Whether you do business at TD Waterhouse or some other brokerage, you can save
money with every trade if you know the ropes. Savvy trading is a matter of
squeezing out an eighth here and a quarter there until your nickels and dimes
add up to thousands and then tens of thousands of dollars over an investing
lifetime. Here are some of the tips and techniques I've picked up from my
30-plus years of dealing with stockbrokers most recently including the online
firms. 1. Never place market orders (i.e., those with no specified buy or sell
price) before the opening of the trading day. Strange things can happen at the
opening bell if a flood order hits. You may find yourself paying much more than
you intended on the buy side, or you may receive far less than you expected on
the sell side. This is always a risk with market order, but it's most acute at
the opening, when orders tend to pile up from traders reacting to last night's
(or this morning's) news. If you must trade at the opening, protect yourself
with a limit order. 2. The best time to trade "at the market" is usually in
the afternoon, from about 1 to 2:30 p.m. EST. By then, the whole country is at
work, including the West Coast, and everyone has had a chance to digest the
day's important news. Market-shaking government statistics are almost always
released in the morning. So are most corporate earnings reports. 3. Always check
the "bid size" and the "ask size" for any exchange-listed stock before
entering a buy or sell order. A good real-time quote system will tell you not
only the last price of a stock, but also the bid price, the ask price and the
number of shares being bid for or offered at those prices. When the bid size is
larger than the ask, it's a sign of underlying demand for the stock don't
hold out much longer if you were planning to buy. By the same token, a large
position on the ask side (relative to the bid) implies there are lots of sellers
eager to get out. Don't shilly-shally if you were intending to sell. What if
the bid and ask sizes are almost equal? That's a perfect situation for
entering a limit order exactly halfway between the bid price and the ask price.
Chances are, your order will be executed right there in the middle. Not all
online brokers incorporate bid and ask size in their quote systems. However, TD
Waterhouse does another great feature to go with the firm's low commissions.
Incidentally, bid and ask sizes don't give you much of a clue with Nasdaq
stocks, because many Nasdaq bids and asks are mere indications of interest from
dealers trading for their own account. Dealers are notorious for reversing
positions at the drop of a hat. 4. The best time of the month to buy stocks is
around the 18th through the 22nd. That's when cash flows into the market (from
pension funds and dividend reinvestment) tend to be at their low ebb, along with
prices. The best time of the month to sell is during the first two and last two
days. Be an aggressive buyer during the months of September and October, when
the market has a strong seasonal tendency to bottom. Plan to do most of your
selling in April and early in May, when history tells us the annual influx of
IRA and Keogh money is likely to dry up. In the four-year presidential cycle,
the best buying opportunities nearly always occur during the mid-term election
year. Always tread warily in the first year after a new president is elected. 5.
For the most part, choose stocks to buy that are trading above $10 a share.
There are two reasons for this advice: (1) Stocks below $10 are usually quoted
at larger percentage spreads between bid and ask (the buying and selling
prices), so you need a bigger price increase to break even; and (2) companies
with low-priced stocks are more prone to financial trouble, including
bankruptcy. I make an exception for closed-end funds, some of which may trade
below $10 because management wants the share price to seem affordable to small
investors. As a rule, though, most sub-$10 stocks have the odds stacked against
them. Buy 50 shares of a $20 stock rather than 200 shares of a $5 stock.
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