Chapter 12
Researching Research Services
IN THIS CHAPTER
Figuring out where to get a trading education
Supplementing your trading with research
Checking out vendors before you spend your money
A lot of people make big money in day trading, but they aren’t day traders. They’re the people who have profitable businesses selling training services, software, newsletters, and coaching. The problem is, their lessons don’t often help their customers make a profit after these education costs are figured in.
Why the discrepancy between the cost of the training and the value it generates for day traders? It could very well be because some traders who buy these services aren’t cut out for day trading in the first place; after all, day trading isn’t for everyone. In other cases, though, the traders fail to do good research before plunking down the cold cash for training in a system that just wasn’t very good.
You’ve already plunked down the price of this book. Consider that an investment! In this chapter, I cover some of the different services that day traders may want to buy and give you advice on how to determine which ones are worthwhile and which are not. Keep in mind that companies come and go — sometimes changing owners, other times changing focus. Just because it’s listed here doesn’t mean it’s a good company. Do your own research to make sure.
Sometimes the changes end up having nothing to do with trading. For example, one company mentioned in earlier editions of this book, InstaQuote, is no more following an acquisition and name change. InstaQuote is now the name of an app for captioning your social media photos, whereas the old trading business has become part of ThomsonReuters REDI, a platform for institutional traders.
Understanding the Trade of Trading
Day trading is a career. Every career takes time to master, and practitioners have to work to keep their skills up as the field changes. You’ll probably find that you need some training to get started and more training to be successful, whether you’re trading futures, building bridges, or doing heart surgery. The following sections outline some of the training options available to you.
Let me be frank: Although I put a lot of information in this book about day trading, I don’t include everything. This book is a starting point. The fact is, because you can trade so many different assets in so many ways, no one resource can give you all the information you need. A stock trader following a news-based momentum strategy needs different services than a forex trader looking at interest-rate discrepancies. That’s why my goal is not to teach you about specifics but to point you to resources that can help you get started and show you how to get the most value from the money you spend.
Enjoying freebies from the exchanges and the regulators
Before you spend more money, check out what several different exchanges and self-regulatory organizations offer for free to help you get started in trading. Through these sources, you can find webinars, online courses, and plenty of reading material that may give you all the information you need to get started. After all, the financial industry wants people to trade — that’s how it makes money — and it wants them to be successful, because that keeps the market functioning. (Exchanges are businesses, like any other.) Going through such free material first can give you a great sense of how suitable you are for a given strategy and help you make better decisions about other types of training.
In this section I list a few resources that are particularly good for new day traders.
Chicago Board Options Exchange Education Center
The Options Institute of the Chicago Board Options Exchange offers a series of great online tutorials, classes, practice accounts, and seminars that cover exchange-traded options in great depth. Many are free, although some of the more intensive programs that include live coaching carry tuition charges. The CBOE also has a two-day seminar for experienced traders who want to come to Chicago (a great city, although the weather is something else). The site includes online toolboxes and calculators, not to mention a simulated trading game.
For more information, go to www.cboe.com/education/.
CME Group Education
The CME Group, a holding company for several different exchanges, offers extensive and detailed free education programs on just about every aspect of derivatives trading. Whether your interest is currency, grain, or options on futures, the CME Group has videos, online courses, and white papers covering basic vocabulary, advanced trading strategies, and current market commentary. It has a lot of information that you can use, whatever your strategy. And you really can’t beat the price!
For more information, go to www.cmegroup.com/education/index.html.
Institute for Financial Markets
The Institute for Financial Markets is a nonprofit organization that provides basic training programs for people working on the options and futures exchanges. Many of its courses are inappropriate for day traders, who aren’t going to be licensed and who do not have mandatory continuing education requirements to maintain those licenses. But some of the options may be helpful to you, so check them out after you see what the exchanges have to offer. Recent offerings include the basics of derivatives and trading strategies.
For more information, go to www.theifm.org.
IntercontinentalExchange
Most of the training programs offered by the IntercontinentalExchange are designed for employees of trading firms and take place at the exchange’s offices, but they have offices all over the world. The ICE also has several online seminars that can help you discover more about different products and strategies. These seminars are aimed at traders with a little experience.
