Eliminate Transaction Costs when Stock Trading
Is it possible to pay zero commissions when stock trading? Well yes and no. Right now I do not know of any broker that will execute orders for you for nothing. But there IS a way that you can use your skills as a trader to pay your broker and still execute the trade without it costing you anything.
Welcome to “pajama trading”. Please read on:
If you can eliminate most of your transaction costs you can change the way you trade, reduce risk and make more money. I think the “secret” to realizing this goal is short term trading and that means taking a lot more trades. If you are the kind of stock trader that only takes about ten trades in a year and hangs onto stocks forever you can skip this article because you can afford to pay your broker $50 for a trade and it will not change your bottom line very much. But if you trade like me and execute 10 to 30 trades per day you should not pay any broker more than $4 per trade and you need to strive for positive slippage.
First let us define some terms: Transaction costs, for purposes of this discussion, are the commissions and fees you pay a broker to execute your trade PLUS slippage.
Slippage is the difference between the price your trading system enters a position and the price you actually got when you execute an order in real time based on the trading system you are using. So if you place a resting order with your broker to buy 1000 shares of WOOPS at 1.00 stop and he fills the order at 1.01 your slippage is negative $10. The slippage is negative because that extra penny in slippage is costing you $10 more than the theoretical system trade and this must be added to your total transaction costs.
But slippage can also be positive. Rather than place a resting order with your broker you execute the order yourself “at the market.” And then the market pulls back a tick or two while you are placing your market order and subsequently you may be filled at.98 rather than the system buy point of $1.00. In that case you save $20 and you can subtract that amount from the commissions and fees you pay your broker to execute your market order. The $20 you save is called positive slippage.
In this case you, rather than the broker, may be making money when you add up your transaction costs. If the broker only charges you a $5 commission for doing a market order and you get $20 in positive slippage you are going to gain an extra $15 when this trade is closed out over and above what your trading system gains.
So how can you get positive slippage? To get positive slippage you need to practice a style of trading I call “pajama trading”. I call it pajama trading because I do not have a regular job. I work at home sitting in front of a computer six and a half hours per day watching 96 stock markets. And I like to be comfortable and so I trade in my pajamas.
So how does trading in your pajamas get you positive slippage and reduce your transaction costs to next to nothing?
Before answering this question let’s define some more terms: A RESTING ORDER is an order you place with your broker either by phone or electronically by way of a computer. There are basically three kinds of orders: 1) Market Order 2) Stop Order 3) Limit Order.
A market order is just that, it is an order to buy the market at what ever price the market is trading at right now. A market order is always filled. A stop order is a kind of order that becomes a market order only when a certain price is first hit. But a stop order is often filled at a price higher than where the stop is placed. However a stop order is always filled. A limit order is just that, it limits the price the order can be filled at and it cannot be filled at a higher price. The problem with a limit order is that it may not be filled. For a limit order to be filled price must first hit the limit price and then pull back a tick or two before moving higher. If it does not pull back a limit order will not be filled.
My experience is that limit orders do not work for systems traders. The sacred rule of a system trader is that he or she MUST TAKE ALL THE TRADES. If you do not take all the trades you really have no system. So limit orders do not work for system trading because limit orders cause you to miss trades. And to make the problem worse it has been my experience that the best trades, the trades that make the most money, do not pull back and allow limit orders to be filled. Limit orders cause you to miss the best trades.
Stop orders on the other hand are always filled. Stop orders are what you usually place with a broker so you do not have to watch the markets. The problem with stop orders is that they are frequently filled at a tick or two higher than where the stop is placed. If a tick is worth $10 and you “are slipped” 100 ticks in a trading month it is going to add $1,000 to your transaction costs. You can only get negative slippage with stop orders and you will never get positive slippage. If there is positive slippage you can bet your broker will keep it.
