RESEARCH AND TRADING SERVICES
Day trading is big business with big profits, but those profits don’t always accrue to the day trader. Instead, many a day trader has spent money on training services, software, newsletters, and coaching, only to find that in the real world, the trader can’t make enough money to make a living, let alone cover all these costs.
Why does that happen? It could very well be because the trader isn’t cut out for day trading in the first place. Day trading isn’t for everyone. In other cases, though, the trader failed to do good research before plunking down the cold cash for training in a system that just wasn’t very good.
You’ve already plunked down $24.99 for Day Trading For Dummies. Consider that an investment! I cover some of the different services that day traders might want to buy and give you advice on how to determine which ones are worthwhile and which are not.
The Trade of Trading
As much as I wish that Day Trading For Dummies told you everything you’d need to know about trading, it’s only a starting point. And let’s hope that Wiley’s marketing department doesn’t see that, because otherwise they’ll be mad at me. The fact is that there are so many different assets you can trade and ways to trade them, no one resource can give you all you need. A stock trader following a news-based momentum strategy needs different services than a forex trader looking at interest rate discrepancies. That’s why I don’t teach you, but rather point you to resources that can help you get started and show you how to get the most value from the money you spend.
Day trading is a career. Every career takes time to master, and practitioners have to work to keep their skills up as the field changes. You’ll find you’ll need some training to get started, and more training to be successful, whether you are trading futures, building bridges, or doing heart surgery.
Freebies from the exchanges
Before you spend more money, check out what several different exchanges and self-regulatory organizations offer for free to help you get started in trading. They have “Webinars,” online courses, and plenty of reading material. After all, the financial industry wants people to trade — that’s how they make money — but they want them to be successful, because that keeps the market functioning. (Exchanges are businesses, like any other.) Going through such free material first can give you a great sense of how suitable you are for a given strategy and help you make better decisions about the other training you will need.
In this section I list a few resources that are particularly good for new day traders.
Chicago Board Options Exchange Learning Center
The Options Institute of the Chicago Board Options Exchange offers a series of online tutorials, classes, and seminars covering exchange-traded options in great depth. It also has a two-day seminar for experienced traders who want to come to Chicago. The site includes online toolboxes and calculators as well as a chance for traders to ask questions of options trading experts.
Chicago Board of Trade Classes/Training
The Chicago Board of Trade has online tutorials on trading futures, agricultural commodities, and the Dow Jones Industrial Average. It also offers online seminars on trading strategies and psychology, papers discussing different trading methods, and downloadable manuals (in English, Spanish, and Chinese) that teach different aspects of specific commodities, whether poultry feed or treasury interest rate futures.
Chicago Mercantile Exchange Education Center
Whether you’re an individual who wants to learn about futures or an experienced floor trader who needs to make the transition to electronic trading, the Chicago Mercantile Exchange has information for you. It has online training courses in trading in general and trading futures in particular, live online events in specific trading techniques, and papers that describe and analyze different trading strategies. The site even has links to trading simulators offered by different futures commission merchants (brokerage firms that specialize in futures), so you can apply what you learn without risking real money.
The exchanges have been merging and consolidating, so by the time you get this book, some of these may be combined or operating under different names — and that means the links won’t work. No matter what happens, they’ll still be offering educational services so that the people participating in their markets can be more effective. You can find up-to-date links by doing simple Web searches using such keywords as futures exchange or options exchange.
Institute for Financial Markets
The Institute for Financial Markets is a nonprofit organization that provides basic training programs for people working on the options and futures exchanges. Many of its courses are inappropriate for day traders, who aren’t going to be licensed and who do not have mandatory continuing education requirements to maintain those licenses. But some of them are appropriate, and a few are low-cost or even free. Recent offerings include the basics of derivatives and trading strategies.
Okay, let’s be honest here: The stock markets want to promote investing more than trading, because they want companies to issue stock on their exchanges. The kind of high volatility that day traders love puts off some starchy corporate officers. Hence, much of the information on NASDAQ’s site is about how to select stocks for the long term. Still, there’s some information that might be useful to a prospective day trader.
National Futures Association Investor Learning Center
The National Futures Association is the self-regulatory organization for the agricultural and financial futures exchanges. This site includes a lot of good information about trading futures as well as a tutorial on trading foreign exchange.
New York Stock Exchange
The New York Stock Exchange, like NASDAQ, wants to court investors rather than traders. Still, the exchange’s site has information on trading stocks, bonds, and exchange-traded funds that can make you smarter on those topics without spending a dime.
Hitting the road for conferences
Although day trading is a deskbound pursuit, you might want to get out to learn more about trading and research different companies with products for day traders. Many of the exchanges and larger day trading brokerage firms have their own seminars and conferences, but a few are open to the public.
