Setting Up Your Trading Tools
Stockscores.com Perspectives for the week ending April 15, 2007
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In this week's issue:
The computer and the Internet has revolutionized the financial industry. When I started trading, I would write down stock prices pulled from newspapers and then graph the charts by hand. I would phone a broker and place my orders. I would hang around the stock exchange and use their terminals to get real time quotes. I can even remember watching people change pricing information at the stock exchange by writing on a big chalk board.
15 years ago, financial insiders had a real advantage over the investing public. They could make money by leveraging their better information and access to markets. But today, that has all changed.
A trader working out of his home or a small office can play the same game as someone working on the trading floor at Goldman Sachs. The world's highest earning trader in 2006 made somewhere around two billion dollars. He is 33.
But to play on the same playing field as the financial pros requires technology. Here are some things to consider when setting up your trading computer.
PC or Mac?
Go on to any trading floor and you only see PCs, almost all of them running Microsoft Windows. I like Apple computers but their inability to run most trading software always prevented me from using them. Things changed recently when Apple introduced computers equipped with Intel processors.
It is now possible to use a Mac and run Windows based software. I recently bought a Mac and installed Parallels software. This allows me to load Windows as if it was a piece of software and then install what ever PC only trading software that I require. I have not been running this for long but so far I have had no issues. I had to get a non-Apple mouse so that I could have a left and right button and now everything works great. I can run a reliable machine that is very powerful, quiet and it allows me do all of the nice things that Macs offer while I can switch to my Windows based software when necessary.
I still have three other computers in my trading arsenal and they are PCs. But if you would rather use a Mac, you no longer need to feel that you can not do both so long as you get a newer Mac with the Intel processors and install Parallels.
Computer Power
Most order entry and analytical software does not require a lot of computing power. For most people, any computer that you buy at your local Best Buy is more than adequate for trading. However, if you want to get in to more sophisticated analytics then you may need to be choosier. I like to monitor all North American stocks in real time and that requires processing power. My Mac has two dual core processors and then I have a Dell computer which does most of the number crunching, it has dual processors as well (both are 3 ghz). I can update the analytics that I run for 1000 symbols on one of these computers in about 30 seconds. By comparison, trying to do the same thing on my lap top (a Sony, 1.33 ghz processor) takes 10 minutes. So, if you want to get sophisticated in how you analyze stocks, you need processing power.
It is also good to have at least a gig of ram memory but more is better. I try to keep my computers clean without a lot of programs running in the background. Each one takes away computing power and increases the chance of a crash. I found that security programs that stop viruses and attacks really slow my machines down so I don't use them. I use a hardware firewall instead.
Software
If you are going to position trade, I really don't think you need anything more than what Stockscores offers. We have charts and market scanning tools to be used with the knowledge we teach about when to enter, exit and manage risk. For the longer term style of trading, I use nothing else.
However, if you want to do more short term swing and day trading you will need to have some real time charting software. Most of the brokerages are now offering this to their clients. I find these brokerage offered platforms good but not outstanding.
If you want charting software that is more sophisticated and allows for more flexibility in what you do, there are a few choices:
Trade Station (www.tradestation.com) - overkill for most people but for hard core traders who want to do some sophisticated analysis, it is excellent. If you go this route, expect to take a few weeks to learn how to use it.
QCharts, ESignal (www.quote.com, www.esignal.com) - I have always really liked QCharts but they had problems with data reliability. ESignal recently bought the company so hopefully those data issues will be overcome. ESignal is also good but I prefer the functions on QCharts.
RealTick (www.pcquote.on.ca, www.realtick.com) - an excellent platform, more expensive than some of the others but reliable and easy to use.
StockStreamer (www.stockhouse.com) - low priced and good for the trader who wants a web based platform for trading research.
Multiple Monitors
Traders have a lot of information to digest, having multiple monitors attached to your trading computer can make it a lot easier to identify opportunities as they happen. Hooking up more than one monitor is relatively simple.
Each monitor needs a video card to feed it the signal. Some video cards can run more than one monitor because they have more than one head on them. Finding a dual head video card is relatively simple, getting a video card with three or four heads is harder. For that, go to www.matrox.com but expect to pay a lot more if you go beyond dual head.
