You trading software platform is your weapon that enables not only your execution but the efficiency of your trading. A strong platform will save the trader time and effort, allowing him to focus more on the task at hand. Having all the data and indicators available to you one a single platform, rather than having to pull up separate third party tools, is the essence of efficiency. The caliber of the trading software can be gauged by the following 9 factors.
1) Types of Charts
Charts are the visual interpretation of an underlying financial trading instrument’s price action. In other words, they visually detail the history of the price movement to help traders to react to future price movements. As history repeats itself so do price patterns. Most price charts used by traders are candlestick, line and bar charts, which are more than sufficient. The important factor is the ability to chart pre-market and post-market data on the charts. This is a major factor when playing stocks that are gapping on news or rumors. Market hours-only data renders the chart useless when a company comes out with news that gaps the stock up 15% pre-market. Without pre-market charting data, the trader is stuck with the prior days trend lines and moving averages, which will require time for the data to be factored in, while traders with pre-market charting get a head start on the patterns.
Additionally, you will want to make sure your trading software offers the types of charts you are familiar with trading. For example, if you use candlestick charts to improve your decision making process, you will want to make sure your trading platform has that option available. Most modern trading softwares will have the most popular chart types, however you will want to check first if you use a special type of chart.
2) Level 2 and Time & Sales
Access to point and click execution off the Level 2 screen and robust time & sales data ensures quick executions as you bypass the clunky type, click and confirm often associated with browser based order entry modules. The Level 2 screen gives the user a visual of the depth of price level participants on the bid and ask, which provides you with the ability to spot a potential ‘ax’ buyer or seller when combined with the time & sales information. For example, stock XYZ shows a single 100 share offer through ARCA at the inside ask price at 27.98, but time & sales shows over 50,000 shares being printed at that price in a series of trades for three minutes before the bids collapse back to 27.60. This tells you that there is a heavy seller at 27.98, and to plan your strategy accordingly. Access to Nasdaq TotalView is a must for intra-day traders as it provides the full-depth, not the abbreviated depth, of NASDAQ stocks. TotalView displays every market participant for every price level providing up to 20 times the liquidity of just Level 2 data.
As a day trader, the last thing you want to worry about is the reliability of your tools. Trading is difficult enough as is. When choosing a trading platform, make sure that it is fast and reliable. You don’t want to wait on lagging data or a frozen software when you are entering a fast paced day trade. Of course, you will need to make sure your trading computer meets the requirements of your software.
4) Available Technical Indicators
The most critical indicators like moving averages, stochastic, MACD, RSI, Bollinger Bands and volume bars should be standard. The ability to draw trend lines and add Fibonacci retracement and extensions are a plus. The ability to set a default chart with the needed indicators and then clone/duplicate them automatically onto multiple time frames seamlessly is the sign of a powerful platform. Additional indicators can be useful but be careful not to clog your charts with too many indicators, which tends to be a common issue for new traders. Streamline only the indicators that can provide converging signals for robust trade triggers.
5) Ease of Use/Customization
While a trading platform should have the ability to execute complex orders, the interface should be as simple as possible. The best architecture embraces the golden rule of “Form follows function”. Your trading software is no exception, powerful, yet easy to use and customize. The platform should be handling the heavy legwork, not the user trying to figure out how to complete trade sequences while muddling through unnecessary steps. Efficiency depends on this factor.
6) Quality Scanners
A quality scanner should produce robust and immediate stock candidates for the specific scan. Scanners are a double-edged sword for traders, a blessing and a curse. While they provide potential trading opportunities, less experienced traders unfortunately tend spread themselves too thin. They tend to jump into every other stock that is spit out by the scanner, mistaking it as a trading signal. Whereas, a seasoned trader will utilize a scanner knowing that each possible candidate/opportunity must still be manually monitored and filtered through their trading indicators before trading it. The best scanners should be robust and quick enough to produce real-time results with the appropriate filters in place so as not to generate too many results. The whole point of a scanner is to find new fresh opportunities. The quicker they are spotted the fresher the opportunity. It is in the hands of the user to select which opportunity to proceed with, like a sniper that stalks his target.
A simple High/Low hit list scanner can provide more opportunities than the most complex 3rd party programmed pattern scanner since the user still has to get acclimated to the underlying stock’s behavior that day. As long as the scanner produces the results in real-time, the rest of the legwork needs to handled by the trader. The “legwork” is the preparation needed to place a trade like calculating support and resistance levels, spotting the existing pattern, plotting Fibonacci price levels, monitoring the correlation with the S&P 500 futures/cash index and identifying triggers, targets, stops and position size. While this may seem like a lot of legwork, it can be done in under a matter of minutes on a powerful trading platform that enables the user to access the needed indicator data quickly.
7) Available Market Data
Depending on which markets you want to trade, having access to as many markets as possible is important. The ability to trade pre and post-market is crucial with U.S. equities to get a jump on the crowd. Having access to NASDAQ TotalView market data gives a distinct advantage over just Level 1 and Level 2 quotes.
Speed kills. Hot keys help to speed actions on behalf of the trader. Hot keys can shed seconds off trades, which can meant the difference between a profit and a loss on any given trade. Split seconds count when scalping against the algorithms in this predominantly electronic marketplace. For example, the most basic hot key to ‘cancel all orders’ alone can save much time and keep you focused on stalking your next trade without having to go through manually canceling each open order.
9) Direct Access Order Routing
Having access to various ECNS and dark pools gives you the opportunity to access liquidity that other platforms may miss. While most traders will find it easier just to stick with a particular ECN, the choice to access as many liquidity providers sets the high caliber platforms apart from the crowd. Platforms that allow you to select the routing preference as a default offer the most convenience. For example, selecting ISLD, EDGEX, ARCA as the preferred routing for your orders for all stocks on the NYSE and NASDAQ, instructs the platform to prioritize those routes in that specified order for execution.