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 keyboard 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.
I would 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.
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 DiskKepper 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.
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