Whenever I’m with a group of new day traders, it isn’t long before the conversation turns to trading vehicles – the mixture of computer hardware and software used to trade. And just like tastes in motor vehicles, there is a wide variety of tastes in trading vehicles.
Some traders opt for the “luxury model” trading system. They must have all of the latest and greatest gizmos and gadgets. They outfit their systems with several monitors and all of the software bells and whistles you can imagine. In fact, if you didn’t know better, you’d think these people were single-handedly landing the Space Shuttle. To the other extreme, you find the trader who insists on buying the “economy class” system. They equip themselves with the bare minimum – a low-end computer, an acceptable internet connection and the least expensively priced trading tools. They figure that it doesn’t matter how you look when you roll onto Easy Street, just so long as you get there.
Of course, in day trading, as in life, the best course of action is somewhere in the middle. However, if you must veer towards any extreme, I urge you to steer clear of trying to enter into financial race in an economy vehicle. After all, would you attempt to win the Indianapolis 500 driving a 1973 Ford Pinto? Of course not. Well, the same principle applies in the market. The few dollars you save will pale in comparison to the fortune you squander by settling for inferior functionality. At a minimum, your trading vehicle must have the following features:
A Top of the Line Computer By “top of the line”, I mean that your computer should have an excess of CPU speed and RAM. If your computer is just powerful enough to run your trading software, then it’s performance is going to be sluggish. And trust me, there is nothing more frustrating (or expensive) as being locked out of money-making opportunities because your computer has frozen up.
High Speed Internet Access This really should go without saying. If you try to travel the information superhighway via dial up, you’re going to find yourself being run into a ditch. This is particularly true in the market where millions of shares trade hands every second. You must invest in the fastest (and most reliable) Internet connection available to you.
Level II Access Just as your access to the Internet must be timely, your access to current market information must be timely as well. And while stock market information abounds on the Internet, it isn’t always timely. For example, stock quotes posted on a web portal may be delayed by as much as 20 minutes. Trying to day trade by relying on outdated information is like trying to drive a car by looking solely through the rear view mirror, it’s a recipe for disaster.
Of course, even having current information isn’t enough if the information isn’t also complete. And by complete, I mean that the information must go beyond just the Level I information, such as the last bid and ask. You want to be able to see how the market makers are positioning themselves with respect to the stock. You need Level II information.
And don’t fall into the trap of trying to save a few bucks by getting “Level 1 ¾” access. Some providers have begun selling access that lets you see the ECNs, but not the market makers. Remember, you want to be able to play follow the leader and not follow the follower. You need to know what the real experts are doing in the market, not the Ordinary Joes like you and me.
Bells and Whistles Ideally, your Level II execution system should be linked to your charting tools. You don’t want to spend valuable time searching for current stock charts. You want to be able to type in the symbol and have your charts pop up. Also, you should be able to customize which charts are displayed. I like to be able to see the 1-minute chart, intraday chart and 1-year chart at a glance. You also want to have immediate access to the top gainers and losers of the day to alert you to lucrative trading opportunities. When looking at these lists, I like to set my system to sort them by percentages and not just overall dollar amounts.
Of course, you should be careful to avoid cluttering your screen with too much information. You don’t want to miss a good trading opportunity because the pertinent information was hidden behind a useless chart or graph on the screen.
Double Vision One solution to the problem of hidden information is to invest in a computer capable of displaying on two monitors at once. That way, you can see twice as much information as you could view on one screen. Of course, you don’t want to take this idea to the extreme. Ten monitors won’t allow you to view ten times as much information. From my experience, I’ve found that two screens are probably all you can watch at one time anyway. If you try to watch any more than two, you usually end up not watch any.
That being said, you don’t want to scrimp on your trading vehicle. That’s simply being penny wise and fortune foolish. In fact, if the price of a solid trading system is a problem for you, then you’re probably like the person in the Mercedes dealership asking about the car’s gas mileage. If you can’t afford the gas, then you certainly can’t afford the car. Likewise, if you can’t afford an adequate trading platform, then you’re probably trying to perform on the wrong stage.
Fausto Pugliese. President and Founder of Cyber Trading University.
