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 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).
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.