An Overview of Swing Trading Resources
There is an impressive array of resources available to today's swing trader. Everything from blazing-fast computer networks to real-time stock market data, from a variety of educational materials to a large selection of online brokers. But this was not always the case.
If you were a small-time investor looking to make a trade twenty-five years ago, you were pretty much on your own. About the only thing you could do to prepare for that intimidating call to your broker was to read one of the few books on trading that existed at the time. Even then you would only be armed with the market data you gleaned from the morning paper. And you paid handsomely for this privilege.
According to a June 17, 1990 article in the New York Times, the commission on 1,000 shares of a $10 stock was about $285 with a full-service broker. Which might have been worth it since they would stop you if you were about to make a horrible trading mistake. You could, of course, take your chances with a discounter. But you would still pay anywhere from $50 to $90.
Contrast this today where any number of shares can be traded for just $5 and where traders have access to more data than the brokerage firms of the past even had.
But is more always better? How can you be sure you are getting quality data? These are pertinent questions since a trading system is only as good as the resources used to build and execute it. As computer programmers often say: garbage in, garbage out.
With a little research you will quickly learn to separate the good from the bad and the ugly. The resources you end up using, however, will ultimately depend on the financial means at your disposal. What can you afford? What are you willing to pay for? And what are you willing to forgo if the price is right?
Below is a list of different types of resources you will need to consider when developing your swing trading system. But remember, having the best of the best is no guarantee of success. It is how you put it all together that counts.
Types of Swing Trading Resources
- Brokers – the one on-going expense every swing trader will have. For even in the age of instantaneous transactions, we have not yet reached the point where stock trading is completely free. The question to ask is, how much are you willing to spend to make a trade? Just like years ago, you can pay an expensive full-service broker who will give you investment advice every step of the way. But if you want to truly own your trading system, opening an account with a discount broker is the way to go. There is simply no reason to pay for what you will not use. Again, reaching for profits is best done through minimizing costs. And this includes the operating costs of your trading venture. Just be sure you are not going cheap just to save a buck. If you find you need something but it comes with a price, pay it.
- Data – what you ultimately base your trading decisions on. It is obviously important to have access to accurate stock prices. To the long-term investor, this is not an issue. But for the trader with a time horizon far shorter, it is an absolute necessity. Today all online brokers provide you, at minimum, with snap quotes. These are free of charge. Many also push a (slightly less-than-official and/or delayed) data stream through their platforms, also usually free. These free levels of data are even quickly becoming the norm on many non-broker sites. Will this suffice or will you need something better? Do the number of trades you plan to make justify the additional cost for official, real-time data, streamed either through your broker's platform or from elsewhere? Or does your broker provide this free of charge, provided you meet their minimal conditions? Get all of this settled before you begin live trading.
- Charts – an elite group of traders trade directly from the Level II quote screen. But they are few and far between. Most swing traders employ the visual aid of charts to help them decide when and where to take positions. If you plan on integrating chart analysis into your trading system, shop around. Not all charting software is created equal and using one over the other is largely a matter of taste. In other words, you are not stuck with what comes with your brokerage account if it is not to your liking. There are many good charting sites out there today. While most will pitch you optional upgrades for additional fees, you are likely to find their free service more than adequate. Be sure to get an early start to figure out exactly how you will set up your charts. Chart analysis should become second nature to you. You want to know with a glance what to do in the heat of the moment.
- Screeners – a filtering tool used to select tradable stocks. Your broker will probably include a screening utility as part of their trading platform. But it is likely to pale in comparison to those sites exclusively dedicated to that purpose. Make sure the one you end up using has all the filtering criteria you need. If your trading strategy calls for, say, trading stocks at the 150-day moving average and your screener only allows you to preselect the 20-, 50-, and200-day, look for another screener. Or come up with a work around. Screeners can be seen as a luxury, not an absolutely necessity. Depending on how big your stock universe is, you could get away without using one at all. For once you become experienced reading charts, you can easily keep hundreds of stocks in your watch list and still look through it every day in less than an hour. But then again, if you want to test the feasibility of conducting trades using a new set of criteria, screeners do help you to quickly zero in on what is out there.
- Watch Lists – a way to track potential future trades. Many sites have an area where you can create and maintain a watch list. Some conveniently integrate it with whatever service they offer traders. Unfortunately, most cap the number you can put in it with a free account. Unless you have other business with the site, you probably do not want to pay extra for it. It is just a list of stocks, after all. Create your own watch list in your favorite software program. You can then organize it into sub-lists or in any other way you want which might not be possible with site-dependent software. In fact, maintain your own list regardless. That way you can import it into other sites. Generally speaking, you should set up your trading business to run as independently as possible. Sites and services change and go down from time to time. So limit your exposure to these dangers to help mitigate their impact on your daily trading operations.
