As noted previously, Kaufman says software selection should be your last step. Perhaps he is forecasting what a neophyte trader might do when faced with the myriad of indicators or tools available in a basic software package if he or she has not yet settled on a tested approach to trading the markets. “Paralysis by analysis,” (below) provides a small sample of the various tools offered in a basic charting package. Each of the indicators in any software package can be helpful in some way in navigating markets, but a trader can get lost in the numerous indicators and end up frustrating his efforts by using too many or by not applying them in the correct manner.
EnsignSoftware, eSignal, NeoTicker, NinjaTrader, TradeStation and others can all create charts that even fundamental traders can value. Aside from standard OHLC bar charts, most programs offer volume and tick bar, candlestick and point-and-figure charts.
Many charting programs also have news links that provide a constant stream of free financial news, much like the free Google or Yahoo news pages you can set on your Internet browser. If you want specialized news, you will have to subscribe, which adds to your monthly overhead. The subscription news services that are relevant to the particular contracts you are trading usually can be interfaced with charting programs. But paralysis by analysis applies to having too much news to read, as well too many indicators to watch. So if you need news, try the free news your software vendor offers first.
There is a whole subset of charting programs that create trading signals for you. They can cost a few thousand dollars. TradeGuider, for example, uses volume to create its signals.
Price data
The type you need depends on how you trade. End of day prices are free (check the GTET for various types of data vendors), but if you trade frequently, you will want continuous live data. Many vendors offer free trial periods for short periods of time, and most of the charting programs can be installed quickly and almost painlessly. TradeStation will provide data directly from exchanges. When estimating costs, be sure to add on exchange fees, which can range from $5 to $70 per month.
In the past, brokerage and trading software packages were largely separate, but with cheaper execution costs and the ability to execute shorter-term strategies, it is possible to purchase an overall trading solution. Choose a broker where you can enter orders live using the fastest connection you can get. Speed may not be a priority for your strategy but all things being equal the fastest connection is preferred. Check to see if the broker can fill the order types you want to use. A safe cost estimate is $5 a round turn including exchange fees. Also, check to see if the broker has a 24/7 telephone order desk when (not if) your Internet connection or computer goes down.
Building your trading method
Kaufman says that most people use charting packages to confirm that what they’re doing makes sense. “You might see a sell signal on your chart. But the volatility is very low, so your chance of making money on trade isn’t good,” he says. “This might prompt you to put in a volatility filter to make sure the market was moving enough. The trick to using charting software is to have a concept to picture what you want to do,” Kaufman adds.
These programs have scores of well-known technical analytical tools. Both Kaufman and Rockefeller advise that you should develop a concept (moving average crossovers and regression channels, for example), then backtest using past price data.
Some charting programs, Ensign, NeoTicker and TradeStation, include programming languages that are pretty easy to use. You can create your own indicators and even automate your trading with them.