How To Start Investing: How to trade in an IRA vs Brokerage Account

How To Start Investing: How to trade in an IRA vs Brokerage Account

IRA vs Brokerage Account

The other day as I was flipping through my Twitter feed I came across a tweet from @alphatrends (great guy to follow for trade ideas and general knowledge) that made me stop and think about how I had structured my investments in my portfolios. I have two accounts (three if you count my crypto account), one is my IRA, where I am of course, saving for my retirement. The other is a regular brokerage account where I can pull money out if I needed, but still trade and grow the account more then say, a savings account. 

The way I have been trading/investing to date is mostly swing trades/day trades. However, I do have a couple of long term holds (Dividend ETFs) that I plan to just add and let grow in my IRA. My brokerage account is smaller than my IRA at the moment, and I only swing trade in that account. 

This made sense to me. I hold my long term investments in my IRA, since I am not touching that for 25-30 years, and my short term investments in my brokerage account since I hope to have easy access and pull money from it when needed. Makes sense, right? At least to me it did.

 

Tweet from @alphatrends

@alphatrends on Twitter

The tweet I read flipped that whole idea upside down. One of the main benefits of having an IRA is that your taxes are deferred until you withdraw (hopefully not until you’re retired). Which means that you don’t have to worry as much about holding investments over a year to avoid capital gains taxes. That would lend itself to be used better as a swing trading account. 

My brokerage account on the other hand is not a tax deferred account. I will be taxed on every transaction I profit from at either the capital gains rate or the long term investment rate. Since the long term investment rate is lower, it would make more sense to have my brokerage account setup to hold mostly long term holdings. 

Mind blown…I have been doing this wrong. But I also can’t believe I didn’t think of it sooner. So thank you to @AlphaTrends for bringing up this good point. 

So as of this month I am starting to reallocate some of my investments. I will shift my brokerage account to more low cost ETFs, Bonds, and maybe a couple of individual stocks I want to hold longer term. In my IRA I will start to focus more on swing trades, while maintaining some longer holds as well.

Taxes are often the most overlooked aspect of investing and trading for newbies. It’s something that I have been learning more about in the past year. My investment journey is still relatively young, so making changes now will have a huge impact 20-30 years down the road. 

Hope this helps some of you think about how you have allocated your own investments. Remember, do your own research. Good luck!

Investing Q&A of the Day: Bull vs. Bears?

Investing Q&A of the Day: Bull vs. Bears?

The Beginner Trader

Bulls vs Bears

Even if you’ve never invested a penny in your life, you have likely heard the term “bullish” being used in regards to not only stocks, but any number of other subjects. For example, you may be bullish about your favorite team’s chances of winning a championship. Meaning, you think the chances are good. Being “bearish” mean the exact opposite. 

If you’ve never heard the term and are unclear about how it applies to the stock market, continue reading for a quick overview. 

Bull Market vs. Bear Market

One of the factors to take into consideration when looking for a trade is determine whether we are currently in a bull or bear market. Simply put, is the stock market going up, or going down. If the stock market is generally trending up for an extended period of time, we may be in a bull market. The exact opposite if true of a bear market.

This could be taken into account as a daily status, “are stocks generally  up, or down today?” to help you decide how much risk is involved in a particular trade. It’s true definition however would be if the stock market is trading above or below its 200 day moving average. 

You can look this up easily using your favorite charting software. If you don’t have charting software you like to use or have not used any before, you can use the free versions at www.StockCharts.com or www.Tradingview.com. 

Chart Bear Market

Bear Market Signal

In these images I will use a very recent, real world example. When Covid 19 began to wreak havoc on the economy we saw the stock market take a dive. Near the end of February 2020, the S&P 500 index closed below it’s 200 day moving average, the red line. This is a confirmation that the stock market is in decline. Further confirmed when the blue line (50 day moving average) also crossed below the 200ma. That is know as a “death cross” and people start to panic, and selling intensifies. You can see that play out in the larger red candle in mid-March. 

