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." Poor play is often the result of being ill-equipped and trading successfully without the necessary infrastructure in place is impossible. If you lack the foundational elements of modern, digital trade, then the game is over before it begins.
In order for an individual to capitalise on the consistent liquidity and volatility of the modern digital marketplace, three basic inputs are required:
- Computer hardware
- Software trading platform(s)
- Internet connectivity
From the viewpoint of the independent retail trader, each of these inputs is crucial to the potential success of a 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.
For beginners, it's difficult to overstate the importance of securing quality computing power, trading software and internet connectivity. Without these assets, consistently making money as a forex day trader is a non-starter.
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 and periodic replacement being a cost of doing business. No matter if you are trading stocks, commodities or forex pairs, it's important that your computing power is on the technological lead lap.
Computer Hardware Requirements
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.
In reality, there is no one "perfect" trading computer. Product specifications and capabilities vary wildly from machine to machine. Ultimately, the best computer for the job is one that can facilitate the application of chosen trading strategies seamlessly in the live market.
Whichever methodology you use, your PC needs to meet the following requirements:
- Reliability: The computer will be operating continuously for extensive periods of time, making dependability crucial. Untimely crashes can cost money; it's imperative that your machine is able to function well throughout the 24/5 trading week.
- 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. For instance, a good setup is capable of running charting platforms, trading DOMs and news feeds all at the same time.
- Financially prudent: Given adequate functionality of the computer, extravagance takes a back seat to financial prudence. It's possible to spend as much money as you want on cutting-edge technology. For active traders, it's important that the machine delivers robust, cost-effective functionality.
The contemporary trading environment 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 shapes and sizes, all falling within 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.
While it's important to be able to observe what is happening in the financial markets, there is no need to invest in a dozen monitors to begin with. No matter if you're stock trading or scalping commodity futures, it's a good idea to start small and work your way up!
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.
Streaming real-time data will be required for long periods of time. A smooth, accurate data flow with limited interruptions is a necessity. During periods of enhanced pricing volatility, being able to interact with the market in real-time is vital to success.
Advanced Charting And Technical Analysis
Advanced charting applications, technical analysis tools and custom indicators are necessary to interpret market data within short time frames. If your goal is to become a full-time day trader, then understanding the technical aspects of price action is a worthwhile exercise.
Entry Order Functionality
Options for market entry and exit are required for the trader to interact with the marketplace. When trading on compressed timeframes, being able to engage the market with precision is a key aspect of success. Having access to a variety of market, limit and bracket order alternatives is one way that a trader can preserve a competitive edge.
Examples Of Platforms
A few examples of online trading platforms that provide advanced charting and analytics coupled with entry order functionality are MetaTrader4, Trading Station and NinjaTrader. No matter which day trading strategies you employ, these software suites are viable day trading equipment.
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. Whether you're trading stocks or forex, it's important that your software trading platform delivers value to the operation.
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. Essentially, the more remote the location, the more challenging it may be to find an adequate connection. However, this is changing as technological advances such as 5G spread throughout the globe.
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. If you're scalping forex breakouts, then securing a robust, dependable connection to the market is non-negotiable.
A valid internet connection for trading consists of the following characteristics:
- Reliability: Uninterrupted service is required to day trade. Frequent outages and spotty connectivity make professional day trading impossible. This goes for any asset, beit the blue chip offerings of the US stock market or exotic cryptocurrency products.
- Performance: A trader's actual internet speed is based upon numerous complex variables that often fall 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 exchange servers is optimal.
Tips For Improving Network Performance
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 or latency. Eliminating undue latencies is a key aspect of profitable trade. Below are a few ways to ensure that your connection with the exchange is a strong one:
- Conducting regular ping tests with broker and exchange/market servers can help identify data bottlenecks. If ping rates are all over the board, then it may be time to revisit your internet and brokerage service.
- Be sure to run regular virus checks and software updates. While these items are related to the computer and software platforms, they can negatively impact connection speeds.
Simple ping tests, virus scans and software updates can seriously mitigate undue latencies. 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 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.
FXCM Research Team
FXCM Research Team consists of a number of FXCM's Market and Product Specialists.
Articles published by FXCM Research Team generally have numerous contributors and aim to provide general Educational and Informative content on Market News and Products.
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