For more information, go to www.theice.com/knowledgecenter.shtml.
Nasdaq/OMX
Okay, if I’m being honest here, I have to admit that the stock exchanges want to promote investing more than trading, because they want companies to issue stock on their exchanges. The kind of high volatility that day traders love puts off some starchy corporate officers. Hence, much of the information on Nasdaq’s site is about how to select stocks for the long term. Still, some information here may be useful to a prospective day trader, including data descriptions that can help you with your strategies.
For more information, go to www.nasdaq.com/investing.
National Futures Association Investor Learning Center
The National Futures Association is the self-regulatory organization for the agricultural and financial futures exchanges. This site includes tutorials on trading futures and foreign exchange. This organization doesn’t have a lot of tutorials, but those it does have are free and comprehensive.
For more information, go to www.nfa.futures.org/investor/investorlearningcenter.asp.
New York Stock Exchange
The New York Stock Exchange, like Nasdaq, wants to court investors rather than traders. Still, the exchange’s site has information on trading stocks, bonds, and exchange-traded funds that can make you smarter on those topics without spending a dime.
For more information, go to www.nyse.com/the-exchange.
Hitting the road for conferences
Although day trading is a deskbound pursuit, you may want to get out into the world to find out more about trading and research different companies with products for day traders. Many of the exchanges and larger day trading brokerage firms have their own seminars and conferences, but a few are open to the public. There is great information to be had, but watch out: The game is sometimes to sell you more than inform you.
Brokerage firms offering many seminars and training programs may have higher commissions than firms offering less service, but the additional expense may be worth it, especially as you’re getting started. You can find out more about brokerage firms that work with day traders in Chapter 13.
The Money Show
The Money Show is a series of investment conferences held in different major cities around the country. Some, like the Traders Expo, focus on trading and foreign exchange, whereas others run the gamut. Registration is free, which means that when you show up people will try to sell you stuff. Although these vendors can be distracting to an established trader, they can be helpful to new traders looking to find out more about all the different software and services available. Just make sure you’re getting information, not an opportunity to spend even more money. These conferences also have high-profile speakers, so you can learn from Wall Street celebrities. The Money Show website includes articles, podcasts, and free online courses to help you discover more about trading.
For more information, go to www.moneyshow.com.
The Trading Show Chicago
This show, and its cousins in New York and California, brings together high-level traders and brand-name speakers to discuss the latest in high-tech trading. For the most part, it’s aimed at people making research and technology decisions for proprietary trading firms, but a more experienced day trader may well find good information here, too.
You can find details at www.terrapinn.com/conference/trading-show-chicago/index.stm.
Trader and Investor Summit
This conference is designed for beginning traders, especially in penny stocks. That may not be you at all, but it has some nifty features, including live trading sessions so that you can get some ideas about what happens in real time. It also reviews the basics, like trade planning and Backtesting.
For more information, go to www.traderandinvestorsummit.com.
Taking training classes
Although not necessary, many day traders try to master the game by enrolling in a training program, ranging from a graduate-level certificate program offered by Northwestern University to video courses hawked on late-night infomercials. No program can guarantee success, nor is any one program right for every trader. Be sure to check out the many programs before you register, because sometimes one company goes out of business and someone else sets up shop under the old name.
The larger brokerage and research firms offer their own training courses, often at little or no cost. Consider those as a first option, but keep in mind that their introductory sessions may be sales pitches for more products and services. Of course, other training programs may be disguised sales pitches, too. At some point, you’re better off trading than training. The markets will school you better than any webinar.
In fact, some long-time traders argue that, instead of spending thousands of dollars on a trading course, you’re better off studying the basics on the cheap and then putting the money that would otherwise go to a workshop fee into actually trading, the logic being that your early losses will instruct you on far more than any classroom lecture or slick webinar ever could. Meanwhile, some of the fee-based programs come with a hard sell, and my general rule is that the harder someone tries to sell something, the greater a deal it is for the person doing the selling.