You will also hear folks on CNBC and twitter say that a bear market has begun when stocks fall 20% from recent highs. That can also be a signal to proceed with caution.

 

Chart - Bull Market

Bull Market Signal

Two months after the signal of the start of the bear market, we got the opposite signal. The first candle to reclaim the 200MA happened on April 18, 2020. It did slip slightly below it on the next day, but stocks continued to rise after that. The 50MA then crossed the 200MA in June, and stocks have generally continued in an uptrend since. 

Why does it matter to us?

If we are in a bear market that doesn’t mean we can’t buy stocks. In fact, just the opposite may be true. It may be a good time to find value stocks, or in the case of Covid, look for stocks that are likely to have a turn around once we find a vaccine. It does mean however, that we have to be cautious. Maybe be more patient, wait for opportunities, and try to scale in to a position rather than dump all your money into a stock at once. Bear markets can also be great for people that are comfortable with shorting stocks. Shorting stocks isn’t for everyone, or the faint of heart as they can be much more risky than just going long on a stock. That is a lesson for another day though. 

A saying you will hear a lot when it comes to investing will be “Bulls make money. Bears make money. Pigs get slaughtered.” Don’t be a pig. In other words, you can make money no matter which direction the stock market is going, but only if you know what you’re doing. Understanding the direction of the market is often the first step in entering a trade, but not the only one. 

Have anything to add to the discussion? Follow me on Twitter, @cchapeton, or find my Facebook page.

November 2020: Investment Update

November 2020: Investment Update

My Investment Tracker – Overview

From time to time I will be posting updates on my trading accounts. My P&L, current holds, and what I am thinking about moving forward. I am still in the learning process and trying out different strategies hoping to really hone in on 2 to 3 strategies that I can master. I started my IRA with $2800 in December 2018, and my brokerage account with $3500 in early 2020. Not included in the numbers below are my BTC holdings and general savings.

Current Account Values

My IRA (US Dollars)

Brokerage Account

MONTHLY REVIEW

Below are the overall results from my past 60 days of trading. I did take a bit of a percentage hit, but still above 50%. Theme of the month seems to be slow down, as I have been doing more swing trades than day trades and trying to learn new strategies. In a few weeks my schedule will change and it will allow me to get back to the day trading strategy I had started with. Looking forward to that, but also enjoying the slower pace of the trades of late. 

 

60 Day Results - All Accounts

Regrets this month included a day trade I knew better than to try and enter, and selling ACB one day to early to rotate into GRWG. Which on it’s face doesn’t look bad, but ACB popped the follow morning, and had I held it, I could have potentially sold for up to a 300% gain. DOH! Anyway, moving on. You can’t have FOMO in this business.

Positives this month are that I was able to cut my losses quicker and starting to hold my winners longer. Although there are still one or two lingering holds in my portfolio from a few months back when I still hadn’t learned my lesson, but I am riding them out for now.

My speculative $RLFTF play is still in my portfolio – it is strictly a covid play. I am awaiting news on it’s stage III trials, and for it to get emergency use authorization (EUA) from the FDA. I did my own research and looked over the FDA website, and the drug sounds very promising. I may not mess around with penny stocks after this, but I think this has potential, even a pop up to the 3-5 dollar range and I would be extremely happy. I’ll keep you posted. Concerns…it’s a drug, and could fail, despite success thus far. Also, it has a huge float. That’s a bit concerning. However, the company in recent weeks has added to it’s management team, setup a distribution pipeline, been approved for stage III trials, and gotten a new fancy website. They seem to be setting up for something big in the coming weeks/months. I’ll keep everyone posted.

Biggest Gaining Trades (%)
$TPR: +9.13%
$TPR (bought in a 2nd time): +14.49%
$GE: +7.5%

Biggest Losing Trades (%)
$MIK: -7%
$UUU: -8%

BTC:

I haven’t calculated my gains, but needless to say I am up. I do own some BTC and I will be buying into it weekly as a very long term hold. 

