Day Trading Lesson: Roadmap Step 8
In my post Day Trading Lesson: The Roadmap I present a list of steps to learn to Day Trade. Here are the details of Step 8:
Get a good Broker, Charting Package, Data Feed and Trading Front End
In simplest terms what your broker does is execute trades for you. In the old days before the Internet you if you wanted to buy or sell a stock or future, you would telephone your broker and he would place the order for you. Not only would he place orders for, but he would also advise you on what stocks to buy. These were called full service brokers because the commission they charged was higher since you were paying for great advice like "buy Enron, this one just can't lose". Once the Internet became popular you started to see discount brokers whose commissions were much lower because you executed trade directly from your own computer, and the broker was not giving out (invaluable) advice. This is of course what you'll use as a day trader, but you also want to make sure that you were using a direct access broker. Direct Access means that your broker is connected directly to the exchange where the trades actually take place, as opposed to being connected through an intermediary. The advantage of direct access is that your trades will be filled more quickly. Be aware that most of the brokers that advertise on TV are not Direct Access, meaning they're really not designed for day traders.
An example of a Direct Access broker many day traders use is Interactive Brokers. I am not recommending them in particular but they are a good place to start as a basis of comparison. When choosing a broker there are essentially 3 things you need: speedy execution, reliability and low commissions. The other thing to keep in mind is that some brokers may specialize in futures or stocks. Check out EliteTrader to see dozens of brokers with reviews.
As you will probably be making your trading decisions based on technical analysis, you will need a good charting package. The charting package may be offered by your broker or you may obtain it separately. Many brokers provide free charting if you open an account with them; the only thing you pay is commissions. Such free charting software tends to be extremely basic and may not have enough features for the serious TuffTrader. One very popular and good charting package you may want to consider is SierraChart. Again check out EliteTrader to see dozens of packages with reviews.
Many of the packages you'll see here do quite a bit more than just chart. You should choose a charting package that has the particular features you need to make good trading decisions based upon your particular style of trading, but paying for features you never use does not make sense.
One feature that I really do think makes sense is Replay. With this feature it's almost as if you had videotaped your charts over the entire day, and after the markets closed you have the ability to play them back including pause and fast-forward. This is a great learning device especially if you are unable to be sitting in front of the computer while the market is open.
Your charting package needs a data feed, which is essentially a real-time source of every transaction (buys and sells) that is taking place on the particular stock exchange or futures exchange. This may be available from your broker, but will more likely will be purchased separately. Data feed vendors charge for each group of instruments separately, so you would only order what you need. An example of a popular data feed to be used as a basis of comparason is iQFEED. One thing to keep in mind is that your data feed needs to be compatible with your charting package.
The last thing you need is a Trading Front End. This is a piece of software that you use to actually make a trade.
It may be provided by your broker or you can get it separately. A good front allows you to enter and exit trades with one or two mouse clicks, as opposed to having to type a lot of stuff in. This is not just a matter of convenience but can avoid very costly mistakes. Most good front ends give you what's called a ladder or DOM, which provides a very good visualization of the price movement of the instrument you're traded. To get an idea as to some of the typical features you should be aware of, check out ZeroLineTrader, a pretty good stand alone front end. PFG Best, a pretty good broker for trading futures, provides a free basic front end to their customers called BestDirect8. Compare this to PFG Best's Navigator which has lots more features, but is not free.
There often are lots of bells and whistles included with most good front ends, but by far the most important is the ability to have your pre-determined stop automatically entered when you place your order. Again this is more than just a matter of convenience since in insures that you don't ever enter an order without a stop because you "forgot".
