What Will You Need?
This lesson outlines the various items you will need to start trading on the share market. It is by no means an exhaustive list, but defines the basic requirements to trade visually using technical analysis. We have endeavoured to keep this document as generic as possible pointing out alternative sources of product or information, but where ProTrader provides a particular service we will mention it. We highly recommend all our services – especially since it is Australia’s only TOTAL trading service. What you will need depends on your level of expertise and familiarity with the market but for a beginner, a basic list is:
- Access to stock quotes and charts
- Stock market analysis software
- Stock market data
- Access to quality education and training
- Ongoing community and support
In order to trade shares you may need a broker. For this service you will be charged a brokerage fee. Brokerage fees are charged on orders as shares are bought and sold. Brokerage fees vary from broker to broker depending on the service they offer. More recently the advent of online internet based brokers has made trading very cheap for those who do not require any particular service or research.
You can expect to pay between $15 and $30 per transaction for online broking and between $55 and $200 for the traditional broking service.
Quotes and Charts
The stock market is an auction system with sellers (The Bears) offering their stocks for sale and buyers (The Bulls) bidding to buy these stocks. The stock market publishes the selling prices and the bid offers constantly throughout the trading day. At any time, while the market is open, you may get a quote for either the current buying or selling price for a stock. This is known as a stock quote.
The data generated by price fluctuations due to all this buying and selling may be used in chart form to visually track what is happening to a stock’s price over a period of time. This time may be real-time or intra-day where we watch the price movement over the course of the trading day, or end of day or inter-day where we track the price movement over periods greater than one day.
The ability to visually analyse a stock’s behaviour over time is the core of technical analysis. Many factors may interact to affect a stock’s price such as the company’s financial health, market sector, management behaviour or general economic factors to name a few. The technical analyst maintains that the analysis of the interactions of all these factors is far too complex to be reliably used in picking potentially successful stocks. A better approach is to use the end-result of these interactions, the price movement. A stock chart tells the story of a company’s successes or failures through price fluctuations over time.
Why are charts useful to me as a trader?
We are all familiar with charts. How many cartoons have you seen with the patient’s chart at the bottom of the bed? A chart is a visual representation of a set of data that allows us to quickly see patterns in the underlying data. Charts allow us to find patterns in prices as the buyers and sellers ebb and flow. It is very difficult to make sense from columns of figures, but the same numbers in a chart format allow us to see what is happening.
Monthly, Weekly and Daily charts
Each chart comprises a collection of daily price bars – each showing the open, high, low and the closing price.
On a monthly chart, each bar represents one month of trading, so a year of price action is shown in twelve bars, giving us a very long term picture. Monthly charts can show a ten or a twenty-year low or high but they don’t show us enough detail for trading purposes. To view more detail we need to look at weekly or daily charts. Some people use “intra-day charts”.
Intra-day charts may show price bars that represent one minute of trading.
Which charts should I use?
Any reasonable software package will allow you to access daily weekly and monthly charts at the click of a button. These charts show more than enough information.
Should I get real-time quotes and charts?
In recent years some people have come to believe that they need real-time quotes to enable them to pick even the slightest variation in trends. The majority of investors using real-time quotes overtrade and ultimately lose money. Just as monthly charts show too little detail, intra-day charts provide too much detail. Traders have been profitable for centuries using daily charts.
Most successful traders make their profits from following long-term trends and making their decisions outside trading hours. Decisions made outside market hours and based on chart analysis are logical whereas most decisions made during market hours are based on emotion.
In order to trade successfully you will need to be able to find good shares for potential trades. As a technical trader, you will need a software package to run your analysis of these shares. There are many software packages to choose from and they vary in price and functionality. An internet search will find many potential sources. ProTrader develops its own software that is a sophisticated pattern scanning application. It is specifically designed to find rising stocks in any market conditions. A feature of this software is that using advanced technology reduces the amount of time needed each day to analyse the total market for potential trades. Whichever software package you choose, as a minimum you will need the following computer indicators:
- Simple, Weighted and Exponential Moving Averages
- Moving Average Convergence/Divergence
- On-balance Volume
- A trend line indicator
The package you choose should also have a market scanning ability as without it you will experience great difficulty in finding stocks to trade, and your trading will become very time-consuming.
To download the free Pro Trader software demonstration and membership trial go to www.protrader.com.au and follow the links to the software trial.
The software package you choose will also need to have its database of stocks updated daily. It is important that you choose a data vendor that has systems in place to make this requirement as simple as possible while maintaining a high degree of data integrity. Like most things, cheap data can often be inaccurate or poorly formatted. Another point to consider is whether your data vendor will be around for the long term. A feature of the data supply business is a high degree of turnover amongst data vendors. The industry comprises a core of larger established vendors with many small cut-price operations continually entering the market and disappearing after a short time in business. It’s important that your chosen vendor is reliable and can guarantee data integrity to a high degree. Again – ProTrader may be of help to you in this area. ProTrader supplies high-quality end-of-day data to its members. Naturally, this service is included in the membership fee.
An aspect of share trading is that to do it well, you are committing to a process of continually improving your knowledge of the subject.
The key to profitable trading is a devotion to honing your trading plan and increasing your range of trading experience and education. It is an on-going process and is part of the enjoyment that many traders experience from share trading. There are a myriad of books on the topic of technical analysis, and share trading in general.
You may have heard of, or perhaps even read my first book “Exploding the Myths:
What your broker doesn’t know or won’t tell you.” This book is a must read for anyone interested in share trading, and has helped thousands of traders avoid the errors and pitfalls that can be costly in the share market. Other highly recommended books for any potential trader or investor include:
Technical Analysis of Stock Trends – Edwards and Magee
The Investors Quotient- Jake Bernstein
Market Wizards – Jack D Schwager
The various exchanges in the countries that you are trading from should also all be a good source of information.
Ongoing Community and Support
Your first rule should be survival. Good education will give you the tools to help you survive and prosper in the share market. No man (or woman!) is an island. We all need a source of constant interaction with our fellow traders. A good source of this interaction is found on the many bulletin boards and website forums, such as our Facebook group, or YouTube channel:
There are hundreds to choose from and you should have no difficulty finding one where the level of discussion reflects your current level of knowledge.
You may find as you progress in your trading that a particular aspect or technique of trading will attract you. It may be Gann trading or Elliot Wave theory, or Darvas Box theory, who knows?
The topics seem boundless. It is important that you have some access to experienced traders as a source of advice. This advice should be qualified however, don’t just take anyone’s word at face value. The best forums usually have a well-known contributor or mediator on the site.
These are the sites you should use.
On-going training is a feature of ProTrader membership. The company supplies comprehensive training for its members through web-based multimedia training that is available anywhere, anytime.
ProTrader runs a member-based forum on its website that allows its members to interact and share their experience and trading knowledge with fellow members.