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Chapter 2:
Tools and Infrastructure
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Here is what you will learn in this chapter:
What tools are required for you to trade.
What kind of infrastructure is necessary for day trading?
What lessons did I learn based on my own experience?
Choosing a Broker/Trading/Charting Platform
Here is what you need to consider when choosing a broker/trading/charting platform.
- Capital Preservation - Broker that is stable and has a track record and the capital to weather the most fierce financial storms
- Capital Management - A Broker that has useful financial tools, like electronic transactions ACH, WIRES, Electronic Checks and so forth. Hopefully offered with zero transaction fees
- Trading Platform - Fast execution, stable relatively bug free, good uptime, decent pricing on commissions
- Charting Platform - Fast ticks, comprehensive studies, good drawing tools, reasonable costs for data feeds
- Research - If research is important to you
http://online.barrons.com/article/SB126844973242861545.html#articleTabs_panel_article%3D1%26articleTabs%3Darticle
One of the items that you will quickly pick up on is that trading is an evolutionary pursuit. Your personality, tool use, methodology and outlook overtime will evolve or devolve depending on what you bring to the table. When I started out I had a great deal of mis-conceptions about the journey I was about to embark on. Specifically I felt I was realistic and had the right attitude, but all that goes out the window when your trading. I was very fortunate in my start to trading, I had/have a mentor, my Uncle D. He has been trading, day trading since the late nineties, basically he's seen it all. I learned through his stories about his evolution in trading and how he came to be the trader that he is. We have by the way as an example two different ways of trading. Surprising perhaps considering he taught me. I did start trading his style, but I realized that with the capital I was swinging about the market, it wasn't going to serve me well. His style by way of comparison is he is more of a scalper, he plays flags, the opening range, squeezes and relys on MACD, ADX, Stochastics to manage his trade. Each Trade for him is likely to last 4-6 minutes, more than likely he is garnering .10-.20 cents consistently and he at most makes only two trades per day. If you are making more than 2-3 trades per day, you may be over trading. It's better to be patient and look for your setup than attempt to make it happen. As for me I usually make one round trip per day and I look to capture ideally anywhere from .20-50 on my trade. However, all things being relative he trades 5,000 shares and I trade 300-1,000 shares depending on the size of the stock. His by far is the less risky of the two, but requires great discipline. My method is for risky as, more exposure to the market = more risk. Especially these days. The trader starting will be like my grandmothers dog chasing every car that passes down the street. You will need to learn how to pick the car that has the best treats. Of course what may work for my Uncle may not work for you nor, how I trade either. However, you will utilize some aspects of how we trade and create an amalgam for your own method/style. Anyway, that's for later.
When I started, my Uncle suggested I use TDAMERITRADE, I was skeptical at first, because I knew from their commercials that $9.99 and ScottTrade at $7 a trade they were really expensive. However, as he explained when you trade it is part of the cost of doing business, if you execute a good trade $10 bucks doesn't matter, and believe me chances are on a bad trade it'll appear like a gnat on an elephants... you know what. I didn't think about it too long, I figured it was best to work off the same platform anyway since he was going to be anointing me with his pearls of trading wisdom.
He also recommended a charting solution, he used QCharts for real-time tick charting, it's a pretty good solution and at that time beginning of 2009 they had been acquired by eSignal. eSignal has a lot of bells and whistles, probably more that QCharts however that was something you paid for. I test drove both solutions and I actually liked the performance of QCharts much better, tick wise and the cost, at the time it was $135 per month with CME futures data (essential). eSignal had a good paper trading utility however the cost and also having problems integrating their use of trading from charts with TDAMERITRADE was not happening. I had a few small mistakes, fortunately not a lot of money, and remember most often mistakes never really go your way. You learn to get really paranoid about your set up. Change of course is part of the game however when it comes to your screens (layouts), infrastructure and eventually how you trade change is something you cannot tolerate.
I basically started out with a mirror image of my Uncles screen layout and oscillator's he gave the pitch behind each one (studies) and any customizations or tweaks he had made and used, so I set my Q-Charts charting platform exactly like he had. He was also utilizing Command Center to enter his trades, he was definately old school. This is how I defaulted to a two machine configuration, and I recommend a two machine configuration, one dedicated for charting and another for order entry and broader market charts however, now that I utilize TOS (or as we affectionately call it Sink Or Swim) as my execution and market platform, however I still utilize two machines ( I have two SOS accounts) and utilizing Strategy Desk (affectionately known to us alone as Tragedy Desk) I have real time tick data on each machine and each machine is connected to an HDMI Samsung 24" monitor which can switch to TV mode and to PC mode pretty quickly and gives a great deal of versatility. Meaning I can switch one monitor to Bloomberg or CNBC and have another monitor on my selective charts. I have Strategy Desk running as well for redundency since they utilze two different trade backends if TOS is down I can switch to SD to enter in an entry or closing trade.
If you currently use a different platform or have your heart set on a particular broker by all means utilize your preference. My motto is if it ain't broke don't fixit. That's not to say I didn't do my due diligence with the likes of Tradestation, MB Trading and SOGO. I did, but I figured that was a future platform although now that TOS is on AMERITRADE I'm pretty convinced I have my future platform now.
As far as tools here is a run down of the tools i used starting out:
