Monday, October 24, 2005
New Brain Boosters
NO MATTER WHAT YOUR TRADING OUTLOOK IS, you’re probably looking for new ideas. Here are a few sources to help you do just that.
MarketWise Trading School, which offers a variety of trading resources on its Website (http://www.marketwise.com), as well as a number of in-person training sessions, recently rolled out the MarketWise Profiler, a broker-neutral stock-screening program.
The Profiler has four pieces intended to generate trading ideas. The opening screen features the top 10 bullish, bearish, neutral and volatile stocks. Clicking on a symbol brings up a candlestick chart that displays three moving averages, along with the trading stage for the stock: The stages are broken into 12 categories, from Early Accumulation to Strong Markup, all the way to Weakening Decline.
The second piece of the Profiler is the Advanced Screener, which lets you look at stocks based on daily or weekly closing prices. You can choose the stage the stock is in, along with the current price range, average daily volume, and number of weeks the stock has been categorized in its current stage. For example, when we looked for stocks in the Mid-Accumulation stage priced below $30 per share with more than 50,000 shares changing hands daily, the Profiler located 417 ticker symbols (out of 6,500 possible.)
The third part of the Profiler displays trades generated by MarketWise’s trading system. There are two pieces to this one: breakout long trades, and breakout short trades (breakouts are when the current price pops above a moving average). Clicking on the Long or Short button brings up a list of current open orders and positions for that particular trading system, plus a list of trades generated by the system in the past.
The performance numbers are based on the assumption of a $10,000 commitment per trade, with strict adherence to “Stop Loss,” “Trailing Stop,” and “50% Reduction in Position Size when Target Hit” management techniques. In addition, if during the trading day the price of the stock moves 3% or more from the entry price or opening price, the trailing stop for the day is moved to 1% from the entry or opening price.
The Trade Planner comprises Profiler’s fourth piece. After filling in boxes for the stock symbol, stop-loss and target prices or percentages, plus planned trade size or dollar volume of the potential trade, the Planner tells you how much you could make—or lose—on this particular trade should it go according to your target (or stop-loss) profile. It also lists the daily and weekly stages the stock currently occupies.
The forms to fill in on-screen for the Profiler’s various features aren’t attractive, and are a bit confusing. For instance, after you fill in all the appropriate boxes, you have to go back to the top of the screen to click on the “Submit” button in order to get a report. This just seems clumsy. The Profiler covers 6,500 of the New York Stock Exchange and Nasdaq stocks. The data presented, however, are timely and interesting, and could well spark profitable trading ideas. The Profiler will set you back $49.95 per month, or $499.95 per year. At that price, I’d like to see the screens prettied up and made more user-friendly.
OVER AT OPTIONSXPRESS (http://www.optionsxpress.com), customers can get an idea of what their cohorts are doing with a new feature called Trading Patterns. Once a customer is logged in to the account and viewing a Detailed Quote screen for a company, a click on the Trading Patterns link brings up a list of other stocks or options being traded by fellow optionsXpress customers who hold positions in the company under view.
David Kalt, optionsXpress’ CEO, likens this feature to the Amazon.com comparative-shopping screen, which shows you books, music or DVDs that other buyers have picked up in addition to the one you’re considering.
Kalt contends that stocks, like other online products, have personalities, which can be applied when people are looking for ideas. “As you find stocks that you have invested in, the idea that you could use that info to find other, similarly behaving stocks, regardless of scientific status, is a great way to screen,” Kalt says.
For example, people who traded Netflix (ticker: NFLX) also traded Apple Computer (AAPL) and a couple of energy stocks. These stocks have little in common other than volatility. The idea is to introduce customers to securities they might not otherwise have found, and then encourage them to do additional research. The indicators are not directional or meant to be advice; they’re just a way of developing community at a brokerage while sharing ideas anonymously.
According to Kalt, there is a correlation between this feature and the Most Actives and Price/Percentage gainers. But as he’s played around with it, he thinks there are nuggets in a lot of these Trading Patterns that wouldn’t turn up otherwise. “It will pick up some outlying trends for people looking for trading ideas,” he says. The feature is free to optionsXpress customers.
TRADESTATION (http://www.tradestation.com), which offers a software platform for developing a trading system, recently announced it was lowering the qualifications needed for free access to its tools. TradeStation enables users to design, back-test and optimize custom equities, options, futures and forex-trading strategies with its powerful technical analysis and charting application.