So that leaves us with market orders. The great advantage of market orders is that you can get BOTH negative and positive slippage and the two tend to cancel each other out. And that brings us back to pajama trading. If you are sitting in front of your computers and your 1.00 buy price is hit you then hit the Buy-1000-shares-of-WOOPS-at-the-market button on your computer. Stock prices can change more than a hundred times in a single minute and sometimes your market order for 1000 shares of WOOPS will be filled at a price higher than 1.00 and sometimes it will be filled at a lower price. But unlike those resting orders placed with your broker it can go either way.
Without any experience at all you will find you can reduce transaction costs by “pajama trading”. It is virtually impossible that you will not get some positive slippage by pajama trading. But after watching markets for 6 ½ hours every day you are going to discover that sometimes you need to jump on a trade and sometimes you can pour yourself a cup of coffee before hitting the buy key. You can develop a feel for this based on how those ticks are flashing across your computer screen. By watching markets you can become a better trader with keen judgment and not be at the mercy of brokers.
I would like to think that years of pajama trading have made me a better trader. But what I do know for sure is that because of my pajama trading skills my transaction costs are close to zero. And that makes a huge difference in profits if I am executing 10 to 30 trades a day. If you want to be a truly active trader and limit your risks by trading smaller positions in more markets you should consider pajama trading. And believe me short term trading is much more profitable without transaction costs.
http://einsteinstocktraders.com Fifteen years ago, Robert Buran wrote, “How I Quit My Job and Turned $6,000 Into a Half Million Trading”. Bob set the system vendor industry back on its heels by publishing all his broker statements to prove the validity of his methods. Bob went on to trade European money in the U.S. stock market and pushed nearly two billion dollars in trades through the stock market in less than two years with annual yields close to 100 %. Although he is quite familiar with trading millions of dollars his interest remains with what he describes as the greater challenge of trading a few thousand dollars into a small fortune and his current work is geared to the small investor. Bob posts all his real time trades twice daily on his website, http://www.einsteinstocktraders.com along with news and market commmentary. Bob is a TradeStation programmer and his current interest is working with intra-day data and multiple market data streams to develop “hit and run” short term trading strategies that combine high yields and low risk. Bob insists that the current U.S. economy and its stock markets present an ideal environment for his methods and he presently refuses to short any U.S. stock market. Einstein Stock Traders.com http://einsteinstocktraders.com is a unique real time stock trading site geared to the small investor and short term trader interested in high investment yields and limited risks. Real time trades and some market commentary by “Trader Bob” is posted twice daily every market day.
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Stock Trading System and Stock Analyzer
A stock market trading system is essentially a set of rules used by a stock trader to cover the whole trading process. That is, it identifies which stock to buy, how much to buy, when to buy and when to sell. A simple system might look like this:
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1. Buy rising stocks in rising industrial groups on a breakout from a 5-day consolidation
2. Place a sell stop just below the consolidation area
3. Aim to loose only $200 if I am wrong
4. Move my stop loss up to break even after a gain of 5%
5. Continue to move my stop loss up after every 5% gain until I am stopped out
Someone who invests in stocks for the long term would have a totally different set of rules as would a day trader. Your rules need to match what you want to accomplish.
Stock traders generally use one of four stock trading systems:
One of the more common systems people use is no system. As strange as it may sound, not having a system is still a system. Stock traders in this category just buy on a whim with no real thought as to why they are buying the stock, no understanding of the risk profile of their position and no exit strategy. They likely react to something that they heard about in some form of media or from other people. They learn essentially nothing from each transaction and tend to continually repeat their mistakes. If you use the no system approach to trading you may want to consider finding a more complete trading system.
Another common approach to trading is using what will be referred to as a black box system. In this case, the trader is using a system, which was developed by someone else. Black box systems generate buy and sell signals but do not tell you why a specific stock was identified. They tell you what and when to buy and when to sell. The major drawback of these systems is that they do not teach you how to improve your understanding of the stock markets. Like most things, they range in quality from good to bad, with the good ones being quite expensive. If you are heading in this direction, do a lot of research before you buy.
