Tuesday, April 22, 2008

Building a better platform: Fun with thinkorswim

I put $5,000 or so into a thinkorswim account, the cheeky, quirky brokerage with amazing software and low fees. TOS does things a bit differently: for one, they offer 1.5 cent/share ($5 min.) trades, making them cheaper than Scottrade up to 466 shares, with a $10 cap. And they send you a stuffed monkey when you fund an account. I'm not even fucking kidding.

As if that weren't enough, they offer you plenty of platform tools and rules-based trading good times which will allow me to sleep instead of trying to wake up to make ill-advised, emotion-linked trading decisions in the 5am pre-market. TOS allows me to schedule pre-market limit orders ahead of time.

But one of my favorite features as I'm just learning to scratch the surface of their desktop surface, is the ability to perform cool trades like a bracketed OCO (one-cancels-others) trade. And the ability to perform trailing stop limits.

So check this out: I have an order to BUY 200 shares of Tessera if it hits $20.25. If and only if that order is performed, two possible trigger orders take effect: If TSRA bounces down to $19.85, I sell all 200 shares. If TSRA hits $20.70, however, a trailing stop is then and only THEN initiated with a 10 cent trail. This is two parts awesome right here: The power of the trailing stop is tempered heavily by the fact that it leaves you vulnerable at all price points along its increase.

Consider: If you buy 100 shares of TSRA at $20.00 a share, and you want to lock in a potential profit with a trailing stop of around 10 cents, it leaves you vulnerable as soon as the order is placed. If you place the TS order right after your purchase order, as Scottrade's regular, non-Elite (their daytrade product) tool forces you to, you're vulnerable if the stock bites it to $19.90. Worse, you're vulnerable if the stock bounces up to $20.20 and then dips back to $20.10. With a trailing stop limit, the TS only activates once the limit is reached: $20.70. Then, if it dips down to $20.60, a sell is triggered and you can be absolutely positive of the minimum potential profit threshold if the TRSTPLMT is triggered.

Further, you can set a regular, non-limit-triggered stop at the same time, a bit further down if you're expecting it to dip lower than 10 cents early on; in this case, 15 cents lower than where I bought it. It seems unlikely for tomorrow, and in fact TSRA may never hit $20.25 to trigger the initial buy, but if it does, I have a stop already in place, detached from "let's hope for a swing back up" emotion and playing by the rules I've set. What's better is that I can lock in my profit without worrying about a premature exit; the exit only plays once I've hit a level I'm satisfied with.

The OCO portion of the deal simply means that if ONE of those exits is fired, the other exit order is cancelled.

I've added a second layer: If TSRA tanks miserably down to $19.25, a BUY order will trigger for another 200, with similar spreads up and down. This allows me to exit on the trip down and pick up once it hits what I perceive to be bottom.

TOS has a ton of other tools, and this is just my impressions after my first hour playing with it. It's definitely daunting software, but they have lots of video tutorials that are straightforward and really helpful. I think I may be moving my Scottrade holdings over to TOS, which is a bit sad because the Scottrade people are very nice, but TOS just beats them in features AND price and I can't play my mini-strategies with Scottrade—that leaves me too vulnerable...

We'll see how things play out tomorrow and if any of these trigger.


Shrimphead said...

TOS is a great platform.

I myself documented some of the tools and resources i personnel used for trading.


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Check out Timothysykes.com
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