Long terms holds: $TSLA, $NOBL
Short term holds: $PLUG
Speculative play: $RLFTF – my first venture into penny stocks. We’ll see how this goes.

Always do your own investment research. My website is not meant to be investment advice. It’s just a way for me to track and keep accountable as well as to share my knowledge and experience.

How To Read Candlestick Charts

How To Read Candlestick Charts

The Beginner Trader

How to read a candlestick chart

Before you can read a full candlestick chart with all those confusing lines and indicators, you need to know what a candlestick is made up of and what each individual candlestick tell us. So let’s start with the basics.

What is a candlestick chart?

A candlestick chart as it relates to a stock, gives us information on the price of a stock on a given month, week, day, hour, minute, or even second. It’s also a quick reference to the past price of a stock, and the chart will allow you to see trends. The time frame you choose to view the chart in (1min, 5min, 1D, 1Mo, etc.) depends on what your trading strategy requires. We will not get into in this post. A chart is made up of multiple candlesticks. The candlesticks can vary in size, shape, and color. Learning how to read a single candlestick is the first step in learning how to read the charts and look for patterns that will fit your future trading strategies. 

Bar Chart Sample

I labeled three areas in the image above:

  1. Stock Name & Symbol
  2. Time Frame
  3. Price

Depending on the software of brokerage you use, your chart may look a little different. However, the information is always the same. Each individual red or green bar is a period of time. In the example above each of the bars represents one full day of trading. On green days the stock went up, on red days the stock went down. Easy enough, right? Let’s look at the bars.

Making Sense of the Candlesticks

A single bar will give you 4 main points of information. A candlestick is made up of a body and (usually) one or two wicks. Although it is possible to have candle with no wicks. The color of the body tells you if the price went up or down during the time period that bar lasted. A red candles signifies the bar closed lower then it opened, or went down. A green candle tells you the opposite.

The 4 points of information a candlestick gives you:

  • The price the stock opened
  • The price the stock closed
  • The high of the stock reached on that candle
  • The low of the stock reached on that candle

Check out the images below and see if you can spot the one difference that would make a candle red or green. Do you see it?

Red Candle - Stocks Charts
Green Candle - Stocks Charts

The Shape Of The Candlestick

Each individual bar will also have it’s own “shape”. By that I mean that some may be really long, some may be really short, others may have long top wicks, and other long short wicks, etc.

Note: A single candle by itself does not tell us the direction a stock is going, but when combined with other candlesticks or indicators, they can be a good predictor. In the next section I will show you a few patterns you should know about. These patterns alone won’t do you much good, but when combined with other indicators not mentioned here, they can be good predictors of things to come. 

Green Hammer Candle

GREEN HAMMER

A green hammer candle at the end of a long downtrend may be the first signs of a reversal. Selling pressure (bears) is starting to get beat by buying pressure (bulls). The long bottom wick indicates that the stock dropped far lower during that day, but the bulls started to push back, ultimately driving the candle green.

If you want confirmation of the reversal, you may want to watch the following day’s close. If it closes higher, then you may be looking at confirmation of the reversal. 

NOTE: A green hammer candle works best as an indicator after a long downtrend. Seeing a green hammer when a stock is trading sideways or already on the way up, carries less weight as an indicator.

Red Hammer Candle

RED HAMMER

A red hammer candle at the end of a long uptrend may be the first signs of a reversal. Buying pressure (bulls) is starting to get beat by selling pressure (bears). The long bottom wick indicates that the stock dropped far lower during that day, but the bulls started to push back, ultimately driving the candle green.

If you want confirmation of the reversal, you may want to watch the following day’s close. If it closes higher, then you may be looking at confirmation of the reversal. 

NOTE: A green hammer candle works best as an indicator after a long downtrend. Seeing a green hammer when a stock is trading sideways or already on the way up, carries less weight as an indicator.

Inverse Hammer Candle

INVERSE HAMMER

Similar to a green hammer. a green inverse hammer candle at the end of a long downtrend may be the first signs of a reversal. In this scenario the stock price opened low, gained steamed at some point during the day and was beaten back by bears. However, the bulls held their ground and kept it green, gaining on the day. 

