Stock and option trading is exploding with popularity. Whether you want to make a little extra cash on the side, or work towards a full-fledged retirement from your day job, it is easier than ever to become a trader. Below are 7 tools you need to get started!
1. Start with Education
“An investemnt in knowledge pays the best interest.” – Benjamin Franklin
Knowledge is by far the most important resource any trader needs – and the learning it never stops. Understanding the foundational knowledge of the stock market, why it works and how you profit from it is just the launching ground. Even seasoned, professional traders continue learning as a way to keep their thinking sharp and to avoid any unintentional bad habits from creeping in. Just imagine your portfolio manager telling you the last investment education they had was 15 years ago?! You might reply, “and how many years did you manage my account… not counting next year!”
Today, trading education comes in a variety of formats and can be accessed nearly instantly. After all, we are living in the information age. Here are a few trusted resources to help get you on your way:
Many people like the feel of a hard-copy book that they can dog-ear and highlight. Most books specialize on one specific area of trading, which usually work well for continuing education but can be confusing and overwhelming for a beginning trader. Below are some excellent choices from well-respected authors.
- CMT Level I 2017 An Introduction to Technical Analysis – $275
- CMT Level II 2017 Theory and Analysis – $275
- CMT Level III 2017 The Integration of Technical Analysis – $275
- Technical Analysis of the Financial Markets by Murphy – $100
- Technical Analysis Explained by Pring – $62
For quick help on a specific topic, there is a treasure trove of knowledge at your fingertips. Investopedia.com can be a quick guide as needed. The downside is, you must know exactly what you are looking for. Use search tools when looking to clarify a very specific topic. However, you will likely get very frustrated if you’re using these types of resources to design a complete trading strategy.
Online Trading Education
One of the fastest growing, most popular ways to learn is through online schools. Your online trading education should walk you from point A to Z, giving you a complete understanding of trading and a model system for trading which you can adapt and personalize. Many people like the personal feel of having an instructor. Some schools may only offer content on-demand. When searching for the Online Trading Education that will serve you best, consider schools that have a combination of on-demand content as well as live instructors. There is exceptional value to being able to show up and ask questions or request specific examples of principles being taught.
TradeSmart University was a pioneer of online trading education. Today, there is over 600 hours of on-demand content as well as live webinars 4 times weekly. Use this link for a free, all-access pass to TradeSmart.
Brokers are the bridge between you and the Stock Market. This is where you will deposit your trading cash and execute your trades. In the stock market, there is a wide range of options available to you. Beware, not all brokers are created equal! Here are a few things to consider when searching:
- Commissions – These can vary widely. Make sure you know how much it will cost you to place a trade
- Hidden Fees – Brokers love to tack on extra fees for platforms, administrative, position adjustments and more. Make sure you ask to see all fees
- Data Quality – Almost every broker will promise “live streaming data.” Be sure what you are receiving is actually “Level 2 Quotes”
- Customer Service – Make sure a human being will answer the phone when you call. If you need help closing a trade, that is NOT the time you want to be talking to a machine!
- Minimum Account Balance – Some brokers will require you to maintain a minimum balance.
Every broker is going to ask you for a social security number and financial information. It is required by law. It may help to think of signing up for your broker like signing up for a bank account. If communicating that information online makes you uncomfortable, give them a call. It will be a good chance to test their customer service as well!
Every person has to choose a broker that they like, but below is a list of brokers the majority of our TradeSmart students tend to work with.
Most of our Canadian friends tend to choose either of the following:
3. Trading Capital – CASH!
You would be surprised how many people complete their education, get their broker set up, and THEN realize they don’t have any extra cash to start trading with! The good news is, you really do not need that much money to get started. $5,000 is a good minimum. AVOID the temptation (or bad advice!) to get your trading cash as an advance on a credit card. This is risky and foolish and anybody who teaches this strategy should be removed for your circle of influence – seriously.
Here are a couple surprisingly easy ways to generate $5,000 to strat trading with:
- Sell some stuff. I have YET to meet a trader who couldn’t find $5,000 worth of stuff in their home or garage to sell – and to do it relatively painlessly!
- Pick up side work – Companies like Uber and Doorstep Delivery, have changed the way people can make some extra cash.
- Rent your stuff – Rent your house out for a weekend (AirB&B) or rent your car (Turo) and put some extra cash in your trading account
- Direct Sales – This isn’t your grandmother’s Avon industry anymore! Direct Sales today have exceptional products, training and opportunity
Use this link to download a short video that might just be the paradigm shift you need to change your financial future.
