Choosing Trading Software

You can theoretically track your futures trading positions and make buy and sell decisions with an Excel spreadsheet, but it is easier and quicker with specialised software. Trading software also helps you to develop and backtest your trading strategy.There are two basic types of software trading programs. The first type allows you to download market price data to perform technical analysis, including overlaying typical indicators such as moving averages. You evaluate the charts and make your own buying and selling decisions. This is the most commonly used type of trading software. This is often provided for free through your online broker. All the software discussed below does charting and also adds extra features.The second type of software is automated trading software that will execute a trading strategy that you have developed (they also come with most common strategies already included). Typically they include a simple programming language. All you do is execute the trades that the software tells you to execute. Some packages even automatically execute the trades with the broker (often this is a subset of brokers, or even just one broker).

Black box vs white box systems

There are two types of automated trading software, toolbox, or whitebox packages, or blackbox packages.Toolbox or white box programs explain to you the reasons behind the trades and many will let you adjust the decision-making parameters the software uses to make those trading decisions. This article will focus on white box software.Black box programs make trading decisions but the logic (or at least the exact rules) behind the decisions is hidden. Your money is essentially in the hands of the developer. Whilst some black box systems may give good results, in general I am very skeptical of them for the following reasons:

  • Many of the systems I have reviewed have been developed on very small data sets, and appear to have been curve fitted to give good advertised results. Some appear to give performance higher than is mathematically possible, given that markets are chaotic. This means that they are unlikely to perform well in real life.
  • The system may not match your risk tolerance or time requirements - it could have huge drawdowns, or require large amounts of trading capital, or move in and out of positions many times a day.
  • You may find it difficult to have confidence in a system if you are unable to determine how it works. This affects your ability to stick with the system during downturns.
  • You have to question the motive of selling a system that apparently performs well. If someone has a winning system, why would they sell it? They could make millions without having to sell their software.

 If you want to look at black box, or semi-disclosed systems while avoiding the snake oil salesmen, check out Collective2. This site has a large number of trading systems on offer, and they are tested in real life and reviewed by other traders. They also have an automated execution tool that works with the systems.If you want to build your own system, there are several excellent tools available. All these tools run only on Windows XP and Vista, so if you use another platform, you are out of luck (unless you can run Windows in a virtual machine on your Mac or Linux box).

TradeStation

When it comes to conventional trading software, TradeStation is the industry leader. There is a huge amount of software available that uses Tradestation’s programming language, EasyLanguage, which is concise and powerful. It includes a robust backtesting system that enables you create and fine tune trading scenarios and systems against up to 20 years of real intra-day market data.Once you have established your strategy, TradeStation’s sophisticated trading algorithms automatically identify trading opportunities that match your trading strategy by monitoring the market in real-time, tick-by-tick. Then it automatically generates both your entry and exit orders. As powerful and automated as TradeStation is, it is willing to step aside and let you use its manual trading features without losing access to its rich suite of charting and technical analysis tools.Subscriptions are $99 per month. TradeStation automatically trades through TradeStation Securities. If you trade heavily, then you can avoid the monthly subscription fee.The previous version of TradeStation is TradeStation 2000i. This version is no longer updated but is still available. It includes EasyLanguage, but does not have the automated trade execution or access to historical data.Although TradeStation is the industry leader, some traders prefer to use WealthLab or Metastock.

WealthLab

WealthLab comes with the standard trading software features that you would expect, but it has an additional backtesting feature that others lack. Two features, actually. First, WealthLab users are able to access a database of over 1,000 trading systems to see which ones performed the best. They can import a system directly into their WealthLab profile and the software will execute trades using that system. WealthLab is highly regarded by traders.The other feature that WealthLab is particularly proud of, and which it claims sets it apart from all competitors, is the fact that when you do scan those systems, or when you create your own backtesting scenarios, you can test against actual portfolios. The programming language is similar to Pascal, and whilst powerful, is slightly more verbose and complex than TradeStation’s EasyLanguage, and is not as ubiquitous.WealthLab Developer is available ONLY to customers outside of the U.S. and Canada from the WealthLab web site where it sells for $650 (they need to sign up for their own broker and data provider). U.S. and Canadian residents can get a free copy of WealthLab through Fidelity Investments and access automated trading through Fidelity and data.

Metastock

Metastock’s leading feature is that it is specially suited for performing technical analysis. It comes pre-loaded with 120 built-in technical indicators that make it easy to analyze how the market is moving. You can easily drag and drop any of these indicators into a chart and create your own trading system that’s 100% customized to your needs. The current version sells for $449 plus subscription fees for any data feeds that you want.

Conclusion

Before you choose any software trading platforms, do your homework. Take advantage of any free trial offers, ask your friends and associates what they’re using, read independent reviews (not sales documents) and visit each product’s web site.