FAQ

The most frequently asked (and easily answered) questions are below. See also my Q&A Index for my video Q&A and try searching my blog using the search box in the upper-right corner.

Q: Your blog is awesome! Do you have anything to sell?
A: I do not offer any pay services. I will occasionally use Twitter (I am @GoodeTrades on Twitter) to alert my trades in real time. If you wish to support this site, I suggest using my affiliate link to buy Tim Grittani’s Trading Tickers DVD.

Q: What brokers do you use?
A: My main broker is Interactive Brokers (often shortened to IB or its ticker IBKR). The software I use at IB (what you see on all my trade recaps) is Traders Workstation or TWS. 70% of my trades are with Interactive Brokers. Their platform is great, their commissions are cheap, and fills on trades are fast. Furthermore, IB allows me to short more stocks that I want to short than any other broker, including penny stocks and OTC BB and Pink Sheet stocks. My only complaint is that Interactive Brokers has horrid customer service. My second broker is Centerpoint Securities and they are by far the best broker for shorting stocks although they have high fees. I have a small account at Etrade that I have not yet used.

Q: How much does Interactive Brokers cost?
A: Commissions are $0.005  per share. Data fees are separate. If you pay over $30 per month in commissions the fees for level 1 data feeds are waved. Otherwise that is $10 a month. I pay $2.50 per month for Pink Sheets level 1. I recommend paying $15 per month for Nasdaq Totalview, but I have Level2 through other brokers so I do not subscribe to that.

Q: But isn’t that costly to pay per share commissions? Why not use a broker that allows per-trade commissions?
A: While I pay much more in commissions on large orders than those with per-trade commission structures (such as $10 per trade at Thinkorswim), it is still cheaper for me to use a per-share commission structure, because along with that I get direct market access. Almost all brokers that have a flat-fee commission do not grant the trader direct market access. So that trade for 10,000 shares will first be matched with other orders at the broker and then be sent to the market. This means that execution will be slower. For a fast-moving stock, a delay of even a second or two can result in the stock moving a few cents. So that cheap commission may cost you a lot more than you think. Furthermore, Interactive brokers has all sorts of complex order types that other brokers do not, such as iceberg orders (the ability to hide the size of a trade), discretionary orders, and IB has a great record of getting very good, quick fills. Simply put, I would be a much worse trader with any broker other than IB.

Q: How do you scan for pre-market gainers (stocks up in pre-market trading) at Interactive Brokers?
A: See my video post on that.

Q: What is your trading setup like?
A: You can see pictures and a description of my trading computer on this post. I have IB’s TWS and booktrader up on my middle-right monitor (with Sterling Trader minimized); the Scottrade Market Movers (hod list), quote box, linked chart (1-minute or 5-minute candlesticks); two browser windows and my third brokerage’s program on my middle-left monitor; and a browser window with my email open, the TimAlerts chat, Tweetdeck, and time and sales for Interactive Brokers on my left-most monitor. Due to the high resolution of my main monitors I use Malgun Gothic 18 point font for IB TWS.

Q: Where do you scan for stocks?
A: I use Stockfetcher.com. It is only $25 per quarter and is invaluable because it is so easy to customize scans for whatever you might be searching. I wrote a post on my favorite StockFetcher scan, Scanning for Supernovae.

Q: How do we know that you aren’t making up your trades?
A: Almost all my trades are verified on Profit.ly; I post all my trades there (although at any one time I may not be up to date in my posted trades).

Q: For what stocks or volume level do you use market orders, and when do you use limit orders?
A: 95% of the time I use limit orders. If I really want a fill I will set my limit such that even if the stock moves away from me I will get filled. For example, if I want to short XXXX when it breaks $4 and it is up from $1 in two days, I will likely put my limit at $3.93 and wait until XXXX breaks below $4 and right when it does that I will send my order. That ensures that 95% of the time I will get filled; if it drops too rapidly I won’t get filled but I wouldn’t want such a bad execution anyway. On fast-moving liquid stocks where my order is not even enough to exhaust the NBBO I might use a market order. For example, I almost always use market orders when trading my “pre-leader longs” strategy.

