Useful Stock Trading Sites

Free Charts and Investing Tutorials

BigCharts.com (with flexible time frame) StockCharts.com (Chart School; Technical Indicators; Glossary) Yahoos Historical Prices (for past highs and lows) Trading Tutorials (terms, charts, indicators, etc.) Investing Online Resource Center

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Free Stock Ideas

Investors Business Daily (Stocks On The Move; Daily Stock Analysis) StockCharts.coms Stock Scan (too many to handle; CA stocks) StockGarden.com (use with extreme caution)

Online Discount Brokers

Online broker ratings (US) TD Ameritrade (US, $9.99/trade) Scottrade (US, $7/trade) Canadian online brokers TradeFreedom (CA, $9.95/trade) Interactive Brokers (CA, $0.01/share, $2 ~ 0.2% trading value/trade) Questrade (CA, $9.95/trade)

A Few Useful Tips

Dont pay for any service, if you can get it for free. Dont blindly following others investing ideas, opinions, inspirations, and encouragements. Keep your mind cool. Let sanity triumph over emotion and urge. Let the market, not wishful thinking (including technical indicator signals and chart or candlestick patterns), dictate whether you should buy or sell. If you have made a mistake, accept the outcome, clean the mess immediately, and move on. Denial will only make things much worse.

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If you cannot calculate gain/loss in percentage, you are not suitable for trading stocks by yourself. If so, keep your money in your bank accounts for interests instead.

Low-Stress Stock Trading Strategy

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Get the 5 stocks from the Stocks On The Move and the 1 stock from the Daily Stock Analysis sections of IBD. Use free charting sites to analyze the stocks you have collected over the past several days or weeks. If some stocks meet our buy criteria, begin to study their profiles and recent news. If their business models are decent and there is no bad news, you have some potential fish to catch. Use free charting and Yahoos historical price sites to figure out the stop limit buy and sell prices. If the potential loss is more than your tolerance (e.g., 5~10%), let this fish go free. Once you have bought a stock, place a stop limit sell order right away to prevent any disastrous loss. If the stock price moves higher, study its chart daily. Change the stop limit sell order to new higher low price, so that you will keep most of the gain and exit before the fast imminent downfall.

Market Tops
higher high lower high

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regular market top

higher low breaking point

lower high

higher high

irregular market top

higher low breaking point

Market Bottoms
lower high breaking point

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regular market bottom

lower low higher low

lower high

irregular market bottom

breaking point higher low lower low

Trade Tops
place stop-limit buy order here

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regular market top

exit (short) at breaking point

place stop-limit buy order here

irregular market top

exit (short) at breaking point

Trade Bottoms
enter (buy) at breaking point

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regular market bottom

place stop-limit sell order here

irregular market bottom

enter (buy) at breaking point place stop-limit sell order here

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Full Trade
1st stop-limit buy order 2nd stop-limit buy order 3rd stop-limit buy order trailing stop-limit sell orders buy (cover short) at breaking point 1st stop-limit sell order sell short or exit buy

sell short at breaking point

Risk Control

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Only after the set-up of these potential market bottoms is formed, you can then proceed below.
1st: Place initial stop-limit buy order here. If future price breaks above this level, your stop-limit buy order will be filled. 3rd: Potential loss = Price (buy) Price (sell) Keep the loss 10% of your buy price.
Loss from top Gain to break even 9% 11% 18% 25% 43%

2nd: After your buy order is filled, place a stop-limit sell order here immediately. If future price breaks below this level, your stop-limit sell order will be filled.

8% 10% 15% 20% 25%

In & Out Level 1 (IO1)

3rd stop-limit sell order 2nd stop-limit sell order initial stop-limit buy order 4th stop-limit sell order sell (exit) at breaking point

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buy (enter) at breaking point 1st stop-limit sell order

Profit = Price (sell) Price (buy)

Once the price moves up, shift stop-limit sell order to higher lows to protect profit. In & Out is better than Buy & Hold. The strategy of short sell is the reverse.