Plenty of great and legitimate training firms are out there — as well as a lot of scammers. Run from anyone who guarantees your success, and don’t sign up for a training program until you know what you need to study. If the firm wants you to trade using actual money, find out what broker will be holding the account; one common scam is based on the assumption that most beginning day traders lose money, so the operators take the money and let you think you’re trading it when, really, you’re just playing a game. I include some information about due diligence at the end of this chapter.
Day Trading Academy
Specializing in technical analysis for trading futures contracts, Day Trading Academy offers online webinars and textbooks to cover the basics. Then, its students watch live trading by professional traders and have access to feedback and coaching on their trading. It’s not cheap, but it has fans.
You can get more information at www.daytradingacademy.com.
Investopedia
Investopedia began life as a dictionary of investing terms. Over the years, it has expanded into a website with credible information on just about every aspect of the financial markets. It’s a useful reference as you find out about money, trading, and investing.
The main site is www.investopedia.com. The company also offers a series of courses, the Investopedia Academy, on many different aspects of money, from budgeting to advanced options strategies. Some courses and webinars are free. Most are (relatively) low cost and give you access to a live instructor and trading simulations.
For more information, go to http://academy.investopedia.com.
Kapitall
Kapitall is a brokerage firm, but I list it here instead of with the brokers in Chapter 11 because its services aren’t designed for active day traders. However, it has services to help people study investing that may also help you learn about trading, including games and competitions. Many of these are free, and you can even play on your phone. If you’re interested in knowing more about the stock market, check it out.
For more information, go to www.kapitall.com.
Online Trading Academy
This company operates franchised trading schools around the United States, and despite the name, not all of the programs are online. Its courses aren’t cheap — $5,000 or so — but the curriculum is serious. The emphasis is on using technical analysis for both trading and investing. If you’re ready to commit a week and a lot of money to figuring out how to read charts, you may want to check it out.
The site is at www.tradingacademy.com.
TopstepTrader
A veteran of the Chicago Mercantile Exchange founded TopstepTrader to address the way people learn to trade in electronic markets. (The old method, of working as a runner on the floor of the exchange, no longer works now that the floors are disappearing.) It starts with two weeks of free practice trading. (It also offers paid trading courses.) If you do well enough in the practice account, you can enter its trading combine, which is designed to mimic the National Football League combine: You pay a deposit, which is refunded if your trading adheres to certain risk and other parameters; you receive research and coaching from experienced traders; and your performance is evaluated. If the coaches like what they see, you may be funded to trade for TopstepTrader’s parent firm, Patak Trading, or you may be recruited by another firm.
For more information, go to www.topsteptrader.com.
Trading Advantage
Trading Advantage, run by an experienced commodities floor trader, has a ton of training options, ranging from telephone coaching and a virtual trading room to books and videos. Some of the company’s programs are designed for experienced professional traders who want to expand their skills or learn new technologies, whereas others work for an average person who wants to get started or who wants to improve his or her trading prowess.
For more information, go to www.tradingadvantage.com.
Getting the Research You Need
Day traders need a trading system, and they often rely on subscription research services. That’s fine, as long as those systems are adding value over and above their cost. Unfortunately, advising day traders is big business, and there may be more money in that than in day trading. Before you call the 800 number given in the infomercial, read the advice I give here, which can help you evaluate the service.
There are three main types of outside services:
- Price data are detailed, real-time price quotes from different markets.
- Chart services help traders identify profitable trends.
- Strategic research helps people develop a system for trading or follow a system designed by someone else.
You may need all three, or none, depending on your knowledge of the financial markets and your trading style.
Many day traders find themselves subscribing to price quote and analytical services. The following section is a listing of a handful of popular ones. It’s not a definitive list, and my including them on this list is not an endorsement. Rather, it’s a guide to get you thinking about what you may need and where you can go to get it.
If you know you need outside pricing and data services, consider that when you select a brokerage firm. Different firms have different software platforms, and some can handle outside data feeds better than others. For more information on choosing a broker, refer to Chapter 13.
(Price) Quote me on that
Many brokerage firms offer day trading services. They all have services that tell you what the prices are for any security at any time, but this doesn’t mean that they have all the prices that you need for your strategy. If, for example, you’re day trading common stocks, you may need a system that can signal certain price patterns in any of the thousands of stocks trading at any given day. If you’re trading options based on the value of underlying stock, you may need that data as well. If you’re day trading international securities, you may need real-time data, and your broker may only offer data with a ten-minute delay in some markets.
