Automated Stock Trading Software - How to Choose the Best

[Naomi Hill]

Get the Information You Need to Evaluate Stock Trading Software
In today's market, investors are wondering if they should even buy
stocks and if they can make money. The answer to both is "yes." Stock
market trading is a wonderful opportunity now, with prices lower and
volatility higher than in many years. Stock trading online has never
been more popular.
Automated trading platforms, robotic trading programs, online day
trading systems-there are many terms used to describe the stock
trading systems that can help you to make a stock investment and to
grow your money. Review the criteria below and understand your own
personal preferences by talking with other stock traders. Identify the
facts you need to compare programs. You'll need a good understanding
of the automated trading tools' features and costs before you make a
decision.
Many types of companies offer stock trading advice and stock trading
strategies. They run the gamut from educational programs that aim to
teach you how to trade, to a list of recommended stocks to buy and
sell at certain triggers, to brokerage firm proprietary software, all
the way to fully automated robotic software. Prices can vary from
thousands of dollars to less than $50 a month for some auto trading
software. With such a variety, how do you choose? This article will
guide you through the features and benefits of the programs that are
available for online stock trading. We will not discuss trading
software for options or Forex trading. Many of the programs are geared
towards "day traders," who technically open long positions (buy) or
short positions (sell short) and close these positions the same day.
Not everyone who uses these programs closes out their positions by the
end of the trading day--sometimes they hold their positions for days,
weeks or months. We'll call this "active trading." Sometimes this is
also referred to as "swing trading."
The essential features of a stock trading program include a data feed
for stock quotes and indicators, stock charts or charting capability
of major indicators, current balance and positions and an order entry
system. The order entry system should allow stop (loss) orders, stop
limit orders and trailing stops. A trailing stop limit is similar to
the stop (loss), except its loss will be measured from the stocks
highest point achieved. The preferred method would be to keep the
trigger prices in stealth mode, not viewable by the market makers,
rather than as actual orders. Most automated trading software should
include a watch list of the stocks to potentially trade based on the
parameters the stock trader has entered.
Exchange Traded Funds (ETF's) can be part of an efficient trading
strategy. These are mutual funds that are traded intraday on the stock
exchanges, unlike traditional mutual funds that are a basket of
securities priced at the close of the market. Online stock trading
systems should also include trading capabilities for ETF's.
Other features to look for include safety measures that stock traders
may take, such as establishing a profit goal--the minimum price
increase a trader would expect a stock to gain before closing their
position. Also highly desirable is a form of profit protection for
your investments, which is the reduced profit goal. After the stock
reaches its profit goal and continues to rise, the stock trading
software should wait and let the profit increase. If the stock price
decreases or pulls back, the online trading program should close the
position and lock the profit. This pullback value should not have any
effect before the profit goal is reached and is intended to improve
stock performance. More sophisticated auto trading programs will also
offer the percentage gain from stock trader's entry price, and the
trader can also specify a minimum amount in case the percentage gained
is too low.
Check the Features and Ask Questions
Number of Technical Indicators - There are literally hundreds of
indicators that stock traders can use to determine which stocks to buy
and sell and when. The most robust programs will offer hundreds of
indicators for technical analysis, such as Bollinger Bands, and some
will even include indicators for Candlestick Chart formations. Robotic
programs use these indicators to set conditions under which online
investing will occur.
Complexity - Automated stock trading programs vary greatly in ease of
use. Some online stock trading systems do require actual programming
expertise. Others are simply point and click. Check out the online
demo to see that it fits your level of comfort before making a
commitment. Talk to others who are currently using the auto trading
websites and check out their online communities for more comments.
Number of Long and Short Strategies Per Account - Due to the size of
the online trading platform, there may be a limit to the number of
strategies that you can have loaded on each account. If you want to
run, say two long trading strategies, then you may need two accounts.
Also confirm if you have enough memory on your computer for two or
more accounts. Experienced active traders may run two or more live
long and short strategies, while having additional accounts for
strategies that they are testing in a simulator mode.
Find Out How Advanced Your Software Can Be
Recommended Additional Features - The best automated stock trading
software will include additional features that active traders will
find invaluable once they have begun automated trading.
Additional strategy and order entry features include the ability to
add to a position as a stock goes up, or as the stock declines, as
well as a minimum purchase interval that the stock price should drop
before it begins purchasing additional shares. A maximum bid/ask range
will also be helpful, as the size of the spread can directly impact a
swing trader's ability to make profitable trades.
If there are hundreds of indicators, as is the case with robotic
traders, see if the definitions of the indicators are readily
available. The definition or formula for indicators may vary from one
electronic trading platform to another, so be sure you understand them
first.
