Using Computers
In the last 20 or 30 years, there’s been a big change in the way that trading has taken place. Thirty years ago it would have been unimaginable that you would be able to sit at home and trade actively and accurately on the markets using a simple kebetyboard and ‘television’ screen. And aside from the impact on individual traders, finance houses and corporate investors have invested heavily in the technology, creating a new monster called ‘program trading’, where massive amounts of securities are automatically bought and sold by computers based on small changes or differences in price.
The sheer volume of program trading, estimated by some to account for at least 30% of trading on the New York Stock Exchange, has the ability to jolt the market almost instantaneously. It has been blamed for the 500 point drop in the Dow Jones Industrial Average in crash of 1987, which resulted in restrictions on the times when program trading can be used for fear of chaos in the markets.
But in the individual trader’s hands, the personal computer can be a powerful tool to assist in security selection, and it has done away with most of the laborious work of technical analysis. We’ll take a look at the various uses of computers in the following sections.
Putting Together the Tools
First and foremost, the personal computer is a tool that allows you to analyze and select trades much more easily than in the past. Your main fear now has to be that the amount of information that is at your fingertips can lead to ‘analysis paralysis’. It’s important that you understand about the concepts of the various technical indicators, as described in previous modules, because that will help you make sense of which you should using on the computer software. Simply because you have access to enormous computing power, it does not mean that your trading will be better.
You should not lose sight of the fact that there is important technical analysis work that can be done without a computer. Sometimes a simple chart (though probably printed off a computer) with hand-drawn lines can tell you a lot about the security. The computer used correctly can make your technical analysis better, but if your knowledge of technical analysis is weak, then it won’t be able to help you.
What Software?
The choice of software is fundamental to your trading career. Fortunately though, most software is competent and includes all the features you are likely to look for. If you just want to learn about charts, I’d advise you to start out using the free software available on your broker’s website, and on www.stockcharts.com, www.bigcharts.com, and others. Everything that you have seen so far in this course is probably available free of charge on the Internet.
When you want to go on and run ‘what if’ scenarios, do back testing of trading strategies, etc. then you need software that is designed to give you these facilities. One of the most well known programs is MetaTrader, and this includes facilities for writing Expert Advisors which can automatically implement your trading strategy. It has the advantage that it has been around long enough to attract a great following, with numerous discussion forums and plug-ins available. Anything you’re likely to want to research has probably been done before, and you may well find it in the user groups. MetaTrader is often given away with the opening of a Forex account.
Depending what you are intending to trade, other software which you should look at includes TradeStation, MetaStock, OmniTrader and Amibroker. If you have any particular needs, make sure they are included, but these giants of the trading world will have most of the facilities you can think of. You can try them out with demonstration versions before committing to any expenditure.
What you have to realize is that software is only part of the picture. Depending on the type of trading that you wish to do, you may need to subscribe to a data service, giving you up-to-the-minute price information. The prices that you see quoted on MSN Money and Yahoo finance are usually delayed by about 20 minutes in order not to compete with the dedicated data providers.
What’s Your Setup?
I’m tempted to say that most modern computers will be perfectly adequate for general trading use. Modern-day computer power is so great, that most tasks cannot stump it. If your computer is five or more years old, then from my experience it may be ready to crash and you need to replace it, but if you bought your computer in the last two years it should be fine for your needs.
As is the case with most tasks we undertake having the correct tools and the skill to use them is a good starting point. What are the essential tools for online spread betting? In my view the minimum is:
- Realtime News
- A reliable Internet connection
- A reliable and sufficiently specified computer
- Realtime Charts
- Realtime Prices
Realtime News
I have a connection to satellite TV and alternate between Bloomberg and CNBC. I tend to switch over to CNBC about a half hour before the US markets open so I can get a feel for the opening sentiment. It is also useful for a quick reference to the Futures levels as these are regularly displayed by both Bloomberg and CNBC. I try not to clutter up the computer screen with streaming news services as I have found these distracting and they use up valuable screen area. I don’t trade on the opinions of the commentators of these news services or let their views influence my trading decisions. The purpose of the news feed is to catch any breaking news not to get someone else’s view.
A reliable Internet connection
Your connection to the Internet is your connection to the trading world. There is no point on skimping on this. Going for the cheapest or an Internet service provider who enforces time limits or other limitations on your connection is a false economy. I use a an ADSL broadband feed. This has proven to be reliable but I also have a backup connection just in case…
The firewall and anti-virus software I regard as essential. When trading you are connected to the Internet for extended periods. I do not want any unauthorised access to the machine if I can help it. Windows XP or Windows 7 is a preference rather than an essential, I use it because it is stable and well supported by the applications I use. It also has very good security so adds to the prevention of unauthorised access.
Realtime Prices and Charts
I use the Sharescope and Prorealtime charting. My primary reason for choosing this package was the availability of realtime UK share prices at a reasonable price. This was re-inforced by the facility to link realtime data to a spreadsheet.
Summary
I would also recommend fixing up a second screen to your computer. It’s amazing the difference it makes to be able to see two different time frames simultaneously, or to have the broker’s order entry on one screen and charts on the other. Monitors are cheap enough nowadays that you can afford a large one, and you’ll be glad you did if you spend much time in front of it.
The two screens make a significant difference to the amount of data you can have displayed at any time. By using two screens I am not searching through windows or flicking windows up and down to see what is happening. I tend to keep the trading screen on the left hand monitor and have charts and any other open windows on the right hand monitor. This allows me to keep an eye on the actual markets I’m monitoring and at the same time see how the price is moving at the spreadbetting company.
To be blunt at this point, if you cannot afford the tools then you cannot afford to trade. A good specification computer is not a luxury (bearing in mind that these can be purchased now for less than £1000) it is a necessity. If you intended to drive across Africa you would get the right vehicle and then train, test and learn how to use before you set off. The same applies to your computer, you don’t need to be an expert but you do need to be competent at using it.
Another important feature for your computer, and not necessarily just for trading, is to have a good backup system. Having tried tape and disk drives solutions over the years that require you to backup on a schedule, I now have a continuously running backup system that keeps up-to-date whenever the computer is turned on, and I heartily recommend this style of data security.
Computer Tips
- Run a defragmentation tool regularly (say, once every two or three weeks) to make sure that your computer keeps running efficiently and doesn’t slow down. Windows has its own defragmentation tool but commercial programmes like PerfectDisk or Diskeeper do a better job.
- Make sure to backup your data on a separate computer or drive to protect against a computer crash or hard disc failure (software like Acronis True Image even allows you to make an image which saves all files and settings so that you can easily restore the data.
- Working with a second monitor will increase your productivity.
- Get a good world clock so you can keep abreast of world market openings and trading times (try the free application from SymmTime).
At the heart of your new career is the ability to trade quickly and efficiently. This requires a fast Internet connection. You should also identify alternate methods to contact your broker if something goes wrong. If the high-speed connection fails, you might be able to use a dial-up modem in order to take yourself out of any trading positions that you do not want to hold overnight. If your computer fails, you should always have your broker’s telephone number handy to ask him to close out the trades on your account that you do not want to leave in place. When you’re placing significant sums at risk in the market, you don’t want to be left high and dry in the event of a problem.
Join the discussion