Q: What do you mean by an illiquid stock versus a liquid stock?
A: Two factors matter for liquidity: the spread between bid and ask and the volume. A stock such as GE will have a tiny spread: as I write this it is 14.23 x 14.24.  A good example of a fairly illiquid stock is OHB, which now has a spread of 4.95 x 5.15. The spread is a cost you pay: if you want to buy immediately you have to buy at the ask and if you then go and sell at the offer you have already lost 3.9% of your investment without the stock moving! Generally if the bid/ask spread is more than 1% or 2% of the price I consider a stock illiquid. As to volume, stocks with under 200,000 shares per day I would consider illiquid, with over 1 million shares per day tending to make for liquid stocks. Going back to our example stocks, GE is trading over a billion shares a day recently. OHB will trade about 400,000 shares. This brings me to a last point: the spread on a stock will be smaller and it be more liquid if it is not moving. A stock that has moved a lot quickly will have a wider spread and it will be harder to trade it. A general rule of thumb for trades of a few hours to a couple days is to make sure your position is less than 1% of a stock’s daily volume.

Q: You sometimes talk about a stock breaking out on high volume or falling on fading volume. What do you mean by that?
A:
What matters in these cases (momentum stocks) is not the actual volume but the volume relative to the stock’s average volume. If a stock breaks out to new highs on volume that is over twice its normal volume that is usually indicative that the stock will go higher (see this chart of GGC for example). Conversely, if a stock is up big and its daily volume starts fading it may fall as all the momentum buyers will sell the stock.

Q: What software do you use to do your screencasts?
A: I used to use Jing Pro. It costs $15 per year and limits videos to 5 minutes in length, but it makes screencasting and uploading to Youtube easy. Jing Pro no longer exists and I use SnagIt.

Q: What software do you use to track your trades?
A: I track every single trade in an Excel workbook. For tax purposes I use Tradelog MTM.

Q: What is this duck that you and your blog readers sometimes refer to?
A: It is a metaphorical gift to anyone who shows insight and makes a great comment or great trade. The duck does not actually exist. Anyone who earns five ducks within a week can exercise their duck option and I will send them a rubber duck as a trophy. Reaper and the blog regulars all have the ability to confer ducks onto blog commentators. To receive the duck is a great honor.

Q: Why won’t you friend me on Facebook?
A: Nothing personal. I do not friend people unless I have met them personally and talked with them for some time. One never knows what kind of crazy people may find me online. I am still eager to chat and welcome comments on this blog and emails (as long as those do not request personalized stock advice).

Definitions

ALFSS – Aliens land far from school. Hmm, or maybe Always Look For Shares to Short. I stole this from Tim Sykes. I’ll say this on stocks with big run charts. ALFSS does not mean short with wild abandon. It means prepare to short, get your hands on shares to short, but wait until there is perfect price action before shorting.

ADR – This is the average daily range (usually over the last 10 or 30 trading days). The daily range is the high minus the low of a stock, and the ADR just takes a multi-day average. Stocks with high ADRs tend to move a lot.

Green/red (or going red on the day, going green, red/green) — This indicates that a stock is going above or below its prior day’s close. So if a stock goes green today it has just gone above yesterday’s close. If it has just gone red it has gone below yesterday’s close. Whether a stock is up or down for the day has a significant psychological influence and it can inspire fear or greed. This is most true with penny stocks which are usually traded by unsophisticated individual investors.

Penny stocks — Small-capitalization stocks trading for under $10 per share, usually under $5, that are highly speculative. Most of the penny stocks I trade are listed on the Nasdaq, although some distressed companies listed on the NYSE can trade like penny stocks.

Supernova — A penny stock that has increased by over 100% in a couple days. See my post on on how to scan for Supernovae using Stockfetcher.com. Tim Sykes originated the term supernova.

Stock Promoter (also Stock Pumper) — These people are scum. They are paid by a small company (invariably listed on the Pink Sheets or OTC BB) or its shareholders to get people to buy the stock to push it up. If you buy when they say to buy you will lose money. Sometimes the stocks they pump can be great shorts (see my article on my ALAN trade for an example). There are many stock promoters. The most famous are Beacon Equity (which also owns StockPreacher) and Jonathan Lebed.

133 comments

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  1. Andy

    Hi Michael,

    I have a couple of questions regarding borrowing fees. I observed that they are volatile and large for many stocks of interest. Does the fee change once you in the trade or is it locked in? What happens if the stock is halted?

