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Updated on Thursday, December 17, 2020
Stock trading generally is considered a short-term approach to investing. Successful stock traders can make outsize profits, but there is a lot of risk involved as well. Taking advantage of tools designed to help traders analyze potential investments can minimize risk and provide an edge in earning profits.
Here is a look at six common types of trading and analysis tools that a shrewd investor may want at their disposal to guide them in their trading decisions.
Analytical tools for stock trading
These tools can help you analyze markets, trends and further data to help you make stock trading decisions.
1. Research sites
Traders often turn to research to help them make buying and selling decisions. Research encompasses the analysis of data, whether quantitative or qualitative, to help drive informed decisions about future events in the markets.
There are a number of online resources that provide detailed research and analysis for an audience of traders and investors:
- Morningstar is full of analytical tools for stocks, mutual funds and exchange-traded funds (ETFs). For individual stocks, the site offers a number of tools and analysis, including analyst reports, robust charting tools, a rating system for stocks and the calculation of a stock’s moat (which is a ranking of the company’s competitive advantage over rivals or the lack thereof). Some of the tools are free, while others might come as part of Morningstar’s subscription service. Beyond its main site, the company offers a wide array of products and tools that are geared toward both financial professionals and individual investors and go well beyond individual stock research.
- Zacks Investment Research offers a number of tools for individual stock analysis, including a robust screening tool that allows investors to screen for stocks meeting a variety of criteria. Zacks also includes research from in-house analysts, proprietary rankings for stocks and a full set of earnings releases and screens. Many of the tools from Zacks are free to use, although some, such as its earnings surprise prediction (ESP) filter, require a premium subscription.
- Many brokerage firms also offer robust analytical tools to research stocks. Schwab, Fidelity, TD Ameritrade and Vanguard all offer research and data on a variety of stocks at various levels. Some of the tools might require you to have an account or at least register on the site.
Charting is a way to look at trends in a stock’s price over periods of time. That might be as short as a day or a few weeks for active traders or as long as years or decades. The best charts allow investors to compare the price of a stock over time against market indexes like the S&P 500, the Dow Jones Industrial Average and others.
Additionally, many of the better charting tools allow investors to track stocks against moving averages of their prices over periods of time. The 50-day and 200-day moving averages are popular technical analysis tools. If the price of a stock is trending above or below its moving average, it might be a buy or sell signal for traders.
Many brokers offer charting tools to customers to help them analyze and track movements in securities.
A number of financial sites offer free charting as well:
- Yahoo Finance is known for its robust charts. Additionally, the site allows investors to link to their portfolios at brokers and custodians to access the other tools on the site, which include screening tools for stocks and other types of investments. It also offers a robust news feed from a variety of financial sites on a range of market-moving topics.
- BigCharts is a site owned by MarketWatch that offers a variety of charting tools with filters for a large number of indicators, styles and performance comparisons to indexes.
- Finviz offers charting in a number of styles, such as line, candlestick and OHLC. Users that subscribe to the Elite product can gain access to real-time pricing on intraday, daily, weekly and monthly time frames. Those with Elite also can use advanced charting features that include overlays, drawing tools and performance comparison charts.
These services will come in handy when it’s time to actually make your stock trades.
3. Margin loans
Margin loans allow you to borrow against securities already owned in your portfolio. The money can be used for any number of purposes, including to finance the purchase of additional stocks for your portfolio, whether those stocks are part of a short-term trading strategy or a longer-term holding.
Margin loans offer flexibility, but the interest rates on margin loans often are higher than the interest rates on other personal loans. You certainly would not want to have a margin loan outstanding for a long period of time.
There are risks to borrowing against your portfolio. If the value of the securities that were borrowed against decline in value, you could be forced to liquidate some holdings to cover a margin call on your outstanding loan.
4. Advanced order types
You probably will want to choose a broker that offers a variety of order types from which to execute trades. All brokers generally offer the basics, such as a market order, a stop order, a stop-limit order and other order types.
Depending on your holding period and trading objectives, you might need more advanced orders, such as:
- Trailing stop orders that move up in price when the stock gains in value
- Conditional orders that allow you to set a condition that triggers a sale of the stock (conditions can be based upon the movement of the stock held, options or market benchmarks)
- Short selling, which allows traders to profit on downward moves in a stock
5. Robust trading platforms
Using a robust trading platform — like those offered by a number of major brokerage firms, such as TD Ameritrade and Fidelity — can pay off for investors. These platforms go beyond the basics of allowing traders to buy and sell shares; they offer tools that allow traders to take it to the next level in terms of analysis and the ease of making trades.
TD Ameritrade offers four versions of its online trading platform, including:
- Its basic online platform
- Thinkorswim, which is its most advanced platform geared toward “serious traders,” according to the TD Ameritrade site
- Two versions of its trading platform via mobile
TD Ameritrade offers trading accessibility on a 24/5 basis, meaning trades can be placed on a 24-hour basis Monday through Friday. It also offers 60 days of commission-free trades and a bonus of up to $600 for new accounts that meet certain conditions as of the date of publishing.
Fidelity offers a platform that touts a number of features as well, including:
- Streaming market data
- Advanced trading tools and order types
- Portfolio management tools
Whether you use TD Ameritrade, Fidelity or another brokerage, it is best to look for a trading platform that meets your needs as a trader. Whether this entails research, the ability to simulate trades, advanced order types or other tools, choose the broker that comes closest to offering what you need as a trader.
6. Trading simulators
Trading simulation tools allow investors to review the impact of trades or other investment decisions in a virtual environment before executing the trades with real money.
There are a number of stock simulators available, including several at major financial sites:
Several major brokerage firms also offer simulation tools that traders can use to test their ideas, including:
For brokerage firms, offering a robust trade simulation tool serves a dual purpose. It’s a way to help educate traders, and it offers a means for the broker to show off its capabilities. For investors looking for a more personalized experience, a dedicated financial advisor may be the solution to help achieve your investing goals and reach financial freedom.