Besides needing all the prices and related volume and market-maker data, some strategies involve fast trading. Every second counts, and not all brokers can deliver prices fast enough to make scalping profitable. One solution is to get prices from a separate source that offers faster delivery. Other trading strategies don’t require real-time prices on huge numbers of securities, but they may involve a detailed analysis of end-of-day prices. To do that, you may need more information than your broker can give you.
The following sections offer information on some of the different price quote and data services out there.
The quote service can provide the data in real time only if you have enough bandwidth to receive it. Make sure you have the fastest Internet service and modem available in your area and consider having a second way to connect to the Internet if your primary service goes down.
CQG
CQG pulls data from pretty much all of the world’s exchanges, making it popular with people who are trading international securities. It also has data on over-the-counter foreign exchange. Traders can buy historical data for Backtesting (see Chapter 16 for more), and they can add charting and order routing capabilities to their CQG package. People who want to do even more number crunching on their own can link the data to their Microsoft Excel spreadsheets.
For more information, go to www.cqg.com.
DTN
Trading fuel or agricultural products? Then you may need more research than most brokers can give you. DTN produces a huge range of data for farmers and drillers, and it has plenty of services for traders, too. The company, owned by Schneider Electric, provides pricing and research for commodities traders, including meteorological research and hurricane-related energy supply forecasts. Day traders active in stocks or financial futures are more likely to use the company’s IQ data feeds, which allow users to track 1,300 prices simultaneously, and ProphetX, software that combines price data with analytics that can track small market movements and can handle displays on several different monitors at once.
For more information, go to www.dtn.com.
eSignal
eSignal offers detailed prices, news, and trading alerts in most financial markets, delivered to your computer or your phone. Its charting features are more advanced than those offered by most brokerage firms. Especially useful for traders who are looking at several different stocks, eSignal can help identify trading opportunities using a preferred strategy and scan the market for other stocks that meet specified investment criteria. The company also offers Backtesting and real-time strategy testing, end-of-day analysis for traders who don’t need real-time data, and add-on signals that support different proprietary trading strategies.
For more information, go to www.esignal.com.
Oanda
Oanda provides both foreign exchange trading services and data. It has exchange rates for major currencies and small frontier markets. The data is available — for a price — to those who want to use it with another brokerage firm’s platform.
For more information, go to www.oanda.com.
Charting your strategy
Almost all day trading strategies rely on technical analysis, which is the process of identifying buy and sell opportunities based on the supply and demand for a security. Technical analysts look at charts of price and volume changes to identify changes in the trend. (I discuss technical analysis in more detail in Chapter 7.) Some technical-analysis strategies are complicated and require sophisticated charting. That’s why many day traders use software that can turn price data into the information they need to make decisions.
The symbols and data displays trip up many users of these services. Take the time to find out as much as you can about how the services work before you trade in real time with real money; most of these providers offer seminars or online tutorials that can help. Yeah, many of the features are obvious, but you want to avoid costly mistakes.
MarketDelta
MarketDelta’s software provides detailed charting services that match different strategies over several time periods, in colors that make the data stand out. The goal is to make price information more transparent and thus chart information more accurate. The company mostly deals with professionals, but some of its products are suitable for some day traders.
For more information, go to www.marketdelta.com.
Metastock
Metastock has several different charting and analytical packages, including one for foreign exchange trading, another for people who day trade in stocks, and a third for stock investors who are holding for longer than a single day. It even has some fundamental research tools. Traders following specific strategies recommended by different market analysts can purchase add-ons that give them the tools needed to trade effectively and participate in in-person and online user groups. Some brokerage firms offer Metastock tools as an alternative to the broker’s proprietary platform.
For more information, go to www.metastock.com.
NinjaTrader
A trading platform for active traders, NinjaTrader can be used instead of the trading software offered by many brokerage firms, including several of firms that deal with day traders. The service is best known for its charting capabilities in the foreign exchange and futures markets, but it can also handle market scanning, automated trade execution, Backtesting, and simulation trading. The company operates a website called NinjaTrader Ecosystem (www.ninjatraderecosystem.com) that includes webinars, programming modules, and services that use the NinjaTrader platform.