To avoid the platform access fee of $99.95 per month, you still need a $1 million account. But now you have to trade 25,000 shares of stock, 100 options contracts, 50 futures contracts or 25 round-turn forex lots per calendar month to qualify. That’s down significantly from the previous requirement to trade 250,000 shares of stock, 2,500 options contracts, 500 futures contracts or 500 round-turn forex lots.
TradeStation’s platform has been updated to version 8.1. Co-CEO Bill Cruz demonstrated the enhancements to the platform during TradeStation World last month, a conference dedicated to users. In addition to the pricing changes, Cruz said TradeStation’s tick-by-tick database was being expanded from one month to six months, and that third-party data could be added using a formatting wizard. The data enhancement lets users import international data from other providers, and use those data in their trading models. There also are additional enhancements to the futures-trading features.
Version 9 will include additional forex capability when it rolls out in the spring, and will also feature enhancements to the company’s options-analysis program, OptionStation. The upcoming version will be able to test multiple strategies against an entire portfolio of stocks, and will provide detailed analysis on the backtests. This enhancement will allow users to perform backtests in a tabular format, rather than in a chart. Users will be able to automate an entire strategy plan from the portfolio-analysis window, rather than having to deal with a half-dozen program features.
I attended six sessions at TradeStation World, and was impressed with the depth of knowledge and the passion for trading apparent among users. Granted, only the most rabid users would take the time for a three-day conference, but it was an extremely well-run event, with numerous worthwhile speakers.
Published in Barron’s, October 24, 2005
Monday, October 10, 2005
Online Hand-Holding
EVEN DAY TRADERS SHOULD HAVE A STABLE of longer-term investments. With the burgeoning of exchange-traded funds, which let an investor trade entire portfolios of stocks in a single transaction while avoiding many of the pitfalls of mutual funds, several services have been created that provide advice and guidance for long-term investors for far less than traditional brokers charge.
ETFs are a good way to tap into a particular market or sector. For example, a share of the Nasdaq 100 Trust (ticker: QQQQ), gives the holder a fraction of a share of each of the 100 stocks that make up that index. And they’re an efficient way to invest overseas. Indeed, the ishares MSCI EAFE Fund is the third-biggest ETF, after the S&P 500 Index (SPY) Spyders and QQQQs.
You can make regular purchases of ETFs in your usual online brokerage account, whether it’s a taxable account or your IRA. You’ll be subject to the normal stock commission, and end up figuring out the proper balance of investments on your own.
Two companies offer an alternative to that conventional approach: ShareBuilder’s PortfolioBuilder (http://www.sharebuilder.com) and Amerivest (http://www.amerivest.com), a unit of Ameritrade. Both offer investing advice, a departure from the usual online broker tack of handing you the tools to construct your own portfolio.
ShareBuilder, which started out using the name NetStock, has built a business through partnerships with banks, credit unions and large employers that has made it a nearly ubiquitous presence. The firm offers an advisory tool for its customers called PortfolioBuilder Plus. Based on the customer’s responses to a series of questions, such as views about risk, time frame for the investment, and how much money is available for investing, PortfolioBuilder Plus recommends a set of ETFs. ShareBuilder customers can also purchase stocks in dollar amounts, rather than on a share basis, if they choose. For instance, you can pick up $100 per month of Google (GOOG) stock.
After the program determined that my risk level was “Moderate,” I told it that my target was retirement income more than 10 years from now, and that I had $250 a month to put away. PortfolioBuilder Plus then recommended that I put $62 into the Lehman Aggregate Bond Fund (AGG) and $188 into Spyders. Doing this would cost $8 a month if I’d signed up for the Basic Plan, which lets you make investments at $4 per transaction. Alternatives are the Standard Plan, which costs $12 per month for up to six automatic investments, or the Advantage Plan at $20 a month for up to 20 automatic investments. Note that an $8 fee equals 3.2% of the monthly target investment of $250, nearly as much as the load on the typical broker-sold mutual fund. But of course that percentage would shrink with bigger purchases.
You must open a ShareBuilder account, even if it’s not funded, to check out the PortfolioBuilder recommendations. Amerivest, however, lets you use its tool without having an account yet open. Its recommendations, given a similar scenario to the one I painted for ShareBuilder, were very different. Amerivest’s initial recommendation: Invest a large lump sum immediately that is likely to give you the results you want at your target date; if you’re not able to put that amount away today, it tells you how much you’ll need to invest annually to get there.