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IO1 short
trailing buy-to-cover-short orders exit (sell short) Risk < 3%

short selling Gain > 40%

cover short

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IO1 long

exit (sell)

long buying Gain > 55%

enter (buy) Risk < 5%

trailing exit (sell) orders

In & Out Level 2 (IO2)

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Sometimes, IO1 does not work well, because the nearest higher lows (lower highs), if used as trailing exit (buy-to-cover) points, do not produce much profit. In this case, we will instead work with IO2, in which the method of entry (with appropriate risk control) is the same as IO1, but the exit strategy is different. Once a buy order is filled, immediately place a stop-limit sell order at yesterdays low. After todays market close, shift the stop-limit sell order to todays low. This stop-limit sell order will last till tomorrows market close when the stop-limit sell order will be reset to tomorrows low, unless the active stop-limit sell order is filled during todays market action. The IO2 strategy of short sell is the reverse. IO2 has a much shorter trading span than IO1 does: You will stay in a position only a few days (1~7 days normally).

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IO2 long

exit (sell) long buying Gain > 17%

enter (buy) Risk < 5%

daily trailing exit (sell) orders

IO1 vs. IO2

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When to use which? You need to study the price action of a stock for the past 36 months, during which the same market makers (mutual funds, big banks, etc.) have been manipulating the price action of the stock. If historical data indicate that IO1 performs better than IO2, you will adopt IO1 for the current trade. In other words, history (not your fancy) will dictate your trading strategy. Can we alternate them or combine them in a single trade? Yes. We can! Again, when to use which requires a few more advanced techniques that constitute In & Out Level 3 (IO3). To learn IO3, we need the help from some technical indicators. I will not explain how to compute such technical indicators, but simply tell you which ones to plot on your stock charts and how to trade them in combination with IO1 and IO2. In the end, IO3 will instruct you to use IO1 till the last waltz when you switch to IO2. Essentially, IO3 = IO1 + IO2 (3 = 1 + 2).

In & Out Level 3 (IO3)

We need only two technical indicators for IO3:
Indicators Fast Stochastics (STO) Wilders DMI (ADX) Parameters %K(7), %D(10) ADX(10)

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Switch to IO2 if ADX(10) is 50+, or both %D(10) and ADX(10) begin to go down or stay flat. Otherwise, stay with IO1.

%D(10) (the brown curve) indicates the overall trend of price action.

The peaks of ADX(10) (the black curve) signal the price tops (if +DI above DI) or the bottoms (if DI above +DI). When ADX(10) 50, the current trend is going to reverse. When +DI and DI are twisted together, the stock price is going sideways.

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IO3 long
long buying Gain > 33%

long buying Gain > 40%

IO1 exit (sell) enter (buy) Risk < 10% IO3 exit (sell) enter (buy) Risk < 10%

IO3 exit (sell)

> 50

> 50

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My Confession
My strategy does not work all the time: only 80% of the time. Signals of regular tops and bottoms are much more faithful than irregular ones. I normally only trade regular tops and bottoms. You should do the same. The 10% risk control (or money management) is essential for your trade success. If you are very concerned about risk, you may decrease it to 8% or even to 5%. However, a smaller risk factor will miss many good trades: 10% is a good compromise between risk and reward. The choice is yours. With the 10% risk control (or money management), my In & Out strategy is much, much better than Buy & Hold. It is harmful to have a fighting back mentality after a trade loss. Enter or re-enter a trade if and only if the signal is right. Be cool; do not gamble!

Most Important Trading Advice

Do not trust any guru with your money.

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Do not use trend lines, chart patterns, candlestick patterns, and technical indicators to trade. These things only provide some advanced warnings. Do not try to predict tops and bottoms. Market action should be the only factor in your trading practice. Greed and fear are the two archenemies of your trading success. Only invest in 5 or fewer stocks. More stocks bring more stress. Only buy stocks whose prices are higher than $15 per share. Avoid those stocks with a lot of gaps and wild daily volatility. You do not have to trade. Sometimes, cash is the best choice. You should enjoy trading and have fun! If not, do not trade.

Best Technical Indicators

one choice for each category

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Market Sentiment Indicators

Chaikin Money Flow (CMF) Volume+

Percentage Price Oscillator (PPO) Moving Average Convergence/Divergence (MACD) Directional Movement Index (DMI)

Trend Indicators

Volatility Indicators

Bollinger Bands (BB) Parabolic SAR (SAR, for stop limits)

Slow Stochastics (Slow STO) Commodity Channel Index (CCI) Relative Strength Index (RSI) Williams %R (%R) Momentum/Rate of Change (ROC)

Momentum Indicators

ASPV

BigCharts

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BB

MACD

Slow STO

Volume+

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CCI

BLUD

StockCharts

SAR BB

Volume+ PPO

CMF

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Too many gaps Avoid

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Price too low Avoid

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Too volatile Avoid