Day Trading Software: The Good the Bad and the Ugly

Instead of just writing a lengthy color commentary on day trading software, let's apply some clear parameters up front of what we mean by the good, the bad and the ugly:

  • Good -these are the few gems within day trading software that will make you make money.
  • Bad - these are bloated/wasteful items within trading platforms that increase your costs (fees, licenses, etc.) or are just a waste of time
  • Ugly - these are things which make you lose money trading

The Ugly

So, let's go in reverse order and first cover the ugly side of day trading software. The one good thing about the "ugly" side of trading platforms is the ugly is so blatantly obvious, you will know within 30 seconds to run for the hills.

Clunky

Have you ever used software that is simply slow?  Slow in the sense that you are watching a stock breakout on a 5-minute chart, you go to enter your order and the screen locks up on you.  By the time you gain access to your machine it's been over 2 minutes and the stock is well beyond your entry point?

Or what about the other example where you are watching a winning trade like a hawk with a clear exit position.  As the stock approaches that target it has a burst of activity.  Your software begins to scream with alerts and sirens as your trend lines are crossed and the stock makes new highs on the daily chart, but all of this activity locks up your machine.  After the tape starts to slow down and your chart finally updates with real-time data after being hijacked, you see that your stock has now retreated from loftier levels and while you can still claim a profit it is fair less than what you had 2 minutes ago.


Horrible Fills

After you have tried your hand at day trading for some time you will undoubtedly realize market orders are your enemy.  Depending on your system a few ticks in the right direction over the course of a month could be the difference between up marginally and size able gains.  So, you switch over to limit orders to give more structure and clearly defined entry and exit points for your trading.  If your software is "ugly" after placing your limit order you will notice the price action will simply slice through your order without a fill.   You have one of two choices at this point: (1) watch the trade take off and you are not on the bus or (2) chase it with a market order and run the risk of a horrible fill.

The Bad

Your day trading software should make you a better trader at the end of the day.  You should feel on some level that if you keep practicing and stay focused over time you will make money in the market.  Well, what if your trading software actually prevents you from accomplishing your goal.

Expensive Add-On Indicators

It's no secret that I am not a fan of these Holy Grail indicators.  These "magic bullets" strip away our responsibility and ownership over or trading decisions.  You will see some platforms offer the standard 15 or so indicators, only to up sell you on some supercharged indicator that will completely change your life.  By the way this indicator is going to cost you a few hundred dollars a month to gain access, but no big deal.  So, instead of learning and improving your trading profits, your trading business has now just increased its operating costs for unproven indicators/tools.

Too Many Bells and Whistles

The more bells and whistles a platform has the greater the odds you are going to try to use them all.  Instead of focusing on the one or two things that will make you profitable, you spend all day and night trying every single offering from the platform. You end up with a screen full of indicators, CNBC running in the background and a direct feed from StockTwits.  The information overload causes you to go into analysis paralysis mode unable to put on any trades.

The Good

Let's be very clear, your day trading software should make you money.  You should look at your trading software as if it's your wing man in the trading world, effortlessly allowing you to go from winning trade to winning trade.  Below is a list of 4 "good things" you should look for in your day trading software:

  1. Trading Simulator - your platform should allow you to trade using real-historical tick data with time and sales.  Like anything in life, if you plan on taking it to the next level you need to practice
  2. Lighting Fast - it's not good enough that your software is pretty fast. You should feel that your software is able to handle the load of an Apple or Facebook streaming thousands of trades per minute without skipping a beat.
  3. Fills - not only should your software fill your orders, but on average your fill price should be better than your order price.  It's like reaching into your pants pocket and finding that unexpected $20 dollar bill.
  4. Education- the learning aspect of trading is overlooked far too often by brokerage firms and trading software companies.  It's like placing a 16 year-old behind the wheel of an Indy car and expecting him to compete on the same level as Mario Andretti. Your day trading software should provide you with the articles and videos that can help you learn all there is to know about trading so you can determine which strategy best fits your risk profile.

Now that we have covered the pros and cons, let's discuss six additional things you need to know before making your final decision.

Trading Speed

1. Speed

Calm down, when we say speed we are not talking about the setup many prop firms have in New York where they try to setup their server farms less than 100 yards from the exchange for an edge.  We are just saying that the platform needs to allow you to run all of your intra-day scans as well as all of your charts.  I distinctly remember a time when I was using a particular platform (omitting the name to avoid bashing) where I had up ~20 stocks and this load on their program brought my computer almost to a halt.  I ended up having to reduce the number of stocks in my watch list in order to prevent the frequent occurrence of the screen locking up while I was trying to place an order.

Lessons Learned:  If you pick trading software that slows down your machine, it will generate an awful user experience and you run the risk of the financial impacts of not being able to enter/exit trades.

