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!

Chart Analysis: $BA

Chart Analysis: $BA

Watchlist Stocks

$BA – 11/17/20

$BA has been strong lately on news that its 737 MAX will be taking to the skies again soon. Of course, with Covid ever looming, this stock still has some head wind. That being said, it did close above it’s 200MA again, and the 50MA isn’t far behind. If the 50 crosses the 200, I may be interested. Especially as the stock is getting close to that 232 pivot point. Just watching for now. 

Potential Entry: $TBD
Price Target: $TBD

$BA - Watchlist - Wait For 50MA by CCInvesting on TradingView.com

How To Start Investing: Scanning For Stocks

How To Start Investing: Scanning For Stocks

The Beginner Trader

How to find stocks

Regardless of the trading or investing strategy you decide to follow, both will need one key, and that is finding the stocks that meet your criteria. To find stocks you are looking for, you will need to use a stock scanner, or maybe more than one scanner to narrow your focus. 

Why do I need a scanner?

There are roughly 2800 companies listes on the New York Stock Exchange (NYSE). Plus the 30 Dow Jones companies, and the hundreds of companies listed on the American Stock Exchange (AMEX) – It would be impossible for you to sift through all those companies in any sort of timely manner to find good trading opportunities. 

Every trading stategy will have its own set of criteria to help you define what it is you’re looking for. For example, you may be looking for stocks that have gapped up, or gapped down. You may be looking for stocks that have just closed above their 200ma, or whose 50ma just crossed the 200ma in one direction or another. You may be looking for value stocks, and you need to find out which are trading below book value. There are almost countless ways you can filter stocks to match your criteria, you just need a filter. That’s where scanners come in. 

Below are some free scanners that you can use anytime. Most have paid version which give you access to additional filters. In some cases you may be able to combine the filters of one scanner with another to fill in the gaps the other is missing (or charging for). I use the free versions of these services as I also have access to my brokerages own scanning tools, and charts which offer just as many, if not more features. I just like the ease of these websites, so I also use them for my research.

Screen Shot Of Barchart.com

BarChart.com

Barchart.com offers a free screening tool that I use mostly for quick pre-market scans. However, it is much more than just a scanner.  You can use it for free with no account. You can use it free, with an account, which gives you access to watchlists and saving screens among other things. Or you can pay for their premiere version which give you additional filters, and features. 

  1. Stock Market News
  2. Market Performance (overall and by sector)
  3. Screener
  4. Watchlists
  5. Charting Software
  6. ETF, Options, Futures, and Currencies
  7. As of the writing of this post ($29.99/mo) – Discounts if you pay yearly. 
Screenshot of Finviz.com

Finviz.com

Finviz.com offers a lot of the same features as Barchart.com. I do like their screener better and feel it’s easier to navigate and use. Like barchart.com you can use the website for free, without an account. You can create an account to save your screens. Although you can’t create charts without upgrading to the paid version. I like to use Finviz to scan for swing trade opportunities, rocket stocks, and dividend stocks. A cool feature that Finviz has that other websites do not is their heat map (see pic above), which offers a cool visual way to take in how the market is doing on that particular day, broken up by sector.

  1. Stock Market News
  2. Market Performance (overall and by sector)
  3. Screener
  4. Watchlists
  5. Charting Software (paid version)
  6. Futures, FOREX, Crypto
  7. As of the writing of this post ($24.96/mo) – why not $24.95? I don’t know. 

Do you have a favorite scanner?

Do you have a favorite screening tool that I haven’t mentioned? Write in the comment section below and I’ll check it out. It could be a stand alone website, or even your own brokerages scanners, if you have one you like. 

    Investing Q&A of the Day: Float

    Investing Q&A of the Day: Float

    The Beginner Trader

    What is a stock’s “float”?

    A stock’s float refers to the amount of outstanding shares that are available for trade (buy/sell). To determine the amount of outstanding shares a company has, you can do a quick search on Yahoo Finance. THIS LINK will take you the Yahoo Finance “Statistics” page for the Coca Cola Company, stock symbol $KO. If you scroll down to the “Share Statistics” you will find the float. I have highlighted for you in the image below. 

     

    Highlighting where to find a stock's float.

    The “floating” stock is calculated by subtracting closely-held shares (insiders, major shareholders, employees) and restricted stock that may arise from an IPO.

    Why does float matter?

    Depending on your trading strategy, you will want to narrow your searching by float. In my day trading strategy I look for companies with less than 30-50 million shares. While that sounds like a lot of shares, that would be considered a low float stock. You can see in the example above that $KO has almost 4 billion shares of float, which is very high.

    In my day trading strategy I am looking for stocks that are moving quickly in one direction or another. A stock with less shares will be more volatile than a stock with lots of shares. This is simply due to the dynamic of supply and demand. If a low share, low cost stock has good news in the morning, lots of traders will pour into that stock, and since there isn’t as many outstanding shares, the price of the stock will fluctuate wildy in the first hour of the morning. Riding that volatility is where you can make (or lose) money in a short amount of time. 

    If you’re looking at a stock as more of a long term investment, float may not matter as much in your calculations. You would be looking at other fundamentals like ROIC, PE Ratios, ROA, etc. 

    To learn more about stocks and investing be sure to follow me on twitter @cchapeton.

     

    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.