The Amerivest questionnaire also determined that my risk level is “Moderate,” yet the portfolio it recommended was considerably more detailed than ShareBuilder’s. It recommended seven ETFs to buy now, ranging from domestic and international-stock funds to two Treasury-bond funds.
Rather than charging per transaction, Amerivest hits you for a percentage of your total account value. (You can make as many transactions as you want to rebalance your account.) The annual fee for accounts of $100,000 or more is 0.35%; for $20,000 to $99,999, it’s 0.50%, while accounts below $20,000 are charged the lesser of $100 or 2.95%. Amerivest requires customers to keep at least $300 in cash in the account, and it collects its fee every quarter.
Amerivest recommended that I purchase seven different ETFs per month. Assuming I started out with $50,000 in the account, and added $500 a month, I would end up paying approximately $270 in fees the first year, on top of the expense ratios of the ETFs. I’d pay $240 (0.48%) per year at ShareBuilder for the same sort of transactions, although I might run into additional charges if I did some extensive rebalancing.
Strangely enough, it appears that Amerivest is a better deal for the smaller portfolios, since the maximum yearly charge for accounts under $20,000 is $100. And the Amerivest site looks like a technological achievement, compared with ShareBuilder’s. The graphics are more compelling, and the reports are beautifully formatted.
If you regularly invest in small, discrete amounts, and you want to follow the advice proffered by ShareBuilder, you’d be better off buying equivalent low-cost, no-load index mutual funds, such as the Vanguard Total Bond Market Index (VBMFX) and Vanguard 500 Index (VFINX) funds. Although you’d need $3,000 to open an account and you’d have to add at least $100 at a time to each, you wouldn’t have to pay transaction fees; their expense ratios also are just 0.18% to 0.20%. (Vanguard index funds with balances under $10,000 are subject to an annual $10 maintenance fee.) Fidelity’s suite of index funds are even cheaper (0.10% expense ratio), but require higher minimums.
Online Broker News
E*TRADE FINANCIAL (ET) RECENTLY PICKED UP low-cost broker BrownCo from J.P. Morgan Chase, and will fold BrownCo’s 200,000 active traders and nearly $30 billion in assets into its online brokerage unit. BrownCo’s account holders have tended to keep very fat balances—$145,000, the second-highest in the industry, according to E*Trade.
Based on comments that have hit the Electronic Investor’s mailbox, many Brown customers aren’t happy about the coming changes. Unlike Harrisdirect clients, who also will be absorbed into E*Trade, Brown customers face significantly higher fees—unless they vote with their feet and leave.
Andrew Fishman, president of the Schonfeld Group (http://www.schonfeld.com), which caters to active traders, sees E*Trade and Ameritrade continuing to leverage operational and technological economies of scale by adding more accounts via acquisition. But Fishman wonders how the two firms will continue to expand once the industry’s consolidation has run its course.
Separately, Charles Schwab eliminated fees that were driving customers away. Effective Oct. 1, Schwab will no longer charge low-balance account holders a maintenance fee, which had cost those with account balances under $25,000 from $120 to $180 a year. Schwab also announced that it would no longer charge low-balance customers an “order-handling fee” of $3 per equity trade.
Fidelity followed suit by eliminating the $50 annual fee it had been charging clients with less than $25,000 in their accounts. This cut came on the heels of major cuts to options-pricing, implemented in May.
Barron’s readers have long complained about hidden fees and account-maintenance charges. Schwab apparently realized that nickel-and-diming customers isn’t the way to keep them around.
Published in Barron’s October 10, 2005
Monday, September 12, 2005
Dealing With Disasters
IS THERE ANY WAY TO PREPARE your finances for the possibility of a disaster on the order of Hurricane Katrina? If you trade or bank online, or use a computer to track financial matters, you might want to think seriously about creating a disaster plan for your computer-based records—now—because information about brokerage and bank accounts, insurance policies and the like can get lost, along with personal effects. Yet most computer-users don’t get religious about creating backups until they lose some important files.
While backing up data used to be a somewhat onerous task, especially back in the day of the old 5¼-inch floppy disks, it now just takes some foresight.
If your computer has a DVD burner, you can quickly copy four to 8.5 gigabytes of data (including photos, e-mails, bookmarks, financial records, and more) onto a DVD.