There are many professional traders out there who offer courses to teach you the system they use to trade stocks. These traders are also selling you a stock trading system, their system! While the system they are teaching you works for them, you must remember, in many cases it was tailored to their lifestyle not yours. You need to be able to adapt their system to match your personality and risk tolerances. With a large variety of systems being taught, you should be able to identify one that comes close to how you think about the markets and as such may only need to make minor adjustments to the strategy. In these systems, you know why a specific stock is being recommended for purchase. If this taught system is well thought out this can be a valuable learning experience and potentially can start you down the road to being a better stock trader.
The final system, which will be discussed, is the self taught method. In this trading system, you may learn about stock trading from a number of sources such as introductory lectures, magazines, books, websites, TV etc. You would then take this information and over time develop your own trading style by back testing your ideas, paper trading or cautiously trading an account. By keeping good records of what you are doing and by continually upgrading your education, you will slowly improve your trading skills to the point where you should be a profitable trader.
No matter what system you ultimately use or develop to trade stocks, it will likely cost you a fair bit of time and money. Whether you spend your time and money going to training courses, reading or trading the market, becoming a good trader, like becoming good at anything, will cost you time and money.
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More Stock Market Trading System Tips: Trading Pro System is a complete video training course and teaches the traders to trade with confidence. The comprehensive 24 hours video training provides a bunch of strategies and tactics and a lot of content about trading in the stocks and options market. The system uses simple language and is created by businessmen which imply that the secrets of winning are at your fingertips. Stock Market Index Secret is by Karl Dittman, a 30 year veteran of stock market trading. Karl maps out a really simple ’secret’ formula that can point you at a method of targeting a stock or an index on any day and make a profit. If you follow his patterns, you can can see opportunities to take good profits. The Secrets of Sucessful Traders Guide was preferred amongst our team of researchers. It offers the most practical stock trading advice for beginners looking to find success in the stock market without losing their house. It is a step by step instructional guide which clearly explains everything you need to know about the industry and is patiently explained in detail to ensure that you are fully aware of how the stock market works before making your first investment. Article Source:http://www.articlesbase.com/day-trading-articles/stock-trading-system-and-stock-analyzer-1465136.html
Automated Stock Trading – Day Trading Robot Software
The most dangerous thing about investing is the one thing we all have, emotions. Emotions are the enemy of good trading and investing practices. All people are subject to greed, fear, panic, and any other emotion that effects our decision making process. For every day living, this is not a problem. For investing, these emotions can influence you to make poor buying and selling decisions. Even the most seasoned investors and traders can fall victim to their emotions. Many have started to turn to automated stock trading.
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Automated stock trading is software that watches different investments and makes buying and selling decisions based on factual, real time, financial information. You may build the parameters for the software’s decision, according to your thresh-hold of risk, however the software does the trading. It works with evolving methods and trading strategies. As strategies are updated, you can add these to your trading methods. Many people report extreme success just letting the software do the trading work for them.
You will find a variety of different types of these stock trade robots. Some are far more advanced than the others. If you are looking into using a automated stock trader, you should be fully aware of what they can and cannot do. The first thing that you must remember, “You get what you pay for.”
You will find prices ranging form your monthly trading fee, to thousands of dollars for some of the most advanced systems. With this time of range, it is plain to see that picking the software that suites your needs will not be easy. When you first start looking, go online and look up reviews for the different software packages that seem to do what you need them to do. Do not believe all the claims on certain websites that talk about unrealistic expectations. While they may be true, you want to see both the good and the bad.
You should expect to pay around $75 for the software, and a monthly trading fee. You should make sure that this fee includes your updates with the latest strategies. It is important to always keep up to date with these strategies. The selection of investment strategy, as well as their continued improvement, is important because they often reflect current trends and ‘emotions’ within the market.