Brokerage firms offering many seminars and training programs may have higher commissions than firms offering less service, but it may be worth it, especially as you get started.
The Money Show
The Money Show is a series of investment conferences held in different major cities around the country. Registration is free, which means that once you show up, people will be trying to sell you stuff. This could be distracting to an established trader but helpful for a new trader looking to find out more about all the different software and services out there. The conferences also have high-profile speakers, so you can learn from Wall Street celebrities. The Money Show Web site includes articles, podcasts, and free online courses to help you learn more about trading.
The Trading Forum is sponsored by Traders’ Library, which sells research materials and investing books. The conference isn’t cheap, but it covers specific trading strategies and information. It offers a good introduction to trading, especially if the conference happens to be close to where you live.
Taking training classes
Although it’s not necessary, many day traders learn the game by enrolling in a training program, ranging from a graduate-level certificate in options offered jointly by Northwestern University and the Chicago Board Options Exchange to DVDs hawked on late-night infomercials. No program can guarantee success, nor is any one program right for every trader. I list a few bigger and better-known programs here, but check them out to make sure they are right for you — just as you should check out programs that aren’t listed here.
The larger brokerage and research firms offer their own training courses, often at little or no cost. Consider those as a first option, but keep in mind that their introductory sessions might be sales pitches for more products and services.
Marketwise has a series of online courses in stocks, options, and futures trading. Clients log on at a specific time, and the instructor uses real market data to show them what they need to know. It also has live seminars and one-on-one mentorship programs.
Pristine has a range of books and DVDs, online and in person classes, and coaching services in English and Spanish covering trading skills that work in most markets. Its courses operate at different levels, with some requiring extensive trading experience using specific software packages.
Schneider Tradercourse offers training in futures and foreign exchange to both professional and individual investors from its offices in London. Some of its programs are weekend seminars, and the company also offers telephone coaching to help traders solve problems.
Secrets of Traders
One thing I like about this company’s Web site is that you are expected to read a disclaimer about the risks of trading before you get to the good stuff. Many of the company’s programs are designed for floor traders at the exchanges who need to learn to trade futures electronically in order to stay competitive. The course includes books and DVDs.
TradingSchool.com, based in Los Angeles, has a series of online and in-person classes covering trading psychology as well as trading in stocks, options, financial futures, and currencies. The firm works with day traders as well as money managers and other long-term investors.
The University of Trading
The University of Trading offers courses in options, equities, foreign exchange, and financial and agricultural commodities online and at its offices in Chicago. Students have the opportunity to trade alongside experienced instructors as well as hear lectures on different aspects of the markets. The company trains professional traders, some of whom trade for themselves and some of whom take jobs with others.
There are plenty of great and legitimate training firms out there — as well as a lot of scammers. Run from anyone who guarantees your success. I include some information about due diligence at the end of this chapter.
Learning to play at a trading arcade
Many larger cities have day trading arcades, which are offices where traders can rent desk space and get all the quotes and analytics they need to trade. Traders pay monthly rent and may also share some of their profits with the arcade, especially if it provides any training and coaching services.
Trading arcades were the only way to day trade before the widespread availability of high-speed Internet access. They are seeing resurgence as trading moves off the floor of exchanges and into electronic communications networks. Most new trading arcades are clustered near the exchanges and cater to floor traders who are learning how to trade electronically. However, some will work with people who are completely new to trading.
You can find trading arcades through Internet searches, by contacting the options and futures exchanges to see if they know of any that are members (I have in my possession a 2006 directory of trading arcades in Chicago, put out by the Chicago Mercantile Exchange), or by checking online directories such as www.trade2win.com/traderpedia/Trading_Arcade_Index.
Getting the Research You Need
Day traders need a trading system, and they often rely on subscription research services. That’s fine, as long as those systems are adding value over and above their cost. Unfortunately, advising day traders is big business, and there may be more money in that than in day trading. Before you call the 800 number given in the infomercial, here’s some advice to help you evaluate the service.
There are three main types of outside services:
- Price data are detailed, real-time price quotes from different markets.
- Chart services help traders identify profitable trends.
- Strategic research helps people develop a system for trading or follow a system designed by someone else.
You may need all three, or none, depending on your knowledge of the financial markets and your trading style.
Many day traders find themselves subscribing to price quote and analytical services. The following section is a listing of a handful of popular ones. It’s not a definitive list, and this is not an endorsement. Rather, it’s a guide to get you thinking about what you might need and where you might go to get it.
If you know you’ll need outside pricing and data services, consider that when you are selecting a brokerage firm. Different firms have different software platforms, and some can handle outside data feeds better than others.
