With the advent of online trading it was inevitable that the home trader would be introduced to both automated trading and trading software programs. Automated trading is the reasonably recent development and in an earlier article I wrote about my experience with trading automation, and stated I wasn’t favorably disposed to turning over my trading operation to my computer. On the other hand, trading software programs are a different issue; they generally generate buy and sell signals which the trader may or may not use to initiate a trade.
From the onset, I have to admit it is difficult to evaluate trading software programs because of the range of programs on the market. I have use several trading software programs myself and found that some works quite well and others did not perform as they were advertised. In other words, there were some very good ones and some really bad ones.
The obvious problem with trading software is the variety of market conditions under which they must perform. Most trading software works well in trending markets, but I would argue that most traders perform well in a trending market. Of course, consolidating and range bound markets are a different matter, and most of the programs I’ve used underachieve in these conditions. By the same token, most traders underachieve in choppy sideways markets. In my trading methodology, I use a strict definition for market noise and avoid trading in market noise. Granted, there are some traders who do well trading noise, but I am not one of them and the programs I use don’t do well either.
As a trader, do you really need a trading software program?
It’s my opinion that your money would be better spent on a trading course or a mentoring program than trading software. I think learning to trade is a far more valuable asset than any computer program. I understand some people like a confirmation of their buy/sell signals, but I think this is more of a confidence issue than a trading issue. Which is not to say that traders who use trading software don’t have the skills to trade, most do. What I mean to say is that some traders like the reassurance of a buy/sell signal generated to confirm their trade. I don’t suppose there’s anything wrong with that.
To be sure, several programs I used were very accurate and then asset to my trading arsenal. I don’t use them every day, but from time to time I use a trading program. The real problem with trading programs is finding a program that is of high quality and performs well. For example, a week or so ago I received an e-mail from a trading software vendor that claimed a 90% record of accuracy in trading. This is a fairly bold claim and since trading is a function of probability, I suspect that perhaps this is an inflated claim. I don’t know of any trade setups that have a 90% success rate. I would shy away from a program with exaggerated claims of success.
Even the best programs require some judgment calls on the part of the trader. And I suppose that is the beauty of trading software over automated trading; the trader can decide whether or not the buy/sell signal is a good one and trade accordingly. In other words, a trader isn’t locked into a trade through automation.
In summary, I don’t think high quality trading software is a bad thing, and in some situations it could be a asset to any traders methodology. In considering a software program I certainly would recommend researching the history and effectiveness of the program in depth before I made the sizable investment most trading software requires. Once you decide on a program, I would trade with it with the idea that changing market conditions will expose some inherent weakness in every program and trade accordingly. Even with trading software, a trader must make some judgment calls as to the validity of the buy sell indication.
