Free Online Stock Trading – Or Not?

This week I’ve seen two organizations offering free online stock trading. On CNBC, the group at Zecco was profiled Monday, and Bank of America today. You’ve got to wonder, how can they do this? Is it really the smart way to go when trading? If you’re serious about the stock market, I think you’ll find that there’s really no free lunch when you’re talking trading and execution.

Now, I’m not going to knock these two systems, as I don’t know what they specifically offer. I will though, offer a few advantages to using a direct access system with multiple routes for your trades.

Speed of execution is one advantage of using a direct access broker. Most web-based trading platforms require you to manually enter your symbol, price, the number of shares, etc. Direct access allows you to click on the symbol, share amount, charts, and individual ECN routes. In a fast moving stock, this is crucial. When you’re competing against other traders who may see the same setup, you’re at a disadvantage already by having to manually enter your trades. Using ARCA – Archipelago, is probably the fastest way to get your order executed. There is a small fee equal to about .30/100 shares, on average, but a few quicker executions can make this up in no time flat.

Multiple ECN routes allow the direct access trader to choose the route of the trade. What happens if you’re free web-based broker goes down when you’re in a trade? If you’re trying to make an exit, having multiple options is an advantage.

Is your cash swept into some money market based account when you aren’t trading? Compare the yields to make sure you’re money is making interest when you’re not in a trade.

When you shop around for a broker, ask yourself what your priorities are. For the individual who makes infrequent moves in the market, a free online stock trading option may work best. For those traders with serious intention, direct access trading platforms are a must have.

How To Use Multiple Time Frames To Improve Your Online Stock Trading

Yesterday, I mentioned that in evaluating the potential trade in QSII, I looked at the 60-minute, daily, and 15-minute time frames to help make my buy decision. For every trade, I believe it’s important to not just look at a few charts, but 5 charts of the same stock which include:

  • 1 or 2-minute candlestick chart
  • 5-minute candlestick chart
  • 15-minute candlestick chart
  • 60-minute candlestick chart
  • Daily candlestick chart

I find doing this so beneficial, I devote a single monitor for it.

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When you watch multiple time frames,, you’re getting the big picture of the stock or equity you’re trading online. It’s similar to buying a car. Before you drive off, you kick the tires, check the seating, estimate the gas mileage, and make sure it’s the color you want. So why just look at a daily chart, or a daily chart and 5-minute chart? A few benefits of monitoring a larger range of times include:

  • Having more opportunities for trading patterns to emerge
  • Easier to establish trends (ex. the daily chart may be neutral, so that uptrend you spotted on the 5-minute chart may stall easier)
  • Longer time frames can be used to set stops (less noise or volatility)
  • Shorter time frames can be used to manage stops near resistance areas
  • Stops and targets are easier to determine

During those whippy markets, finding a stock that’s trending can be difficult. Instead of entering on a 5-minute buy signal, and risk getting stopped out quickly, the 15-minute chart could be used. Or, let’s say you see a high probability pattern emerge and, decide to enter with a tight R. You can, by utilizing the 1-minute, or 5 minute charts. It really opens up your available trading setups.

Online stock trading is difficult enough. Using more than one or two charts to watch a singe stock adds to that discipline we all use in trading.