- Backtesters – online utilities that test the viability of a trading strategy on historical market data. Backtesting sites abound. Most have limited functionality in the form of preselected criteria, or else restrict testing to a limited data set. Others are more sophisticated, allowing you to write your own scripts on a dataset you define. If you enjoy coding and have the funds (they usually charge a fee), this may be the way to go. But regardless, if your swing trading strategy is sufficiently complex, you may have to backtest the old-fashioned way, by hand. Although this is much more labor-intensive, it is well worth it. You will not only learn whether your strategy would have worked in the past, but under what specific market conditions it did. Finding out, for instance, that it is twice as successful when traded in a bull (and not a bear) market is good information to have.
- Paper Trading – also called forward testing. Some sites offer stock trading simulators (effectively programs that simulate a stock trading environment). But unless the simulator is offered by your intended broker and is so seamlessly integrated with its actual trading platform that the only difference is that one has a fake account while the other is funded with your own money, it may not pay to use it. Differences accumulate and your transition to live trading may be difficult and confusing. Better to paper trade on your own using all the resources you intend to mobilize during live trading. This includes charts, data feeds, screeners, etc. You should even get screenshots of you broker's order screen to practice filling out orders. Your goal is to get as close to actual trading as possible. During this time you will learn what works and what does not. Do this for a month or more, or until you have made a statistically significant number of trades. Only after you have a documented record of your profitability on paper should you begin to trade for real. While nothing truly prepares you for making trades with your own money, a certain confidence is nevertheless gained from the experience. Do not underestimate this experience. It is a powerful (albeit intangible) resource in and of itself.
- Other Components of Your Swing Trading System – your trading plan, trading strategy, backtesting and paper trading records all work together to keep you on track. You might benefit from keeping some of these documents open in a separate window, or in hardcopy beside you, as you trade. While paper trading, you may have developed other resources, like spreadsheets that calculate position sizes as per your risk and money management criteria. Continue to use them while live trading. You should also develop and maintain your own set of trading records. Your broker's site will no doubt keep track of your trading activity. But what happens if you change brokers? Having your own set ensures the data will be standardized according to your needs. It can also help prepare you for tax season.
- Other Trading Sites – a swing trader needs pertinent market information. If your broker and the other sites you use for data, charting, etc, are not giving you what you need, schedule daily visits to other sites. But keep to a select few to remain focused. Stay away from those that are nakedly trying to sell you something. There are plenty of sites run by well-established and reputable investment and media firms. One big time waster, and potentially costly mistake when you are just starting out, is to get involved in social media. Even if you can spot the obvious 'pump and dump' schemers, it is still difficult to remain objective when dozens of traders are chatting up a particular stock. Always remember that you are to trade your strategy and not according to what others believe will happen. That goes for when you are watching business news shows on TV too. While perhaps more learned, the financial talking heads you find there should never persuade you to trade what you are not seeing on your charts. The best advice is to tune out all this noise until you have cut your teeth. But by all means delve into those sites that seem committed to trader education. You should constantly be on a quest to increase your trading knowledge. In the end, perhaps this is your greatest asset.
- Computer Hardware – your portal into the online trading world. If you have a PC or laptop of recent origins and can surf the web comfortably, you can probably use most web-based trading platforms without a problem. Even platforms you download and install on your computer have surprisingly few system requirements. At minimum, most recommend having at least 1.5 to 2.5 GHz processing speed, with 2 to 4 GB of RAM. Even more surprising is that a connection speed of just 1.5 to 3 Mbps is all that is needed to take full advantage of real-time data streams. So in all likelihood you will not need to make upgrades to your computer system just because you have decided to become a trader.
- Workspace – the physical area where you conduct your trades. It should be quiet and free of distractions. If you surf the web for entertainment, consider setting up another area exclusively devoted to trading so you will not be tempted to stray off course while you work. Since you are going to conduct your trading just like a business, set up your workspace like an office. There should be a desk with a comfortable chair and a place to keep all those items you will use on a daily basis. These include hardcopies of your trading plan, strategy, and journal. Hang up a calendar noting any trading holidays or special market hours that month. Create and keep a 'hot sheet' nearby (i.e., something that lists critical contact information, like your broker's and bank's phone numbers). You want to be able to react quickly in case of emergency. Your workspace is also the most natural place to house your library. Stack it with your favorite books on trading. Since books are peer reviewed prior to publication, they should be preferred to what is found on websites and financial blogs which do not usually go through any vetting process.