For more information, check out www.ninjatrader.com.
OmniTrader
OmniTrader is designed to automate technical analysis, especially for stock traders. Traders can use it to set up automatic trading systems or to help them make their own decisions during the trading day. The system also includes money-management tools, as well as simulated trading and Backtesting to help you find new strategies.
For more information, go to www.omnitrader.com.
StockTwits
Social media is a great way to keep up with pop stars and find out local bargains, and it has applications for trading, too. StockTwits is a service that is similar to Twitter. It lets members post trade ideas and market data, and it pulls in streams from Facebook, Twitter, and LinkedIn. It’s a way of following market sentiment more than anything, but sentiment drives markets. And StockTwits is free.
For more information, go to www.stocktwits.com.
Trade-Ideas
Trade-Ideas is designed for stock traders. The software scans the incoming price data feed to find trading opportunities based on prespecified indicators, and it can also show how much the market is deviating from a trader’s style. For traders watching hundreds or thousands of stocks, Trade-Ideas can be a useful addendum to a brokerage firm’s offerings.
For more information, go to www.trade-ideas.com.
News, newsletters, gurus, and strategic advice
Trading relies on information so that everyone in the market can evaluate what the right price for a security should be. Most of this information can be found from an analysis of the news and the price data, both of which are readily available from brokerage firms and quote services. But many traders follow explicit philosophies or rely on the insight of certain analysts. Here’s a list of some of the bigger ones you’ll come across.
Many of these market gurus have good ideas, but don’t follow any of them blindly. Their techniques don’t work in all markets at all times. Besides, anyone with a truly foolproof plan isn’t going to give it away. These newsletters are just part of the ongoing conversation in the markets that help traders make decisions.
Briefing.com
If you follow a news-driven trading strategy, you need to know what the news is. Briefing.com offers daily news summaries and live updates on news events and ideas for trades that may suit your style. And unlike the standard news feeds available to anyone with Internet access, it doesn’t have any celebrity or human-interest stories to distract you.
For more information, go to www.briefing.com.
Coinbase
This site has carved out a niche in with those who care about cryptocurrency. It has lots of news, information, historical data, and an Initial Coin Offering calendar to help you figure out what’s happening with this emerging asset class. If you’re interested in crypto, this site is a great starting point.
For more information, go to www.coinbase.com.
Elliott Wave
The Elliott Wave is a theory that says markets move in grand cycles over a century or more. Within that grand cycle are subcycles lasting years, months, weeks, days, minutes, and seconds. Given all the layers and analysis required, those who follow the theory usually subscribe to research services to help them. Robert Prechter, one of the leading scholars of the theory, maintains this site.
For more information, go to www.elliottwave.com.
Investing.com
One of this site’s many features is a calendar of major economic announcements and trading holidays all over the world, which is a huge help in trade planning. It also has webinars, news, and a strategy tracker that lets you see how different traders are doing. Its pages of technical indicators can help you study and improve your own chart-reading skills.
But I love it for that sweet, sweet economic calendar.
For more information, go to www.investing.com.
School of Gann
The Gann method of technical analysis looks at the slopes of the charts to predict changes. It’s a complicated system, so traders who follow it usually rely on newsletters and research services to help them. School of Gann is one that specializes in this system.
For more information, go to www.schoolofgann.com.
TradeTheNews.com
TradeTheNews offers independent traders access to a squawk box, the audio news feed and commentary that goes in the background on most professional trading desks. Its staffers work on the floor of different exchanges and provide real-time news and analysis, which is helpful for traders working news-driven strategies.
For more information, go to www.tradethenews.com.
Doing Your Due Diligence
Trading software, training, and research can get expensive, and some services and seminars are outright scams. Even those that are legitimate (and most are) may not be right for you. Before you spend your money, do your research. Start with the free programs offered by the exchanges (listed in the first section of this chapter) so that you have enough knowledge to understand what a trading-services purveyor is trying to do. Then do research and ask questions. To find out where to go and what to ask, read on.