Buying the cheapest solution is not going to save you money in the long run. Programmers make money based on the amount of time that they have put into their work. When you are getting a deal, you may not be getting a deal at all. You may simply be getting poor workmanship. The more expensive solutions may use combined buying and selling strategies. These combinations are more likely to catch things like a panic in a certain market sector. They may be able to catch underdeveloped markets that are potentially ready to grow.
No matter how automated, it is important that you monitor what you software is doing. There is no software that picks 100% winning trades. You should watch over what your software is doing so that you can make sure that you are not losing money on the trades. You may find that you want to stop the trading, consolidate your earnings, and then start again the next day. While it may be convenient for the software to do all the work, it is not always in your best interest. It will also help you see if certain strategies are working, before letting the computer do live trading. Many people will have the software running on two systems. One will be handling live investments while the other works on new strategies.
You can find great software. You have to look and read over the reviews. Make sure you look for the costs and understand that cheap is not always cheap in the long run. Automated stock trading software can make your investing more profitable, but only if you invest the time to understand it.
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More Stock Market Trading System Tips: Trading Pro System is a complete video training course and teaches the traders to trade with confidence. The comprehensive 24 hours video training provides a bunch of strategies and tactics and a lot of content about trading in the stocks and options market. The system uses simple language and is created by businessmen which imply that the secrets of winning are at your fingertips. Stock Market Index Secret is by Karl Dittman, a 30 year veteran of stock market trading. Karl maps out a really simple ’secret’ formula that can point you at a method of targeting a stock or an index on any day and make a profit. If you follow his patterns, you can can see opportunities to take good profits. The Secrets of Sucessful Traders Guide was preferred amongst our team of researchers. It offers the most practical stock trading advice for beginners looking to find success in the stock market without losing their house. It is a step by step instructional guide which clearly explains everything you need to know about the industry and is patiently explained in detail to ensure that you are fully aware of how the stock market works before making your first investment. Article Source:http://www.articlesbase.com/day-trading-articles/automated-stock-trading-day-trading-robot-software-1452064.html
Building A Winning Mindset in Stock Trading
There is no business which does not involve the risk of losses. In fact there cannot be risk-free profit in any business. Doing business successfully is an art of manipulating risks into profits.
Many investors go berserk when they face huge losses. For them a loss means that the world has come to an end. This is not a healthy and sensible approach. Strangely enough even those who make profits are likely to be carried away by the euphoria that follows quick bumper cash into the bank account.
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It sometimes becomes difficult to maintain aplomb in both the cases. Tension due to loss and euphoria generated by the profits are detrimental to continued success in stock trading.
If you want to be successful in stock trading you need to develop a special trading mindset. It means that you should be aware of your mental assets and liabilities. You must know how you are going to react under given circumstances.
You should be able to secure yourself against self-negating actions and decisions when you are managing a trade. Moreover, you should be able to forge ahead even against setbacks and losses. If you give up because you have suffered losses, there would be no way to recover the money you lost. How will you take up the next business with your mind feeling depressed and defeated due to the loss incurred?
The secret behind ultimate winning lies in continuing with patience, perseverance, intelligence and information. You have to develop certain qualities of head and heart which are specific to trading in stocks. It is like training for any other profession. Here are certain virtues that you should cultivate in order to be acquire a winning mindset of a successful stock trader.
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1. Caution
You should carefully examine all the facts before you make a trade. Do not allow emotions like excitement, fear and over expectation overtake you when you enter or exit a position. You must stick to the guidelines that you may have formulated and act only when the circumstances match them.
2. Patience
Patience is an antidote to working under excitement or frustration. You tend to overstep your position in a state of excitement and become desperate when you are frustrated. Both the states of mind are negative and self defeating. You must take a rational stand based upon age old wisdom that what rises up must come down and conversely what falls down must ultimately rise up.
As a good trader you must understand the fundamental value of a stock and wait with patience to let it bounce back if it is presently lying low.
