Stock Market Trading Tools

• Spreadsheets

  Use spreadsheets to create a trading log. Good traders know how much of their available capital they will risk on any one trade, what entry points and exit points to look for, and what their stop or limit losses will be. A spreadsheet for every trade with this information is a valuable resource to avoid second-guessing your system and eliminating the drama. Information should include buy and sell dates and prices, stop loss, amount of maximum loss allowed per trade, amount of gain or loss upon closing the trade, and the number of consecutive gains or losses for the strategy. Over time, the log becomes an informative diary of mistakes and successes.

• Moving Averages

  Technical traders use several mathematically derived tools, but foremost is the moving average. A moving average is simply the average of the past number of days being tracked. For example, a 50-day moving average will contain 50 days of closing-price data, and a 200-day moving average will contain the most recent 200 days of closing price. Traders buy stock when the shorter average (the 50-day average) exceeds the price of the longer average (the 200-day average). The stock is sold when the long-term price later exceeds the short-term price. Traders must use caution regarding the type of market in which they are trading. The best results come when the broader market is rising.

• Practice

  Learn to trade by reading the many styles and contrasting methods that are used. Many books are available from libraries, and recommendations for new books can be found on trading websites and through news media. It's also important to use free data sources and test your trading theories (see Resources). Good trading occurs through practice. Use the data tools to examine how much risk per trade you are comfortable trading, and use data from bull, bear and trend-less markets to thoroughly develop your strategy. Most traders lose money, so it is important for you to make many mistakes and learn about your trading skills before investing real money.

• Trading Oscillators

  Fundamental stock analysis uses balance sheet data and macro-economic data to develop a long-term view of a stock and predict how it will perform in the expected economic circumstances. Technical stock analysis uses price and volume statistics to show whether a stock is rising or falling and receiving or losing institutional buying support. One of the most important technical tools is the oscillator, which is created by traders to determine whether they are in an up or down trend. Oscillators are formed by comparing the ratio of two or more moving averages. For example, the 50-day moving average is divided by the 200-day average. Short-term day traders might employ a 9- and 21-minute comparative oscillator. Intermediate traders use a 9-day and 26-day moving average. A value greater than one normally indicates a bull trend, and a negative value indicates a bear market. Traders then can apply their strategies accordingly.

References & Resources

• Catalogue of Investing Tools
• Historical Quotes Available for Free
• Yahoo! Stock Screener
• Value Line Investment Survey (subscription)