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A Tale of Two Traders

Though their ultimate goal is the same — a profitable day in the market — these two traders have very different approaches. But both depend on TD AMERITRADE tools to implement their strategies

On any given day in the market, even when broad averages barely move, there are many stocks, options and other investments that make decisive moves up and down, and that means there is money to be made — or lost.

During a hypothetical market session, two traders — we'll call them Tom Merritt and Mike Grant — have an eventful day. Both follow the markets closely, using technical analysis and an array of TD AMERITRADE tools to help them identify and analyze potential opportunities and manage risk, but their respective strategies and methodologies differ dramatically.

Merritt doesn't consider himself an active trader; he's more of an active investor. A strong proponent of risk management, he chooses only companies he believes in fundamentally and employs technical analysis to refine his entry and exit points. Grant, on the other hand, is more of a technical investor. He is not as concerned with a stock's fundamentals because he considers those to be already priced into valuations. Instead, he's a chartist who focuses on broad, market-shaping news because he seeks to take advantage of the major market swings that will sometimes accompany these announcements.

Here's how the two investors used a variety of tools to employ individual approaches that helped them make informed trading decisions in the markets during that day. (The persons, situations and companies described below are hypothetical and are not recommendations to utilize specific trading strategies.)

Merritt's Moves

Early Morning: Before the opening bell, Tom Merritt scans major business news outlets. Business networks are reporting strong earnings from two companies that are stirring up the financial sector. XYS Financial (XYSF) — a stock that has been on Merritt's watch list for some time because of its fundamentals — is one of them. Wondering whether it's the right time to buy, Merritt logs on to his TD AMERITRADE account and consults the "MarketEdge Second Opinion" report under the "Reports and Ratings" section for the stock. It provides fundamental investors with third-party insight into technical factors about a stock to help determine whether the timing may be right to enter or exit.

Merritt finds commentary suggesting that the moving average convergence/divergence (MACD) indicator, a momentum indicator that's computed using exponential moving averages of stocks, points to a bearish trend in the stock. The relative strength index (RSI), which compares the magnitude of a stock's recent gains with the size of its recent losses to assess a security's internal strength, suggests the stock could be "overbought." This helps validate Merritt's assumption that the stock has already made its run. He still likes its fundamentals, so he sets a Trade Trigger Alert (under Trade) to notify him if the stock has a pullback of at least $2. At that point he may reconsider.

Merritt notices that Minyanville's "Morning Perspective" (on the right side of the home page), which provides third-party bullish and bearish investment picks along with entry and downside protection stop-loss guidance, is highlighting ZXC Financial's (ZXCF) stock, which should rise thanks to solid premarket earnings announcements from the other similar companies mentioned on television. Merritt dives into ZXC's financials and likes what he sees. The "Morning Perspective" report indicates that the entry point on the stock is $27, and traders who own this stock should consider a near-term sell stop of $25. He uses a conditional order called One Triggers Another (OTA) to implement his entry and exit strategy. In this case his entry point is $27. Once the buy order is executed, his $2 trailing stop will be entered. The trailing stop can help provide downside protection if the position moves away from him.

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