3. Detachment
You must learn to take your profits and losses in your stride. Do not feel insulted or allow your ego to be hurt when you suffer losses despite your best study, analysis and planning. Stock trading quite often defies all the predictions of trading pundits and experts. You are no exception to it. Your job is to remain emotionally detached from the excitement or frustration that the stock market movement constantly generates.
Do not keep tracking the prices of your stock all day long unless you are a day trader. If you keep watching the prices all throughout the day, you will not be able to do anything else and may remain in a state of panic or greed. This is not the right mind set of a good stock trader.
4. Conviction
Have confidence in your convictions and do not let the temporary stock market fluctuations erode them. You have to take steps to protect your profits when the stock market trend is weakening and you must also know what to do when the market is picking up. Do not allow yourself to be carried away by the opinions of the ‘tippers’.
5. Focus
Try to stay focused on the larger stock market trends and do not react to every day short term fluctuations. Of course, you have to keep a close watch over the price movement if you are a day or swing trader.
6. Remain prepared for the unexpected
Stock market movement is determined by a myriad of national and international events which may catch you off guard. You may wake up to a bumper gain or a steep loss due to the most unexpected circumstances. What matters most is that you should always be prepared to take appropriate action when the stock market trends so indicate. You may have to buy, sell and exit depending upon the situation.
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More Stock Market Trading System Tips: Trading Pro System is a complete video training course and teaches the traders to trade with confidence. The comprehensive 24 hours video training provides a bunch of strategies and tactics and a lot of content about trading in the stocks and options market. The system uses simple language and is created by businessmen which imply that the secrets of winning are at your fingertips. Stock Market Index Secret is by Karl Dittman, a 30 year veteran of stock market trading. Karl maps out a really simple ’secret’ formula that can point you at a method of targeting a stock or an index on any day and make a profit. If you follow his patterns, you can can see opportunities to take good profits. The Secrets of Sucessful Traders Guide was preferred amongst our team of researchers. It offers the most practical stock trading advice for beginners looking to find success in the stock market without losing their house. It is a step by step instructional guide which clearly explains everything you need to know about the industry and is patiently explained in detail to ensure that you are fully aware of how the stock market works before making your first investment. Article Source:http://www.articlesbase.com/day-trading-articles/building-a-winning-mindset-in-stock-trading-1402704.html
The Curve Drawdown – A Sensitive Aspect of Stock Trading
If you are a new player on the stock market, you should know that things aren’t always nice and shiny when it comes to stock trading. There are downsides and upsides as in any other trading or investing process and you have to be prepared to cope with the negative aspects. The drawdown is the worse thing a stock trader may experience along the years. You should know that a peak in a share’s price is always followed by a going down to the bottom period. But don’t panic, this negative impact is also followed by an ascending trend, so your shares will be going up again.
Experienced systems traders are well aware of this drawdown trend; the ‘rookies’ (new traders) are those who panic and start selling their shares. This drawdown period represents an important percentage of the stock’s profit evaluation process.
This drawdown curve is representing a test for the ‘buy, hold and hope’ rule that investors should follow on the long term. What does this mean? Well, inexperienced stock traders chose to sell their shares when their price is going down, instead of realising that this price drop is only a natural thing to happen. This kind of traders is losing money as the price is lower than the one they have paid for the shares. This is the reason why you should try not to panic and to commit yourself to holding to your shares. Keep in mind that this price drop is a normal phenomenon on the stock market.
Experienced traders have a strong commitment when it comes to a drawdown. They know that the best thing to do when a drawdown occurs is to follow all trade recommendations. Anyone who is involved in stock trading should be emotionally and financially prepared to deal with this kind of negative situations. Experienced traders know that the worst thing to do is to sell your shares just after a drawdown as the price will definitely go up.
Therefore, if you plan to get involved in the stock trading process, be prepared to face its downsides too. And keep in mind that any investing process is a matter of instinct, trading method, good information and luck.
Author: Ispas Marin
