaning trades can be placed on a 24-hour basis Monday through Friday. It also offers 60 days of commission-free trades and a bonus of up to $600 for new accounts that meet certain conditions as of the date of publishing.
Fidelity offers a platform that touts a number of features as well, including:
Whether you use TD Ameritrade, Fidelity or another brokerage, it is best to look for a trading platform that meets your needs as a trader. Whether this entails research, the ability to simulate trades, advanced order types or other tools, choose the broker that comes closest to offering what you need as a trader.
Trading simulation tools allow investors to review the impact of trades or other investment decisions in a virtual environment before executing the trades with real money.
There are a number of stock simulators available, including several at major financial sites:
Several major brokerage firms also offer simulation tools that traders can use to test their ideas, including:
For brokerage firms, offering a robust trade simulation tool serves a dual purpose. Itâ€™s a way to help educate traders, and it offers a means for the broker to show off its capabilities.
Becoming a successful stock trader is hard work. These six tools and others can give you an edge when you analyze potential investments and attempt to minimize risks.