(Price) quote me on that
I list some of the many brokerage firms that offer day trading services. They all have services that tell you what the prices are for any security at any time, but this doesn’t mean that they have all of the prices that you need for your strategy. For example, if you are day trading common stocks, you may need a system that can signal certain price patterns in any of the thousands of stocks trading at any given day. If you are trading options based on the value of underlying stock, you may need that data as well. If you are day trading international securities, you may need real-time data, and your broker might only offer data with a ten-minute delay in some markets.
Besides needing all the prices and related volume and market-maker data, some strategies involve fast trading. Scalping, for example, involves making a large number of quick transactions in search of small price movements.
Every second counts, and not all brokers can deliver prices fast enough to make scalping profitable. One solution is to get prices from a separate source offering faster delivery. Other trading strategies don’t require real-time prices on huge numbers of securities, but they may involve a detailed analysis of end-of-day prices. To do that, you may need more information than your broker can give you.
The quote service can provide the data in real time only if you have enough bandwidth to receive it. Make sure you have the fastest Internet service and modem available in your area, and consider having a second way to connect to the Internet if your primary service goes down.
CQG pulls data from more than 90 different exchanges, making it popular with people who are trading international securities. Traders can buy historical data for backtesting, and they can add charting and order routing capabilities to their CQG package. Data can be linked to Microsoft Excel spreadsheets for people who want to do even more number crunching on their own.
Trading fuel or agricultural products? Then you might need more research than most brokers can give you. DTN provides pricing and research for commodities traders, including meteorological research and hurricane-related energy supply forecasts. Day traders active in stocks or financial futures are more likely to use the company’s IQ data feeds, which allow users to track 1,300 prices at once, and ProphetX, software that combines price data with analytics that can track small market movements and can handle displays on several different monitors at once.
eSignal offers detailed prices, news, and trading alerts in most financial markets. Its charting features are more advanced than those offered by most brokerage firms. Especially useful for traders who are looking at several different stocks, eSignal can help identify trading opportunities using a preferred strategy and scan the market for other stocks that meet specified investment criteria. The company also offers backtesting and real-time strategy testing, end-of-day analysis for traders who don’t need real-time data, as well as add-on signals that support different proprietary trading strategies.
InstaQuote’s data is designed for equity options traders. It gives traders price quotes on options and equities alike so that they can identify price discrepancies and monitor valuation. It then connects to the exchange’s electronic communications networks, allowing for direct access trading. InstaQuote’s platform can work with several different brokerage firms.
Charting your strategy
Almost all day trading strategies rely on technical analysis, which is the process of identifying buy and sell opportunities based on the supply and demand for a security. Technical analysts look at charts of price and volume changes to look for changes in the trend. Some technical analysis strategies are complicated and require sophisticated charting. That’s why many day traders use software that can turn price data into the information they need to make decisions.
Many users of these services get tripped up by the symbols and data displays. Take the time to learn as much as you can about how they work before you’re trading in real time with real money; most of these providers offer seminars or online tutorials that will help. Yeah, many of the features are obvious, but you want to avoid costly mistakes.
MarketDelta’s software provides detailed charting services that match different strategies over several time periods, in colors that make the data stand out. The company mostly deals with professionals, but it has some products suitable for some day traders.
Metastock has several different charting and analytical packages, including one for foreign exchange trading, another for people who day trade in stocks, and a third for stock investors who are holding for longer than a single day. Traders following specific strategies recommended by different market analysts can purchase add-ons that give them the tools needed to trade effectively.
NinjaTrader is a trading platform for active traders. It can be used instead of a brokerage firm’s trading software, or it can be used on its own. The service is best known for its charting capabilities in the foreign exchange and futures markets, but it can also handle market scanning, automated trade execution, and backtesting, and simulation trading.
OmniTrader is designed to automate technical analysis, especially for stock traders. The system also includes money management tools as well as simulated trading and backtesting to help you find new strategies.
RealTick combines data with charting services and market signals for stocks, options, futures, and foreign exchange, making it useful for traders who are working in several markets. The service includes direct access trading through several different brokerage firms.
Trade-Ideas is designed for stock traders. The software scans the incoming price data feed to find trading opportunities based on prespecified indicators, and it can also show how much the market is deviating from a trader’s style. For traders watching hundreds or thousands of stocks, this can be a useful addendum to a brokerage firm’s offerings.
Newsletters, gurus, and strategic advice
Trading relies on information so that everyone in the market can evaluate what the right price for a security should be. Most of this information can be found from an analysis of the news and the price data, both of which are readily available from brokerage firms and quote services. But many traders follow explicit philosophies or rely on the insight of certain analysts. Here’s a list of some of the bigger ones that you will come across, in case you want to find out more.
Many of these market gurus have good ideas, but don’t follow any of them blindly. Their techniques don’t work in all markets at all times. Besides, anyone with a truly foolproof plan isn’t going to give it away. These newsletters are just part of the ongoing conversation in the markets that help traders make decisions.