Where to start your research
You have a ton of tools available to you to do your due diligence. A good place to start is the Internet. Go to your favorite search engine and enter the name of the program you’re looking at plus the word scam or rip-off and see what turns up on the third or fourth page of the search.
Anyone with even a little knowledge of search-engine optimization knows this tip. If your search turns up 50 blog posts with lines like “Why Company X is NOT a scam!!!” well, guess what? Company X probably has something to hide, and if you go to the third or fourth page of the search results, you may find out what it is. Or click on the News tab of your search engine to see what’s being reported that may be causing the panic. If something looks skeevy, just move on, because plenty of legitimate vendors that you can work with instead are out there.
Another way to check out a trading service is to search on Reddit.com, a website where people discuss anything and everything. True, some posters have ulterior motives, but the overall conversation leads to a rich database of observations about just about anything. Are those shoes you see advertised online as good as they seem? Is that trading service a scam? Redditors are happy to tell you all about it. You don’t have to be a registered user to search and read the site, either.
You may find out very little about any given research firm from an Internet search or checks with the different regulatory organizations. That doesn’t mean the firm in question isn’t for real, just that it hasn’t caused any concerns so far.
Commodity Futures Trading Commission
The Commodity Futures Trading Commission (www.cftc.gov/ConsumerProtection/index.htm) regulates options and futures markets, which are popular with day traders. Although not as well known as the Securities and Exchange Commission, its functions are similar. At its website, you can check out investor advisories, known scams, and recent enforcement efforts to see whether the vendor you’re thinking of working with is legitimate or too good to be true.
FINRA BrokerCheck
The Financial Industry Regulatory Authority (FINRA) provides a handy service that lets you check on the current enforcement status of different brokerage firms and their employees, especially in the stock, bond, and options markets. Some of these firms and people may be offering research services or newsletters, so check to see whether they’ve had problems in the past. Then you can make decisions based on what you find. Some issues, such as a history of disputes over customer funds, should send you running. I’ve often been surprised by what I’ve discovered here; best to find out what you need to know before you make an expensive mistake. Go to http://brokercheckfinra.org.
National Futures Association BASIC
Futures are popular with day traders, and the National Futures Association regulates them. Its Background Affiliation Status Information Center (BASIC), at www.nfa.futures.org/basicnet, gives you information on people and firms registered with the National Futures Association.
Securities and Exchange Commission
At www.sec.gov/investor.shtml, the Securities and Exchange Commission offers lots of great information about every aspect of stock and bond investing, with a special emphasis on problems and scams to avoid. Ponzi schemes involving virtual currencies? E-mail pump-and-dump scams? Don’t let the information scare you away from the market; use it to evaluate any services that you’re thinking of paying for.
Questions to ask
After you do your basic background checks, you’re ready to ask some questions about the service providers you’re considering. Talk to the customer service reps, and try talking to other traders as well. Here is a list of questions to get you started:
- Can I get a free trial to check the service out?
- What training and support do you offer? Do you have a user community?
- How long will it take me to study the system? Will I need to pay for additional training and coaching, or is your built-in support adequate?
- Who will be teaching me or advising me, and what is this person’s background?
- How long have you been in business? Why was the company formed?
- What additional features are available at additional costs? How many customers subscribe to only the basic system?
- Does this system support my trading style and work with the assets I prefer to trade?
- Do you screen traders for your program? Do you ask traders to leave? What are the characteristics of those who do well? Of those who don’t do well?
- Can I talk to other customers?
- Is your software compatible with my broker? With other services I’m using? With my computer’s operating system? With my Internet bandwidth?
- Are your performance numbers actual, or are they hypothetical and based on backtesting? How were the numbers calculated? (Chapter 13 has more information on performance calculation.)
Hypothetical performance is based on an analysis of what would have happened had the system been in place in the past or of what may happen if market conditions cooperate. It can be subject to data mining, which means that the system was developed to generate good performance in backtesting, not because it has any logical or theoretical basis.
Don’t trust any promises of performance. Day trading is a difficult business. Many people wash out because it doesn’t suit their personality. Others fail because they don’t have enough startup capital, they don’t take the time to figure out how to do it, or they simply have a run of bad luck. No one can promise that you’ll succeed.