If you want confirmation of the reversal, you may want to watch the following day’s close. If it closes higher, then you may be looking at confirmation of the reversal. 

NOTE: A green inverse hammer candle works best as an indicator after a long downtrend. Seeing a green inverse hammer when a stock is trading sideways or already on the way up, carries less weight as an indicator.

Shooting Star Candle

SHOOTING STAR

A shooting star candle that appears at the end of a long uptrend, may signal the start of a reversal. You may be able to guess why it’s called a shooting star. In this scenario the stock price opened high, shot up at some point during the day, and began selling off ending in a red shooting star.  The bears put an end to a bull run and that may continue.

If you want confirmation of the reversal, you may want to watch the following day’s close. If it closes lower than the previous day, then you may be looking at confirmation of the reversal. This would be a situation to go short, or if you’re still holding a stock, it may be the time to sell. 

NOTE: A shooting star candle works best as an indicator after a long uptrend. Seeing a shooting star when a stock is trading sideways or already going down, carries less weight as an indicator.

October 2020: Investment Update

October 2020: Investment Update

My Investment Tracker – October 2020

From time to time I will be posting updates on my trading accounts. My P&L, current holds, and what I am thinking about moving forward. I am still in the learning process and trying out different strategies hoping to really hone in on 2 to 3 strategies that I can master. I started my IRA with $2800 in December 2018, and my brokerage account with $3500 in early 2020. Not included in the numbers below are my BTC holdings and general savings.

My IRA (US Dollars)

Brokerage Account

Below are the overall results from my past 60 days of trading. I had been cruising at around 90% P&L for a little while, but finally sold off some losing positions to start to bring my numbers back to a more normal range. I am still working on getting rid of losers faster, as you can tell.

Biggest Gainers (%)
$TSLA: +97%
$PLUG: +20.6%
$GRWG: +15.71%

Biggest Losers (%)
$PRVB: -30%
$SLDB: -22%

Long terms holds: $TSLA, $NOBL
Short term holds: $GE, $PLUG
Speculative play: $RLFTF – my first venture into penny stocks. We’ll see how this goes.

Lessons learned: Both PRVB and SLDB were dumb holds on my part. They didn’t need to be such big losses in terms of percentage. I think because I am still not playing with huge sums of money, I tend to let the losers go a while thinking “it’s okay, it’s only $x dollars, not too bad” but I have to be more disciplined and remember that every little bit counts. Most of the losing trades came from my brokerage account, which brought me back nearly to where it had started. 

Always do your own investment research. My website is not meant to be investment advice. It’s just a way for me to track and keep accountable as well as to share my knowledge and experience. 

60 Day Results - All Accounts

My History With Money and Investing

My History With Money and Investing

I haven’t been great with money…

That could be the main theme of my 20’s and early 30’s. Money was never important to me in the sense of building wealth and saving for the future. Part of the reason was that I never had a mentor to guide me on how money worked. As you can see on my “about me” page, I grew up with a single mom who did her best to keep food on the table. While the succeeded in doing so, money, was never her specialty. Budgeting…yes. Saving…a little. But investing and using your money to make money was not on her radar, and rightfully so.

 

My first money mistake

Looking back, I think the first major mistake I made was not understanding how to save money. Making money was never a problem. Not saving money was the problem. I was always more of a “live for the moment” type of person. I would worry about the future when it got here. I would spend money on things I wanted. I would buy things for friends. I even bought sports car that I probably shouldn’t have, although, that was fun. I suppose that may be true of most kids in their late teens and early 20’s.

If you are young and starting to get into the workforce, hopefully my life story will help you avoid the same pitfalls. If I had set aside a small percentage of my paychecks, say 5%, from when I started working full time until today — I would likely have bought a house by now…IN THE BAY AREA. No small feat, I can assure you. I’ll talk more about savings accounts and how to use them in future posts.