4. Charting & Analysis Software
Trading has come a long way from the days when Charles Dow plotted price graphs on a chalkboard and used a straight edge for analysis! With the click of a couple buttons, traders can now analyze a chart with traditional support & resistance drawing tools. Or, if you prefer to let the computer do the work, many platforms today use artificial intelligence to assist you in your analysis and understanding of the price graph.
There are some free resources available like StockCharts.com. Free charting is decent while you are learning the basics of trading, but you should not expect to compete in a professional environment using these types of tools. There are simply too many other resources that offer an advantage to those who use them.
The range of premium tools is wide – from $60,000 annually to $169 monthly. Ultimately, the ends must justify the means. If you have a very large trading account that can justify an annual expense of $60,000 for a slight additional edge, you may want to investigate a software called VantagePoint. If your account is a modest $5,000 it makes much more sense to start with a software like TradeLyon.com.
Here are a few things to look for when choosing your software:
- Simple – If you feel like you’re flying a space shuttle… it’s not going to help you make money!
- Powerful – Capability should not be sacrificed on the altar of Simplicity. Demand both.
- Back Testing – It’s foolish to think of trading a strategy that has no track record. Therefore, you either test it for several weeks in real-time through virtual trading or use a tool like Back Testing to get instant feedback.
- Scanner – Traders are at a significant disadvantage if they can not scan for trades that match their personal strategy. There are over 7,000 stocks and ETFs available to trade. A scanner should bring back the very best candidates
- Customizable – You should be able to design your OWN scans and Indicators. This will be helpful as you advance.
- Education – How easy is it to learn the software?
- Continuity – If you have chosen an Online Education provider, consider using the same tool as your instructors. The official Trading Platform of TradeSmart University is TradeLyon.com.
Believe it or not, the stock exchanges do not give out their data for free! In fact, it is a huge revenue generator for them. So, you may have the most powerful Charting & Analysis software in the world, but without great data, it’s worthless. Literally.
As with any free market, some data providers compete on quality, some compete on speed, and some compete on price. Simply stated – you get what you pay for. Free data is typically delayed and/or inaccurate. This can be detrimental to your trading and should be taken very seriously.
If your broker or charting software is giving you “Free” data, check to see if you can upgrade to premium data. Some Charting & Analysis software build data fees into the monthly fee to keep things simple for their customers. For example, TradeLyon.com has a single monthly fee, which includes all data charges. The data provider is Genesis Financial Technologies – one of the leaders in the data industry for over 22 years.
If you are in doubt about your data, pick up the phone and ask. It is a very important issue that many traders misunderstand.
6. Market Research & Briefings
A reputable market briefing can save you many hours of analysis and give you deep insights into the market. It will force you to keep an open mind and consider alternative opinions. There are a variety of Research tools. A few that cater to beginner-intermediate traders are:
- Bespoke – $33 to $166 monthly
- Sentiment Trader – $400 annually
- The American Association of Individual Investors – $29 Annually
- TradeSmart University – Weekly market briefing included with all memberships
Beware of scams. Let me reiterate… BEWARE OF SCAMS!
How do you tell if your market research is a scam? If it is free, it is likely a scam. Many traders have gone broke (some multiple times!) falsely believing the free email they received with a hot stock tip. If it’s an “honorable” scam, they will typically disclose in fine print that they received a commission to market that particular stock. It is not based on any type of credible analysis or insights. If they are complete scoundrels, they will not offer any disclosures and will simply evaporate into cyberspace.
To be safe, stick with one of the services listed above until you learn to spot the difference between fact and fiction.
7. Bonus: Journal
Champions learn from the past, train for the future, and execute flawlessly in the present. A good trading journal should help you accomplish all three. Some traders keep an Excel spreadsheet, but there is exceptional value in writing your trades by hand. Try it for a month and see if it makes a difference!
Here are a few of our favorite tools for a trading journal:
- Official TradeSmart Journal – Free
- Bracket Trading Journal – Free
- Circa Notebooks by Levenger – $20 – $100
- Evernote – App
- Google Docs
- Use an Old Checkbook Register
Trading is a great activity, a great career, and can be a financially lucrative past time. However, like any field, if you’re not setup with the right tools you are stacking the deck against yourself. These 7 tools are essential to have if you’re going to be a great trader.