Recommend you have a program that displays current Profit and Loss
(P&L) on your open positions and the status of the rules on your
watch list. For example, if a stock on the watch list hasn't traded,
is there a feature where the trader can pull up the rules and
indicators to see which one(s) is preventing the trade?
Some automated stock trading programs visually display the percentage
of symbols up and down in each sector from the specified time frame to
the current time so you can see how the market is turning. Does the
platform include the ability to block certain symbols from trading? If
you're running a long trading strategy, you won't want to be buying
ETF's that short the market.
Day traders will want automated trading software that tracks and
displays the number of day trades remaining. Day trading is regulated
by the SEC, so it's important to understand if you will be day trading
first.
Orders in Stealth Mode - A standard feature of many trading software
programs is the ability to enter limit, stop and stop limit orders.
While it is important to have an exit strategy from your positions,
telegraphing it to the institutional traders in the form of publicly
viewed limits is not. It's a little like poker--whoever can see all
the hands has the advantage. Instead, newer programs allow the user to
enter these price points in the auto trader system, but trigger a
market order when the conditions are met. This is one advantage of a
truly robotic stock trading program.
Automatically Executes Your Trading Strategy Even While You're Away
From Your Computer - Very few stock market trading systems can
actually do this. For those that do, it's done based on the trader
selecting technical indicators, comparison operators and numerical
inputs that will activate opening, adding to, or closing stock
positions. Essentially, it's a rules driven software system. The
trader can select from hundreds of historical indicators representing
the stocks' previous conditions. The indicators should be updated
daily using the latest data. Programs that can trade automatically are
the cream of the online investing software crop. They take the emotion
out of investing. Long time traders report that the simplest
strategies, when left to run on their own for long periods perform
best. The program should also have a manual override so the stock
trader can manually place a trade as well. Specifically ask if the
system has this capability. Many market themselves as "automated
trading" but are not truly automated.
Ability to Simulate Strategies In Real Time Before Running Live - Most
traders would agree that they'd like to "test drive" a system before
using it. Some programs allow this through "back-testing," in which
the program uses past data to execute the trades and show you what
they would have been. This is not always accurate, as there is much
data needed to perform a thorough back-test and it's nearly impossible
to replicate all the circumstances with just the historical data. In
addition, how the system performed in a market last month or last year
does not indicate how it will perform in the here and now.
There are a few systems that allow the stock trader to simulate
strategies, but this is done mostly with paper tickets, rather than
through the software package. The best stock trading software will let
you practice stock trading using a live real-time data feed during
market hours. This is the preferred method, as it gives traders a very
realistic view of how their trading strategy is performing and the
ability to feel the highs and lows of daily trading without investing
real money. If you can simulate trades, you won't need to open an
actual brokerage account until you go "live" with real money. Ask if
there is a limit on how long you can run in the simulation mode.
Shows You How to Create A Stock Trading Strategy - There should be a
step by step walk through to show novice traders how to create a
trading strategy. Are there off-the-shelf strategies that are
available for your use? Are there any fees involved or are they
offered for free? Can you modify the off the shelf strategies? Note
that firms should not be guaranteeing you a certain return. The best
firms will have long and short stock trading strategies available at
no charge and will allow the stock trader to create their own. Some
firms will even allow you to copy strategies from a "friends" list.
One size does not fit all. If the company doesn't tell you the details
of the strategy or why they selected or recommend a certain stock,
then it's not advisable to use it. You may overpaying for
"proprietary" services and may be able to obtain free stock market
tips and recommendations online that will perform comparably.
Tech Support and Customer Service - The best automated stock trading
software firms have an extremely high "up-time" and are very rarely
out of service. Check on the firm's record--how often have they had
outages? The software should be easy to install and should work with a
variety of operating systems (Windows XP, Windows Vista, etc.). If you
have questions, is there a knowledgeable and helpful staff to provide
service? How quickly do they respond, if by email?
Commissions - Trading commissions can eat into your profits if you are
not careful about choosing a plan that fits your needs. Commissions
can vary greatly from broker to broker, depending on the number of
shares traded, whether the shares are in round lots of 100, price of
the shares traded and the number of trades you place each month. Stock
traders may even want to have more than one account if they have a
trading strategy that normally trades 100 shares lots and another that
trades 1000 share lots. It pays to read the fine print.
Number of Broker Choices - If you have a proprietary brokerage
software product, then you'll only be able to trade through that firm.