Platform Bonuses


2.  Free stuff isn’t 100% free

Last time I checked everyone loves free and day traders are no different.  Trading software companies always try to woo you in the door with all kind of offers. This could range from 30 days of free trading, to my personal favorite the cash bonus if you fund an account with a certain dollar amount.  Now I want you to think back over your life and ask yourself why anyone would give you something for free, not including your parents?  Well doesn't take long to realize that these are offers to get you in the door and hooked on a particular platform.  Who has time to close out an account and go through the painful process of completing all of the paperwork, transfer of funds, etc. etc.  The brokerage firms know that if they can get us hooked, we will likely stay with them out of comfort vs. necessity.

Lessons Learned:  Things may look free and fun initially but always remember to pick your platform based on your trading style and habits and less on the quick thrill of a few free bucks.  You have to remember if the brokerage firms are willing to pay you hundreds of dollars to use their platform, they clearly plan on making thousands off of you in commissions whether you succeed in trading or not.

Trading Platform Features

3. Platforms with 50k features, none of which you know how to use

How many of you can look at the image to the left and feel comfortable with the amount of data on display?  If you say yes, please do me a favor and slap yourself.  You officially have the early signs of the analytical mind on steroids.  Features and widgets in day trading platforms are like a virus.  Features are like a virus.  These platforms start out with a few add-ons, but over time these balloon into hundreds of useless features.  You the newbie and or frustrated trader take comfort in all of these bells and whistles.  Hell if you are looking for something and there are 200 options, odds are you will find something that you think you are looking for.  Well platforms are no different.  If you are getting hammered in the market using oscillators, well you will talk yourself into using the new visualization board which shows all of the buy and sell orders with bright lights.  Do you get it?  There are no magic bullets and you don’t need 300 indicators, CNBC streaming into your screen or feedback from the other 50k traders in the community that don’t have a clue.  Focus on a few things that work and maybe get 1 or 2 mentors, who are actual people you know making a full-time living as a trader.

 Lessons Learned:  It's not important that your trading platform have 60 technical indicators.  The more indicators and windows you add to your screen the greater the chances are these tools will conflict with each other only further complicate things.  Make life easier on yourself and go with a platform that has a great user experience and leave all of the complicated trading platforms to people who would rather talk about their multiple trading screens vs. make money.

Back Testing Trading Strategies

4. Back testing your Strategies, is all of this necessary?

I am personally over the idea of back testing.  Now it is worth noting that anyone should research and look at the potential positives and negatives with any trading strategy.  The problem I have with back testing is people will undoubtedly go from testing a very simple strategy to sitting in front of their machine and writing the perfect line of code that will produce perfect results. aSo, you start out with a basic simple moving average crossover strategy where you look at the markets movements over the last 2 years.  While your strategy is profitable, you find 5 cases where the draw downs were 20% or more.  In true form you make a few tweaks to your code to address these issues and viola you have an automated strategy with a 90% win ratio.  You then take this lovely model and apply it to the real-world only to realize it doesn’t work.  I'm not making this up here.  This literally happened to me during the mortgage crisis where I back tested strategies all the way back to the '87 crash, but the market produced swings during the '08 crisis that were simply unprecedented.

Lessons Learned:  Imagine what happens when you apply these automated rules to shorter time frames (i.e.1, 3 or 5 minute charts).  Do you think these systems will work for months or years?  If you are day trading each day presents different opportunities best suited for a particular type of trader (i.e. breakout trader,

Platform Data Fees

5. Why do I have to pay for data, isn’t the platform fee enough?

You have to love these Wall Street types. So you pay for the software outright let’s say 2,000 dollars to gain access to a license.  Like you I’m thinking, 2k dollars is more than enough.  Hell, that’s more than a tv, a great suit or a crazy weekend in Vegas.  Yet after you purchase the software you will quickly notice your charts are blank or only have a fixed number of days worth of data.  You then quickly realize your loving IT company that just sold you the best trading platform is now telling you that you need to fork over another 50 bucks a month.  Now of course part of this are exchange fees for the data, I mean capitalist aren’t into giving away the data for free, but you still need t0 of course pay your friendly trading software developer another 30 bucks for him to pass you the data.  Oh, when does it ever end.

Lessons Learned:  When you purchase a trading simulator make sure you consider if the data is provided in your fee. 

Trading Platform Awards

6.  How is every platform the best platform for the year?

Have you noticed that every platform is the best in some obscure category.  This is the beauty of certifications.  Just to rattle off a few there is :

  • Best Real-Time Data
  • Best Professional Platform
  • Best for Frequent Traders
  • Best for Options Traders
  • Best Research and Tools
  • Best Investment Choices

Unless you know exactly which award means the most to you what does any of it mean?

Lessons Learned: So, over the years what I have come to believe is that people end up picking their platform based on what pretty much where they land first.  A platform is much like a daily routine. Once you have become accustomed to the ritual of life you begin to just get used to your platform.

Al Hill Administrator
Co-Founder Tradingsim
Al Hill is one of the co-founders of Tradingsim. He has over 18 years of day trading experience in both the U.S. and Nikkei markets. On a daily basis Al applies his deep skills in systems integration and design strategy to develop features to help retail traders become profitable. When Al is not working on Tradingsim, he can be found spending time with family and friends.
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