The Elliott Wave is a theory that markets move in grand cycles over a century or more. Within that, there are subcycles lasting years, months, weeks, days, minutes, and seconds. Given all the layers and analysis required, those who follow the theory usually subscribe to research services to help them. This site is maintained by Robert Prechter, who is one of the leading scholars of the theory.
The Marlin Newsletter
This newsletter is published by two long-time traders at the Chicago Mercantile Exchange and the Chicago Board of Trade. They give their analysis of the financial futures markets, especially those on the Dow Jones Industrial Average and the treasury markets. The company also offers training and a chat room where instructors and analysts discuss real-time trading opportunities.
School of Gann
The Gann method of technical analysis looks at the slopes of the charts to predict changes. It’s a complicated system, so traders who follow it usually rely on newsletters and research services to help them. School of Gann is one that specializes in this system.
Trending 123 publishes newsletters on technical analysis in the U.S., Canadian, and English stock markets and in foreign exchange. It also offers software and email alerts that point out opportunities in the markets based on their analytical system. The company regularly covers psychological aspects of trading to support its customers.
The power of the printed word
Several books cover specific aspects of trading psychology, trading strategy, and research systems in much more detail than I can in the space that the good folks at Wiley have given me. If you turn to the appendix, you’ll see a list of other resources that can help you in your research.
Day trading was a hot topic in the late 1990s, and you may find that a lot of the books and articles on the subject date from that era. Some are lurking in your public library; others are still available for sale or can be found on the Internet. Markets change. Don’t rely on a system popularized a decade ago unless you’ve tested it and ensured that it still works.
Doing Your Due Diligence
Trading software, training, and research can get expensive, and some of it is an outright scam. Most of it is legitimate, but that doesn’t mean it’s right for you. Before you spend your money, do your research. Start with the free programs offered by the exchanges so that you have enough knowledge to understand what a trading services purveyor is trying to do. Then, do some research and ask some questions. To find out where to go and what to ask, read on.
Where to start your research
You have a ton of tools available to you to do your due diligence. A good first place is the Internet. Go to your favorite search engine and enter the name of the program you’re looking at plus the word scam or rip-off and then see what turns up. If nothing of much interest turns up, proceed to the regulatory agencies listed here.
It’s possible that you’ll learn very little about any given research firm from an Internet search or checks with the different regulatory organizations. That doesn’t mean the firm in question isn’t for real, just that it hasn’t caused any concerns so far.
Commodity Futures Trading Commission
The Commodity Futures Trading Commission regulates futures markets, which are popular with day traders. At this part of the site, you can check out investor advisories, known scams, and recent enforcement efforts to see whether the vendor you’re thinking of working with is legitimate or too good to be true.
National Futures Association BASIC
Futures are popular with day traders, and they are regulated by the National Futures Association. Its Background Affiliation Status Information Center (BASIC) gives you information on people and firms registered with the National Futures Association.
The National Association of Securities Dealers (NASD) provides this handy service that lets you check on the current enforcement status of different brokerage firms and their employees, especially in the stock, bond, and options markets. (Click the “Check the Background of Your Investment Professional” link.) Some of these firms and people may be offering research services or newsletters, so check to see whether they’ve had problems.
Securities and Exchange Commission
The Securities and Exchange Commission has a ton of great information about every aspect of stock and bond investing, with a special emphasis on problems and scams to avoid. Don’t let it scare you away from the market; use it to evaluate any services that you’re thinking of paying for.
Questions to ask
Once you do your basic background checks, it’s time to ask some questions about the service providers you’re considering. This section contains a list of questions to get you started.
Do not trust any promises of performance. Day trading is a difficult business. Many people wash out because it doesn’t suit their personality. Others fail because they don’t have enough startup capital, they don’t take the time to figure out how to do it, or they simply have a run of bad luck. No one can promise that you will succeed.
- Can I get a free trial to check the service out?
- What training and support do you offer?
- How long will it take me to learn the system? Will I need to pay for additional training and coaching, or is your built-in support adequate?
- Who will be teaching me or advising me, and what is this person’s background?
- How long have you been in business? Why was the company formed?
- What additional features are available at additional costs? How many customers subscribe to only the basic system?
- Will this support my trading style and work with the assets I prefer to trade?
- Do you screen traders for your program? Do you ask traders to leave? What are the characteristics of those who do well? Of those who don’t do well?
- Can I talk to other customers?
- Is your software compatible with my broker? With other services I’m using? With my computer’s operating system? With my Internet bandwidth?
- Are your performance numbers actual, or are they hypothetical and based on backtesting? How were the numbers calculated?
Hypothetical performance is based on an analysis of what would have happened had the system been in place in the past or of what might happen if market conditions cooperate. It can be subject to data mining, which means that the system was developed to generate good performance in backtesting, not because it has any logical or theoretical basis.