Developing your trading ideas with web 2.0 tools

In a recent blog post, I noticed that, in the wake of the market selloff on the election news, alternative energy stocks such as Ballard Power Systems (BLDP) were rallying sharply. That observation early in the trading day made for a very nice daytrade. It might, however, also frame a worthwhile longer-term idea for investment. How can we research the idea's potential?

It turns out that there are several relatively new tools available to online investors that organize a wealth of relevant information for trading ideas. What was once the privileged information of large institutions now belongs to the trading public, thanks to the Web 2.0 social revolution in computing.

So let's look at how some of the Web 2.0 tools might help us research our BLDP idea.

First, we take a look at the StockTickr site developed by Dave Mabe. This social investing service allows you to create and track your own watchlists, as well as maintain an online journal with your trading results. The power of the site, however, lies in its social nature. With your authorization, others can view your watchlists and journal and you can view theirs. This allows you to see who else within your trading community is following BLDP, whether they're trading it, and what they think of it. You can also track other stocks within the same industry, how they're performing, and their trading patterns.

Suppose, however, you also want to see how the pros are trading BLDP. In that case, you move on over to the StockPickr site developed by James Altucher. This very worthwhile site tracks the holdings of major institutions and hedge funds, letting you know who is buying your stock. When we enter BLDP into the search engine, we get a chart of the stock, links to news items, and a list of pros and subscribers who own BLDP in their portfolios. As it happens, only 3 portfolios--none from the pros--track this stock. This suggests that the issue is under the radar at an institutional level. When I click on one of the portfolios, the TM Star Securities House Account, I find other stocks, some of which are related to BLDP and owned by institutions, such as Energy Conversion Devices (ENER). This provides yet another source of insight for trades.

If I want a broader view of BLDP, I can go to the InstantBull site, which aggregates posts from the major market bulletin boards and blogs. Entering BLDP in the search engine gives me access to all posts from Yahoo!Finance, MarketWatch, and much more. The menu at left accesses the major financial portals, so that you can dig up a host of fundamental data on the company, including SEC filings and analysts' reports. You can also access the major market blogs and conduct your own queries of their content. From one site, it is possible to track the stock's historical price performance and the company's performance as a firm. Yet another fine aggregator site is Seeking Alpha. Entering BLDP into their search engine provides me with opinion and analysis article links, a chart of the stock, and summary data. New articles dealing with your stock will be sent to you directly via RSS, keeping you updated automatically.

Finally, let's say we want to develop a specific trading idea for BLDP. The Barchart site includes a performance feature that tracks how stocks fare on several different technical trading systems. We find out, for instance, that, over the past two years, BLDP has profited nicely from a trading system that buys upside breakouts of the 50-day moving average and sells downside breakouts of the average. Specifically, we've had 18 trades during that time averaging 41 days per trade. Seven trades have been winners, eleven losers, with frequent whipsaws. The size of the winners, however, has been much larger than the size of the losers, enabling the system to make $7.50 profit per share. Not bad for a $7.00 stock! The site also charts the stock and provides technical indicator data, as well as sector data.

Web 1.0 brought traders a wealth of information. The current Web 2.0 paradigm organizes this information in user-friendly ways and delivers it direct to the desktop. It's now possible for every trader to be a market analyst--and an informed stock picker.

Note: I have no commercial affiliations with any of the firms or products mentioned in this article.

Brett N. Steenbarger, Ph.D. is Associate Clinical Professor of Psychiatry and Behavioral Sciences at SUNY Upstate Medical University in Syracuse, NY and author of The Psychology of Trading (Wiley, 2003). As Director of Trader Development for Kingstree Trading, LLC in Chicago, he has mentored numerous professional traders and coordinated a training program for traders. An active trader of the stock indexes, Brett utilizes statistically-based pattern recognition for intraday trading. Brett does not offer commercial services to traders, but maintains an archive of articles and a trading blog at www.brettsteenbarger.com and a blog of market analytics at www.traderfeed.blogspot.com. His book, Enhancing Trader Performance, was recently released for publication (Wiley).