You can also add more than one video card to your computer. To do this, you need an open expansion slot. Open up your computer and take a look inside. Look at the size of the plug as there are different types. You will have to know the type of plug if you are going to buy another video card to add another monitor. At the store, you will have PCI Express, PCI or AGP slots to choose from for the video card plug.
So, you plug in the extra video card or put in a multi head card, then hook up the monitor to the video card. Open Windows, go to the Control Panel and click on the Display icon. Your computer will recognize that you have more than one monitor hooked up, you just have to set it up to extend your Windows desk top on to the new monitor.
When considering a monitor, size really does not matter, it is resolution that is important. I have a 107 inch screen in my theatre that has no more resolution than a 17 inch desk top monitor. That means you can put the same amount of information on a big screen that has the same resolution as a smaller one.
The resolution is expressed as a number, something like 1024 x 768. That means there are 1024 pixels across and 768 pixels down. The higher the number, the more you can see on your screen.
Having digital monitors makes the picture a lot sharper and the colors more clear, but a digital monitor running at a high resolution requires a more powerful video card. Check the specs of your video card to see what sort of resolution it can feed for the type of monitor that you have.
Want the ultimate monitor? I have a 30 inch Apple Cinema display that runs at 2560 x 1600. Quite simply, it is a thing of beauty.
Summary
Always keep in mind that good trading required knowledge and emotional control above all else. Tools that do not slow you down or cause problems when you are trying to execute an order are important, but having the fastest computer with four high resolution monitors won't tell you when to buy and sell. Learn to trade first and then grow the sophistication of your trading tools and hardware.
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I always talk about stocks to consider but I think there is a good education in knowing why a stock is not worth considering.
I did a very simple Stockscores Market Scan this week, looking for stocks that have a Sentiment Stockscore of 60 or higher and a Signal Stockscore of 80 or higher. These are two of the Stockscores three rules, the third is having a good chart pattern. This third rules is the subjective element where we must eliminate stocks that are not ideal trading opportunities. For my Market Scan, I also added a filter for stocks with at least 5000 trades today so I could focus on some liquidly traded stocks.
Consider the following charts and my comments below. Remember, these are stocks to NOT trade right now and my reasons why:
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1. DYAX
DYAX was very abnormal today, extremely strong volume and price action. The problem here is the stock failed to close above its open and the extreme volatility means the stock will probably see a pull back in the short term.
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2. DISH
I consider DISH a great hold but it is too late to enter the stock here, at least for a position trade. I like to buy stocks when they are starting up trends and this one has been in an up trend since July 2006. The higher a stock goes, the closer it gets to its top and it is therefore risky to chase stocks higher. This is a great stock for trading the Stockscores Pull Back Play strategy, the last entry signal using that strategy was two weeks ago.
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3. LLY
There has been a good comeback in Pharmaceutical stocks lately and LLY has been doing well. This stock looks strong but the reason you don't want to enter it now is because of the likelihood that upside is limited by resistance. Notice the price peak at $58 from October of last year? That is where the stock will likely get stuck. This resistance issue is compounded by the fact that there is a lot of risk in the stock. LLY has been rising for about a month which means investors have higher expectations for it. The buyers may be acting with some emotion and that increase the chance of a pull back. With limited upside potential and increased downside risk, the stock is better left alone.
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References
Get the Stockscore on any of over 20,000 North American stocks.
Background on the theories used by Stockscores.
Strategies that can help you find new opportunities.
Scan the market using extensive filter criteria.
Build a portfolio of stocks and view a slide show of their charts.
See which sectors are leading the market, and their components.
Disclaimer
This is not an investment advisory, and should not be used to make
investment decisions. Information in Stockscores Perspectives is often
opinionated and should be considered for information purposes only. No
stock exchange anywhere has approved or disapproved of the information
contained herein. There is no express or implied solicitation to buy or
sell securities. The writers and editors of Perspectives may have positions
in the stocks discussed above and may trade in the stocks mentioned. Don't
consider buying or selling any stock without conducting your own due diligence.
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