Parallels are often drawn between day trading and nearly every type of sport. Whether one is a seasoned day trader, savvy chess player or a rookie linebacker in the NFL, an age-old axiom sums up performance: “At all levels of play, the secret of success lies not so much in playing well, but in not playing badly.”1)Retrieved 12 May 2016 http://www.surefirething.com/day-trading-quotes.html Poor play is often the result of being ill-equipped. Active trading without the necessary infrastructure in place is an impossibility, and the game is over before it begins.
In order for an individual to actively trade the digital marketplaces of today and take the proverbial “playing field,” three basic inputs are required:
- Computer hardware
- Software-driven trading platform(s)
- Internet connectivity
From the viewpoint of the independent retail trader, each of these inputs is crucial to the potential success of the trading business. Cost-effective functionality of all three inputs is a necessity, and it’s up to the trader to make appropriate decisions regarding which types of tools are best suited for completion of the job.
Hardware: Computer And Monitor
Computer technology evolves exponentially over time, with today’s cutting-edge machines to be rendered obsolete sooner rather than later. The selection of a trading computer is best seen as an ongoing process, with periodic replacement being a cost of doing business.
Brands of computers and their specifications vary greatly. In the case of a novice or new trader, a machine with a hard drive, RAM, and processor of a lower-end gaming computer is a good place to start. As a trader becomes more familiar with the business and can readily identify what is needed to optimise performance, hardware upgrades can become worthwhile endeavours.
The following characteristics are required components of an adequate trading computer:
- Reliability: The computer will be operating continuously for extensive periods of time, making dependability crucial.
- Functionality: Performance specifications need to be adequate for the products and markets being traded. The computer must be able to support the simultaneous operation of multiple applications.
- Financially prudent: Given adequate functionality of the computer, extravagance takes a back seat to financial prudence.
The current trading atmosphere is largely visual in nature. Real-time charting applications have replaced number-based tote boards as a means of displaying market data. Due to the importance of being able to “see the market,” computer screens are an essential tool for the day trader.
Screens come in a variety of sizes and shapes, and in a wide price range. An LCD trading screen of 19″ or more is an adequate entry-level monitor. Most computers are capable of efficiently running two monitors at the same time, but for any more than that a video card and power source upgrade will be necessary.
Multiple screens provide an extension of the viewing experience and serve as a standard part of day-trading hardware. You can only trade what you see, and the goal is to see as much as possible.
Software: Trading Platform
By definition, a “trading platform” is a software program that processes transactions involving securities in an electronic marketplace. In essence, it’s a tool that converts raw market data into a format easily interpreted by the trader. The ability to stream live market data, place buy and sell orders upon the market and apply charting techniques are all dependent upon the market access provided to the trader by the trading platform.
Ultimately, it is up to the trader to choose the trading software that is the best fit for his or her trading style. An effective trading platform needs to provide the trader with the following:
- Market accessibility: Streaming real-time data will be required for long periods of time. Limited interruptions in data are a necessity.
- Advanced charting and technical analysis: Advanced charting applications, technical analysis tools and custom indicators are necessary to interpret market data within short time frames.
- Entry order functionality: Options for market entry and exit are required for the trader to interact with the marketplace.
A few examples of online trading platforms that provide advanced charting and analytics coupled with entry order functionality are MetaTrader4 and NinjaTrader.
Much like the purchase of a trading computer, cost effectiveness is a key part of selecting a platform. Costs range from platform access being furnished by a brokerage firm, to specialised trading platforms charging substantial monthly fees for services provided.
An internet connection is the lifeline of the day trader. Without an active connection to the exchange, a trader cannot view or interact with the market.
The single largest factor that impacts internet quality is the location of the trading operation. Depending on location, internet connectivity may be limited or insufficient for the day trader’s needs.
Unfortunately, not all internet connections are created equal, and the task of finding the best possible connectivity option is up to the trader. No matter which type of internet service a trader decides to use, the rule of connectivity as it pertains to day trading is simple: The faster, the better.
A valid internet connection to be used for trading consists of the following characteristics:
- Reliability: Uninterrupted service is required to day trade. Frequent outages and spotty connectivity make professional day trading a “non-starter.”
- Performance: A trader’s actual internet speed is based upon numerous complex variables often outside of the trader’s control. An absolute minimum download speed of 1MBs is a good rule of thumb to use when actively trading. Also, achieving the lowest possible “ping rate” between the trading computer and the exchange servers is optimal.
In contrast to the purchase of a trading computer and selection of a trading platform, going with a low-cost internet alternative is rarely a good idea. While the upfront operational costs may be lower, trading performance is likely to suffer based upon issues related to “information lag.” Order slippage, delayed market data and high network latencies are all performance issues that can be reduced through optimising the internet connection.
Active day trading is a challenging, time-consuming endeavour. Ultimately, it is up to the individual trader to make the proper decisions regarding the selection of computer hardware, software and internet connectivity. Numerous options are available, and it is possible to secure cost effective and adequate equipment for the job.
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