If you choose not to enter your stop automatically, and find yourself forgetting to enter it sometimes, you may wish to purchase my "Bash-O-Matic Traders Helper". This highly sophisticated, programable, electromechanical device is compatible with most PC's and mounts conveniently on your desk. Once installed, a large hammer automatically hits the trader over the head as soon as it senses an order has been placed without a stop. To order yours, simply send $9999.99 (Cash only) to:
Miracletech LLC
PO Box 123
Cayman Islands
Get a good Broker, Charting Package, Data Feed and Trading Front End
In simplest terms what your broker does is execute trades for you. In the old days before the Internet you if you wanted to buy or sell a stock or future, you would telephone your broker and he would place the order for you. Not only would he place orders for, but he would also advise you on what stocks to buy. These were called full service brokers because the commission they charged was higher since you were paying for great advice like "buy Enron, this one just can't lose". Once the Internet became popular you started to see discount brokers whose commissions were much lower because you executed trade directly from your own computer, and the broker was not giving out (invaluable) advice. This is of course what you'll use as a day trader, but you also want to make sure that you were using a direct access broker. Direct Access means that your broker is connected directly to the exchange where the trades actually take place, as opposed to being connected through an intermediary. The advantage of direct access is that your trades will be filled more quickly. Be aware that most of the brokers that advertise on TV are not Direct Access, meaning they're really not designed for day traders.
An example of a Direct Access broker many day traders use is Interactive Brokers. I am not recommending them in particular but they are a good place to start as a basis of comparison. When choosing a broker there are essentially 3 things you need: speedy execution, reliability and low commissions. The other thing to keep in mind is that some brokers may specialize in futures or stocks. Check out EliteTrader to see dozens of brokers with reviews.
As you will probably be making your trading decisions based on technical analysis, you will need a good charting package. The charting package may be offered by your broker or you may obtain it separately. Many brokers provide free charting if you open an account with them; the only thing you pay is commissions. Such free charting software tends to be extremely basic and may not have enough features for the serious TuffTrader. One very popular and good charting package you may want to consider is SierraChart. Again check out EliteTrader to see dozens of packages with reviews.
Many of the packages you'll see here do quite a bit more than just chart. You should choose a charting package that has the particular features you need to make good trading decisions based upon your particular style of trading, but paying for features you never use does not make sense.
One feature that I really do think makes sense is Replay. With this feature it's almost as if you had videotaped your charts over the entire day, and after the markets closed you have the ability to play them back including pause and fast-forward. This is a great learning device especially if you are unable to be sitting in front of the computer while the market is open.
Your charting package needs a data feed, which is essentially a real-time source of every transaction (buys and sells) that is taking place on the particular stock exchange or futures exchange. This may be available from your broker, but will more likely will be purchased separately. Data feed vendors charge for each group of instruments separately, so you would only order what you need. An example of a popular data feed to be used as a basis of comparason is iQFEED. One thing to keep in mind is that your data feed needs to be compatible with your charting package.
The last thing you need is a Trading Front End. This is a piece of software that you use to actually make a trade.
It may be provided by your broker or you can get it separately. A good front allows you to enter and exit trades with one or two mouse clicks, as opposed to having to type a lot of stuff in. This is not just a matter of convenience but can avoid very costly mistakes. Most good front ends give you what's called a ladder or DOM, which provides a very good visualization of the price movement of the instrument you're traded. To get an idea as to some of the typical features you should be aware of, check out ZeroLineTrader, a pretty good stand alone front end. PFG Best, a pretty good broker for trading futures, provides a free basic front end to their customers called BestDirect8. Compare this to PFG Best's Navigator which has lots more features, but is not free.
There often are lots of bells and whistles included with most good front ends, but by far the most important is the ability to have your pre-determined stop automatically entered when you place your order. Again this is more than just a matter of convenience since in insures that you don't ever enter an order without a stop because you "forgot".
If you choose not to enter your stop automatically, and find yourself forgetting to enter it sometimes, you may wish to purchase my "Bash-O-Matic Traders Helper". This highly sophisticated, programable, electromechanical device is compatible with most PC's and mounts conveniently on your desk. Once installed, a large hammer automatically hits the trader over the head as soon as it senses an order has been placed without a stop. To order yours, simply send $9999.99 (Cash only) to:
Miracletech LLC
PO Box 123
Cayman Islands
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