 

Not understanding credit cards or credit scores.

This one really came back to burn me in my first years of adulthood. I think the saving grace was that I screwed up when I was 19-20, so I had time to recover from my mistake. As soon as I turned 18, I started getting offers for credit cards. By the time I was about 19 I had two cards in my name. They didn’t have large credit lines, but it was enough to get me in trouble. One card had a max of $1000. I think the other had roughly the same, maybe $1500. I can’t remember anymore.

I know what you’re thinking. Did I think I really had $1000 to spend? Typically that’s the problem young people run into with their first credit cards. They think they actually have that money. That wasn’t my issue. I think in theory I understood that I didn’t have that money and I needed to pay it back. In practice however…well, I failed. I maxed out one card on a weekend getaway with a girl I was trying to impress. I maxed out the second one on what was probably needless purchases. I was making minimum payments and I thought it was fine. Then…bam! A mistake at work cost me my job, and I fell behind on payments. Worse yet, I wasn’t very organized with my finances, so even keep track of what was happening was a mess. I fell behind on payments, the fees piled up, and I couldn’t afford to make the payments.

Eventually, I settled with the card companies and paid them back a portion of what was due. My credit was ruined for years. It was about the time I settled with the card companies that I found out about credit scores, what they were, and how they worked. At one point my credit score was down in the 500’s. It took my 7 years to get my score above 700. Today my score is excellent and I have ZERO debt. I pay my cards off every month and collect the rewards. 

If you are unfamiliar with how credit scores work,  you should read this

In retrospect the most frustrating part was how I let myself get into so much financial trouble over such a small amount. You live, you learn. I’ll talk more about how to use credit card properly in future posts.

 

Investing…or lack thereof

This might be my biggest sin of all. Growing up I never heard about investing, stocks, bonds, markets, charts, etc. It wasn’t even a foreign language, it just didn’t exist in my house. I did like to watch the news, so by my teen years I was aware of the stock market, but outside of knowing it existed, I had no idea how it worked. I thought it was something rich people did. Knowing what I know now…HURTS…it just hurts. lol. But I can’t let that stop me from moving forward and doing the right thing.

In my late 20’s I took a job as a professor at a local community college. It was the first job I had that offered a retirement plan where they matched my contribution. I signed up for it because it sounded like the right thing to do, and then I forgot about it. I spent a couple of years at that job, and in that short amount of time I had built up a little under $2000 in a Calstrs account. Calstrs is the retirement plan for teachers in the state of CA. I quit my job in 2011 to join my wife working full time on growing our business. That ended up being a great move, but with the business we didn’t have any investments or 401k options setup. We were just reinvesting everything into the business in those first years.

After making that move I started to think more about investing, retirement, and how I would achieve it. We had two young boys, and a thriving business. With most of my focus on those two aspects of my life, I still didn’t take the time to focus on investing. Luckily I had that small nest egg from Calstrs just sitting there, growing, without me doing a thing.

In late 2018 I finally took the time to research investments. Our CPA had been asking us why we hadn’t been putting away money for years. I finally listened. I went back to look at my Calstrs account. I figured I could just keep adding to it now that I was able to. When I called to set that up, I learned that I couldn’t contribute to it since I was no longer employed by the state. I looked at my options and decided to move my money to an IRA with Schwab. (I’ll get into different brokerage accounts and companies in future posts). It was a small account by most standards, but it was mine, and I could now do something with it. In December of 2018 I opened my IRA with about $2500.

Now, 18 months later, I have my IRA, my day trading account, and some money in Bitcoin. All together my investments went from $2500 to just over $20,000 in just 18 months. I am KICKING MYSELF for not doing this sooner, but it’s time to focus on the future. My journey is just beginning. Don’t wait to start yours.

Carlos Chapeton

NOTE: My blog is not investment advice. I am not affiliated with or get paid from any business I mention in my posts. These are merely a record of my investment journey as told by me. Before investing you should do your own research and decide which investment options are right for you.