Stock Charting Software -- What You Need To Know
Traders have options when it comes to technical analysis software: either use what the broker offers, or buy a software package. One way to decide which option may be best is to decide on the features necessary to implement your trading system. Here are a few ideas --
Charting is the primary feature in most technical analysis programs. The software allows the user to plot charts in a variety of ways: candlesticks, bars, and lines. It should also allow you to draw trend lines and horizontal lines for support and resistance. It's a nice bonus if you can write on your charts -- it helps to keep a few notes about reasons for the entry, stop, etc.Back testing is very useful to test the viability of your trading system. You'll need to learn the formula language the system uses in order to write the code to test your trading system. Some formula language can be quite difficult. See if it's possible to obtain a manual from the vendor and read through the section on creating formula code. It's even a good idea to ask the sales person if technical support will help with this function.Optimization isn't so important, but is usually a part of the package if the software offers back testing. Optimization is fine-tuning your trading strategy to find the best settings for the strategy's rules. This could be an entire discussion by itself.It seems to me that traders trade and formula writers code software. In other words, you don't need to worry about optimization. If you thoroughly back test your strategy it will become apparent if your strategy is sound, or not. Test over many years, during up and down years, and during consolidationg markets. If you can be honest with yourself you'll know if you have a good system. Optimization can lead to curve-fitting that can lead to unrealistic expectations.A scanner is a great feature to have. It should allow the creation of a multitude of scans that can be saved, retrieved and executed with ease.Alerts are helpful. A simple alert could be a buy or sell indication on the chart. More elaborate alerts are designed to go to an email account or a hand-held device. It just depends on the level of “contact" you need or want if away from your computer for the day.Indicators are something with which you don't need to concern yourself. Most software comes brimming with bunches of indicators -- many more than you need or likely want. What is nice is the ability to customize indicators. For example, a custom indicator could be a weighted Relative Strength Index (RSI), or coloring rising price in one color and declining price, another.Another feature, that is more common, is the ability to overlay multiple indicators in the same pane. This is especially powerful if you have a system dependent on multiple indicator criteria. For instance, it's nice to display a 7 period, 14 period, and 40 period RSI in one pane. In addition, showing the moving average of the RSI would be another example of a multiple indicator overlay.A good, clean, timely, data stream is critical. You get what you pay for with data. Free data is often error-ridden, late, or unreliable. Purchasing data separate from the software program can be costly. Try and find a bundle of software and data. If it meets your needs it will save some serious coin!Much of the software for sale, but not all, has a broker interface. This allows order entry directly from the program. It's not a necessity, but more of a personal preference.
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