The best online trading includes the lowest commissions for the
typical trades for each strategy that you use. There are other
programs whose software has been integrated into the order placing
functionality at a variety of brokerage firms. Commissions will be one
consideration in choosing a firm. Another is the margin rates. If you
choose to have a margin account and borrow against the value of your
securities to open more positions, you will be charged margin
interest. Rates will vary by firm. Typically, firms with the lowest
commissions won't pay you interest or offer a money market fund for
your uninvested cash. This is how they keep their costs down. If you
anticipate having extra cash that you won't use for trading, you may
want to keep it in another account where it can earn more. You should
also check if there is a minimum to open an account or a minimum
number of trades required.
Check the Costs and Software Support
Initial Software Fee and Monthly Fees - Ask is there is an initial fee
to buy the software package. Is it thousands of dollars? If so, find
out what you are really getting. Much of what you can obtain from some
of these programs can be found in inexpensive books or on the Internet
for free. Is there also a monthly fee? If so, what does it cover? In
reviewing online trading services, more expensive software is not
necessarily better. Some active investing services are less expensive
because they have more subscribers.
Data Feed Fee - Does the program include real time data feeds for
stock quotes and indicators? Is there an extra fee for this or is it
included in the basic monthly fee? This is the biggest component cost
in developing automated stock trading programs. Or, is the data
delayed by 20 minutes? Is it only the end of day data? If so, even in
a simulation, old data is not good data. Many brokerage firms offer
free Level II quotes to qualified active traders who trade a specified
number of trades each month.
Stock Charts Fee - How will you review the major indicators that
you're using to make trading decisions? Some programs include stock
charts with their fee, others charge a separate fee for it. Depending
on the platform you choose, you may or may not need a charting
package. Find out how much is it and how much you can customize the
stock charts to track your favorite indicators.
Ongoing Support Fee - Ask is there are any other fees. Hidden fees
will definitely each into a stock trader's profits. If you're not in
the market to make money, then you shouldn't be in the market.
Long Term Contract - Is the fee you're paying upfront for a year's
contract? If so, is it automatically renewed every year?
Training Fee - Find out if there is a separate training fee. For
programs that market themselves as financial educators, there will be
a fee, sometimes hundreds or thousands of dollars, as this is how they
make their money. The best automated stock trading software programs
provide free training.
Training Formats - Is the training in the form of a live seminar?
Webinar? Are there extra materials such as DVD's that you must buy to
find out all the information advertised? Or, is live training
available in the company's office?
Minimum to Invest - Brokerage firms have their own minimums but there
are also account minimum balances required by the Securities and
Exchange Commission (SEC) for what it calls "pattern day traders." A
day trade occurs when a trader opens and closes the same position in a
margin account on the same day. A pattern day trader is any person who
executes 4 or more day trades within 5 business days in a margin
account, provided the number of day trades is more than 6% of the
total trades in the account during that period. All pattern day
traders must maintain a minimum of $25,000 in equity at all times.
System Requirements - The more robust the trading system, the greater
the memory requirements. Check this before you sign up or purchase a
new computer. If you sign up for more than one account, will your
machine have enough RAM to run both or will you need to purchase an
extra computer or more memory? If you have a Mac, ask if the software
works on Mac, as not all do. You may want to have one computer
dedicated only to your automated stock trading programs and not run
other word processing or spreadsheet programs.
Reports - The best automated stock trading software will include a
reports function, that allows the stock trader to pull up trades by
time frame, security, long vs short, open vs. closed and P&L. For
truly active traders, this information is an easy way to track trading
for tax purposes.
Trading Strategy Statistics- In addition to Reports, another great
feature is strategy statistics. They will tell the serious stock
trader the number of trades executed and break them down by profitable
vs. unprofitable over various intervals. Reviewing the strategy
accuracy increases the odds that a stock trader will be profitable.
Online Trading Community - Trading platform developers who are truly
proud of their work welcome comments and questions from users. Take
some time to read their stock trading forum and see what other stock
traders are saying. There are even a few automated stock trading
programs that will take requests for additional indicators from their
users.
Take the Right Steps as You Choose Stock Trading Software
Be wary of those who tell you that you must follow their stock trading
system using only their tools. This is about you having control over
your financial future. There are as many successful stock trading
strategies as there are active traders. Experiment, talk to others and
do research. You will find what works best for you.
Use caution when signing up for anything long-term, even if a 30-day
free trial is offered. Some firms may request a large down payment or
full payment in advance and pressure you on the spot, promising a
discount if you sign up immediately. Some consumers have reported
difficulty in obtaining refunds even when they have followed the
procedures exactly.
Happy trading!
? Copyright - Regina Guinn. All Rights Reserved Worldwide.

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