From the August 01, 2011 issue of Futures Magazine • Subscribe!

The data game

As computers improved and high-speed internet connections began to replace the old phone line hook-ups, the need for better, faster data-feeds as well as improved technical analysis software and order entry platforms increased. Electronic trading began to grow in popularity and traders began to take notice of the accuracy of their data-feeds. Now more than ever with the advent of Application Programming Interface (API) trading, traders have to be certain that the data they are using to build indicators and create systems is the same data being used to execute their trades.

Despite all of these changes, the need for quality data remains. The process used to be simple, no matter the data source you bought the data that fit your budget to ensure you had enough money left over to purchase your technical analysis software. Because data costs often eclipse the initial purchase price of the program, the need for reliable data remains foremost.

Whether evaluating technical analysis software or seeking a compatible and reliable data vendor, users must consider some important issues. The first key issue is the debate between using end-of-the-day vs. intraday data. End-of-the-day data summarizes the daily trading activity and delivers it to the user so that he can manipulate it to fit his needs. Intraday data is delivered to the user throughout the day either in real-time or delayed.

Those using end-of-the-day data have to be sure that it is compatible with their technical analysis software. In addition, they must have access to a historical database so that they can develop and test their trading systems. This means that the user has to be sure the data has been cleaned to get correct backtesting results.

Intraday data users have the same issues with data, but because the data they are looking at is live, they will experience the inevitable "bad tick" from time to time. These happen; however, the key is how the data vendor handles their occurrence. To provide the user with more accurate data, some vendors, like TradeStation, now process real-time insertion, deletion and correction messages sent by the market centers. When such events occur, they automatically are applied to the data stored on their servers. This updated information is sent to the various TradeStation windows so that any such messages that the exchanges send can take effect quickly.

Another event that can occur with live data is that market centers send data that sometimes does not coincide with current trading activity. It is important for intraday users that the data vendor has filters to remove trades of this type so that such trades, which may be misleading, do not alter your quotes.

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