You can also install a second hard disk in your computer relatively quickly, especially if you opt for an external drive, and just copy the entire contents of your computer’s primary drive onto that one.
One problem with planning what you’ll back up is the way most computers intermix data with program files on your computer’s hard disk. You can be vigilant and keep data separate from program files, and back up the data frequently, but frankly that takes more computer know-how than most people have. Plus there are some programs that crash if you don’t use their default data location.
Physical backups are great if, for instance, your computer gets a virus, or the main hard drive just plain crashes. But what if your house burns down or gets flooded? If you have an external hard drive, which typically is the size of a book, you could grab it and take it with you. If you had two internal hard drives in your computer, however, they would both be ruined simultaneously in the event of a disaster.
I’ve taken to using a Google e-mail (mail.google.com) account for backing up my more frequently changed files, by compressing an entire folder into a .ZIP file and mailing it to myself. This works great for things like my word-processing folders and my personal-finance data files. It’s cheap—free, actually—but it’s a little time-consuming. Plus there’s a limit of about 2.6 gigabytes (but growing daily) that I can store in one Google e-mail account. You can then access such files from any computer, via your Web-based e-mail.
You also can subscribe to online services that allow you to back up your data over an Internet connection to a computer located somewhere distant, so if disaster strikes your hometown, your files are safe.
The online-storage alternatives can automatically back up the files you designate to a remote location. These are handy, because once you set up the schedule, and keep your Internet connection up and running, the backups are automatic. You could, for instance, tell the service to back up the files you want at 2 a.m. every day. But don’t even consider using one of these unless you have a high-speed Internet connection. Initial backups of a couple of gigabytes can take six to 10 hours, even over a high-speed connection; I don’t even want to think about how long that would take over dial-up.
Windows users have a variety of online-backup choices. One of the more popular is Connected DataProtector (http://onlinebackup.connected.com), which is very easy to set up and use. First, you install a program called the DataProtector Agent on your computer. Run the program, and while following the prompts, tell it which folders and files you want backed up. The Agent will automatically do the backups at a specified time each day; it looks for files that have been created or changed since your last backup, and avoids storing duplicates.
Connected’s services include the ability to “roll back” your computer to a previous backup. Or you can have the service send you CDs with all your data, in case the computer you’ve been using is completely disabled. You’ll pay $165 per year to keep 2 gigabytes of data backed up; other plans that range from $80 to $800 a year for up to 30 gigabytes of data are available.
IBackup (http://www.ibackup.com) has backup plans for Macs and Linux-based computers, as well as those running Windows. This service is far more flexible than Connected’s, but the unfamiliar interface and multiplicity of options might take getting used to. be using the computer for a while. (You can perform most functions on your computer while the backup is running, but it will run much more slowly than usual.)
Another good insurance policy is to have more than one online-brokerage account, for those times when you can’t get through to one of your brokers, and a backup Internet access provider, for when your main connection goes haywire. Also, if you’ve got a high-speed Internet connection, it’s still a good idea to have dial-up access available, just in case.
Based on how we stretch PCs to their limits sometimes—say, during our annual review of online brokers—it’s not a bad idea to have more than one PC. Given that you can get a basic, if unexceptional, desktop for as little as $299, it’s inexpensive insurance if you’re actively trading a significant portfolio. Or with laptops going for as little as $500, one could serve as a backup if your main desktop fails or if you need to relocate on short notice.
Clarification: In our Aug. 29 column, “Read All About It,” we took a shortcut and referred to RealTick as an online broker, which is not an adequate description. RealTick is an independent market-data, analytics and direct-access trading platform—available globally through a variety of institutional and retail brokers. Through the RealTick interface, users can also route trades to multiple brokers. Many financial institutions offer customers RealTick in conjunction with other electronic-trading platforms.
Online Broker News: Schonfeld Group, a proprietary and retail trading and investment firm, has acquired the Electronic Trading Group, further consolidating the high-end active-trader market. The Schonfeld Group historically has served traders who use their offices, rather than traders who work remotely. This acquisition extends the firm’s presence in the remote-trading business.
The numbers are huge at this end of the business. ETG’s proprietary traders and retail-trading customers trade on average 5 million shares a day, one-third of which are traded remotely. Schonfeld Group trades approximately 140 to 150 million shares per day, or 2% to 4% of all listed and OTC volume. Once the deal is done, Schonfeld will be home to approximately 1,200 active traders, nearly half of whom are retail.
Published in Barron’s September 12, 2005