    1. Michael Goode

      At least at IB the borrow rate can change daily — you need to keep checking it to make sure it doesn’t spike once you are in a position. If you are just holding for a couple days at most then the fees are not a big deal. If the stock gets halted then you are fucked and keep paying the borrow fee potentially indefinitely. For example, I am still short 67.hk (China Lumena New Materials, traded in Hong Kong). It has been halted now for 2 years and 10 months. Up until last September I was paying daily borrow fees — I have no clue why they stopped and I won’t ask and risk them coming back.

  2. dave

    do you use the fixed fees at IB or the tiered structure? If tiered, what market makers do you prefer for execution on NASDAQ’s given that there are different fees/rebates for taking or providing liquidity? I’m opening an IB account, I generally trade small $2500-$5000 positions and it seems like you would prefer to route to certain MM’s if you’re providing liquidity, and others if you remove it. So I’m curious as to your theory/practice behind IB’s fee structure.
    Thanks for all your content

    1. Michael Goode

      Unless you always remove liquidity (buy at offer and sell at bid) the tiered structure should be cheaper. 95% of the time I use the smart routing and that works very well. For cheap Nasdaq stocks when adding liquidity I’ll route to NSX (cheapest ECN fees). You can set smart-routing preferences for ECN fees: https://www.goodetrades.com/2016/05/get-smart-customizing-interactive-brokers-smart-routing/

  3. MP

    Do you know if IB makes you pay professional data fees ($2k+ per year) if you form an entity such as an S-Corp?

    1. Michael Goode

      By definition anyone who trades through an entity is a professional and should pay professional level data fees. This is the main reason I didn’t have any interest in trading in an entity.

      1. MP

        That’s what I thought. The only reason I would do it is to pay into social security (you need to have x quarters of contributions out of the last 10 years when you retire to get any of it), and possibly to get group health insurance — though that requires a bit of finesse.

  4. Dan Pannozzo

    Hi Michael, I’ve been reading through some your past blog posts and FAQs on your website. I was curious if you could provide me with your personal opinion/insight on a couple questions I have about IB’s TWS platform. First, from reading your FAQ section I noticed that you stated you use IB’s time and sales window (I’m assuming you still do now as that is probably an old post) my question is what is you personal opinion on using it? More specifically, do you feel the data displayed is easy to read and for the most part accurate or at least accurate enough to use as trade-able information? Personally I find it annoying that the size column seems to report a grouping of orders a lot of the time with a “+” symbol and not the size of each individual order (maybe it’s just a setting I need to change but I have not found it yet). Also for example, using a platform like DAS Trader has the T & S info print in red or green if the order is hit on the bid or the ask respectively which is valuable information to see. I was also getting annoyed from the majority of prints showing up as “Odd Lot” so I changed the settings to only display block orders and I set the block order size to “100” so odd lots don’t show up (If there is a better way to adjust these settings please let me know). Also please correct me if I wrong about any of this information. My final question is what are your personal thoughts and opinions regarding IB’s level 2 data compared to say DAS Trader again? I am aware you get your level 2 data elsewhere than IB but I’m assuming you’ve tried IB’s level 2 at some point? The reason I use Das Trader as an example is because of the option to trade IB accounts through DAS Trader Pro with a subscription. Lastly I want to thank you for the valuable information you provide on your website and the time you dedicate to helping others and answering questions. Please get back to me at you earliest convenience and again thank you for your time.

  5. Michael Goode

    I really need to update this FAQ and lots of other parts of this blog. IB’s Time and Sales isn’t a true time and sales — it displays the last price at certain time intervals (so for super-fast moving stocks it will not show some trades). Also, it color-codes trades by whether they are an uptick or downtick (not whether they are on bid or offer). I no longer use IB TWS time and sales or level 2 — I use those on DAS Trader Pro at Centerpoint Securities (my other main broker).

  6. Adam

    Hi Michael,
    Love this site… so thanks for the great info.
    I’ve been out of the markets for years and my trading style back then was a position trader holding most trades anywhere from 2 – 12 weeks.

    I want to get back into trading and I’m interested in getting closer to the markets such as day trading or shorter trading anyway.

    As I have never been a day trader can I ask your suggestions as to what advice you would give someone looking at doing the above?

    Such as:

    My account size will be 20K-30K, what broker would you suggest and what commission structure would you suggest?

