RT Trading (Real Time Intra-Day), by J. C. ("Chris") Pratsch
Part 1
Strategies and Technologies
Real Time Intra-Day Trading is a stock market activity designed to buy and
sell stocks during one day; only occasionally will stocks be held over night
or for longer periods.
Buy and sell orders may be activated once or several times during a day
on the same stock. Such activities today commonly are carried out from private
homes; they, therefore, deserve our closest scrutiny. Of the several systems
present today, I select one that I consider best suited for the use of an
individual trader; it will contain the following parameters:
1) - Data received during a day from a dedicated server via any transmission
system-modem/telephone line or cable, broad band systems, wireless systems,
2) - dedicated software program installed in home computer,
3) - on-line connection to established brokerage or discount brokerage
account.
If indeed such intra-day trading activities can or will lead to critical
financial gains associated with bearable risks, then short-time trading may
well replace much of former brokerage activities. In fact, it appears at
this time that intra-day trading has already reached important activity levels,
beginning to influence the overall markets. It remains to be seen if intra-day
trading has increased because of loss of working places and employment for
many; if so, then intra-day trading volume may decrease again when employment
levels return to "normal".
There are several reasons for this observable increase of intra-day trading
activities during the last 2-3 years:
improved technology (data transmission, computer potential, software programs)
now permit transmission and execution of trading orders in sufficient time;
great financial losses and losses of previous gains experienced by many
individuals in the last 3 years have decreased previous trust in professionals
and increased the need or desire to "do it yourself";
the arrival of relatively or absolutely low-cost software programs and
financial services over the Internet have enabled many people to participate
in the market at low operational cost. Brokerage costs for intra-day trading
have generally decreased, and the time between placing an order and seeing
the completed trade has been considerably reduced. The high volatility of
financial markets we now observe (most likely aided or even caused by the
increase in do-it-yourselfers) enables many to easily enter buy and sell
orders during the day.
In the following I like to discuss a few of technical items one should
consider in order to be successful in intra-day trading. I will concentrate
on some of those steps and on some techniques that I personally have found
to be a sound basis for successful intra-day trading. I will not discuss
related psychological etc. points. There is also a large amount of information
available on intra-day trading approaches, from books to Internet sources
to commercial seminars. Not all of these sources bring useful data.
The goal of intra-day trading is simple-to make a maximum of money with
a minimum of risk in a minimum of time. Obviously there are many ways to
reach such a goal, and there are many obstacles in the way to success. Many
players are present, the play is rather competitive, and the mechanics of
financial markets demand a large number of different approaches, knowledge
and experience. If the reader disagrees with my systems, it is just another
sign that we face more than one approach to the financial markets.
Technology - Hardware
We may also say here "required technology." There is no way around having
at one's disposal technically satisfactory hardware. Such hardware is available
today for reasonable cost. Requirements on hardware potential increases constantly,
but hardware also becomes more powerful and financially affordable at the
same time. One should consider:
Data transmission
Computing power
Storage memory
Visual quality.
Data transmission by telephone/modem connections is sufficient so far for
most trading programs. Broadband and cable transmission are more satisfactory
and possibly already required for some intra-data systems that aim at professional
usage. Wireless systems should not lead to any additional problems with data
transmission at satisfactory speeds.
A certain minimum of computer power is required for data computing and
chart generation. Super-fast chips are not required, but chips with more
than 0.5 GHz should be considered.
Storage memory requirements are high for some programs. One will be well
advised to have RAM potential of 512KB. Less memory can lead to program shutdowns.
In general, then, a modern all-purpose PC (summer 2003) will be satisfactory
for intra-day trading. For visual (chart) requirements, good software programs
and sufficiently high computer potential are necessary as well as sufficiently
fast and large computer screens. A 17-inch screen seems a minimum. Some use
more than one screen activated by one program source; others even use more
than one computer and multiple screens and multiple programs at the same
time. There is no required minimum of information sources here; too much
information will not help much in the critical phases of intra-day trading:
Stock selection and timing of trading.
Technology - Software
Microsoft 98 SE works well (still, August 2003)) with most software programs,
although more modern operational systems up to HP should be considered. There
is a dearth of stock trading software programs. Some are free, while some
carry considerable prices. Some of the free software programs charge for
access to data only. Among popular programs for individuals we find - TC2000,
Metastock, Omega, Fasttrack, Tradestation, and Amibroker. There also exist
now a number of Real Time trade software programs offered for free from brokerage
companies, like from Fidelity, Scottrade, C. Schwab, from QuoteTracker, YAHOO
and others. While brokerage programs may be sufficient for charting and for
market reports, they do not offer at this time stock list screening and stock
sorting modules. Cost can hardly be a decisive point in software selection
when large financial gains are expected. The program selected should satisfy
the need and should be easy in operational handling of daily tasks.
Another requirement is access to intra-day data, or better to reliable
data. Most software programs have their own database and charge for access
to such a database. Some programs like Quote Tracker, AMIBROKER, Metastock
offer access to third-party data.
Some Details of Intra-Day Trading Operations
In theory, intra-day trading should not bring complications or problems.
However, there are more than many can handle. They may occur in any portion
of an intra-day operation.
The complications begin at the very beginning: We have the computer, the
installed software, connection to an open brokerage account-but, what is
a potential target for trading, how does one find a promising "good" stock
candidate?
Stocks to be traded must have the potential for price appreciation (we
discuss here only long trading; short selling or options are not covered
here, although the general approach is very similar). Such definition will
be based on detailed analyses of stocks, of their underlying fundamental
and technical "health". Practical is a check of databases the night before
the trading day in order to find stocks that have such a positive potential
from both fundamental and technical analysis standpoints. Short-and long-term
technical indicators must be positive. One secondary viewpoint here is that
should intra-day trading be unsuccessful, the stock should still maintain
its longer positive potential, while otherwise "everything" is lost.
Other approaches involve selection of stocks from listings of high volume
and/or high price-appreciation trades during the trading day; or one may
select stock lists from reputable sources such as www.clearstation.com or
www.stockcharts.com. Stock names proposed as "good" from unreliable sources
will be found to be unreliable. A good source of basically healthy stocks
are lists of stocks that form major market indices like DJ-30, NDX, NYSE,
SP-500. One may also visit the public libraries for copies of Standard & Poor
stock tables.
I use the scanning and sorting capabilities of the program TCNet; other
stock sorting programs are found at several Internet sites, one being wwww.stockcharts.com at the time of this writing. One can also subscribe to stock recommendation
programs under a daily service agreement with some company; but they historically
have a bad reputation.
It is recommended to concentrate on a limited number of stocks (say 100)
rather than on an entire database of, say, 8,000 stocks. Some successful
traders "work" a limited number of stocks only, like just 30, and follow
these in every detail both long and short.
Another good way to select stocks for intra-day trading involves stock
price movements during the day relative to certain specific technical indicators:
Whenever a stock price signal crosses a pre-defined technical indicator signal
line, the stocks may become an immediate trade object. This movement may
be found by changing stock charts frequently, or by using mechanized alert
systems. For example, a positive stock purchase signal can be given when
the price signal line crosses upward a moving average signal line, and when
this signal line itself moves upward. Both signs are very positive for following
price appreciation as long as these conditions are given. One either finds
such a movement on a chart, or an alert system signals that these conditions
have occurred in a certain stock. There are programs that offer price movement
alerts, for example OMEGA and AMIBROKER.
J.C. ("Chris") Pratsch has been active in computer-based intraday trading
for over a year. He started investing and trading of stocks and funds in
1966. He can be contacted at jcp@hal-pc.org.
|