    Are there any courses, dvd’s or info products you’d suggest for me to bring myself up to speed more quickly?

    Would you suggest I trade OTC’s or listed stocks?

    What trading platform would you suggest I use?

    I hope this is not to many questions… If there is any other advice you could share (I’m sure it will help others as well) I’d be grateful.

    Thanks in advance.

    Adam.

    1. Michael Goode

      Adam,

      I recommend Interactive Brokers — they have low fees and good tools. I recommend their tiered pricing. https://www.interactivebrokers.com/en/index.php?f=commission&p=stocks2

      It doesn’t matter what stocks you choose to trade but I would definitely suggest sticking to learning one or two types of trades (short overextended pumps, buy OTC breakouts) at a time and only work on learning new trades after you become consistently profitable with those 1 or two trade types.

      I would recommend Tim Sykes’ How To Make Millions (HTMM) DVD — it is reasonably priced and has a lot of good content (and all Tim’s profits from it go to his charity).

      1. Adam

        Hi Michael,
        Thanks a bunch for your reply and advice.

        Can I trade OTC’s with interactive brokers?
        Do you use Level 2 on IB’s platform?

        I noticed that you’ve posted you use Counterpoint Securities as well. Should I also use second broker?

        Can I ask why you don’t use StocksToTrade?

        Also I’ll be running everything off a single macbook pro, do you think that will be ok? Or do I need 2 laptops?

        Thanks again for all your help.

        Best regards,

        Adam

  7. Michael Goode

    You can trade OTC stocks at IB. I don’t use IB’s level 2 because I get it with Centerpoint Securities DAS Trader Pro but it works fine.

    I don’t use STT because I don’t trade based off real-time intraday scans. I’ll trade off news which I get from Acquire Media NewsEdge v8.

    One Macbook Pro would be fine although if you want an account at Centerpoint none of their trading platforms work on Macs.

    1. Adam

      Thanks Michael !

      I’ve usually traded through a company to reduce tax but I’m wondering with IB which option I would go with?

      Any ideas?

      Thanks again!

      1. Michael Goode

        I am curious how you reduce taxes by trading through a business entity — I don’t see how that would do it. Anyway, it is easy to open an account at IB for any kind of entity.

      2. Adam

        Hi Michael,
        I don’t know what the rules are in America but in Australia generally if your trading as an individual your taxed at a higher rate.

        Company tax rates are lower.

        Cheers 🙂

      3. Adam

        Hi Michael,
        I don’t know what the rules are in America but in Australia trading through a company is better for tax purposes.

        Thanks again for the help.

        Cheers 🙂

      4. Michael Goode

        Fair enough — tax rules vary dramatically by country. I don’t know what kinds of companies and how their tax treatment is in Australia so talk to someone there.

  8. luke

    How do you set up VWAP indicator on TWS? Originally I have settings:
    Standard Deviation Period 9 and Standard Deviations 1.0

    1. Michael Goode

      The vwap that TWS will let you show on a chart isn’t real vwap — it is a moving average. There is no way to get the real vwap on a chart at IB.

      1. Luke

        What trading platform would you recommend me for IB with real VWAP?

      2. Michael Goode

        I would suggest just doing without it — it isn’t that important.

  9. Adam

    Hi Michael,
    I took your advice and signed up to Interactive Brokers. Looks like one hell of a platform.

    However I am finding it a bit confusing. I am wanting to trade the following markets:

    NYSE
    NASDAQ
    NASDAQ Smallcap
    OTC BB

    However I am confused as to how to go about this. I’ve signed up to IB, funded the account and I know that if I want live data I have to sign up for it but it seems like I presently have no data, not even delayed.

    I’ve viewed their market data fees page but it’s so confusing as there is so many to choose from and I have no idea which one’s would be the best to choose.

    Are you able to point me in the right direction by any chance?

    Thanks in advance.

    Best regards,

    Adam

  10. Michael Goode

    Adam: For IB’s data I recommend (all are listed under North America) for level 1: OTC Markets ($3/month), Nasdaq (Network C) $1.50/month, NYSE (Network A) $1.50/month, Amex (Network B) $1.50/month, OPRA (if you want to trade options) (fee waived if you do over $20/month in commissions). If you also want level 2 I recommend Nasdaq Totalview-Openview ($15/month) and OTC level 2 ($15/month)

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