TRADING PLATFORMS: SPRINGBOARDS TO DAY TRADING SUCCESS

An electronic online trading platform is a computer software program that is used to place orders for day trading. A trading platform is different from direct-access brokers themselves, but I often see traders confusing these two as one. 

The trading platform sends and places your order at the Exchange so the direct-access brokers can clear the order for you. Usually, direct-access brokers offer their own proprietary trading platforms to their clients. The quality, charting capability, speed of the software, and many other features of the software vary significantly, and so does their pricing. Many brokers offer their platform for a monthly fee, but they may waive that fee if you make sufficient commissions for the broker. For example, Interactive Brokers offers a trading platform called Trader Workstation (TWS), but it also allows you to use the DAS Trader platform. Lightspeed Trading also offers its own platform called Lightspeed Trader. TD Ameritrade’s own software is called “thinkorswim.’ 

The table below summarizes some of the best-known direct-access brokers for day trading. Please note that there are many more firms that are not listed below.

From the brokers listed in the table above, I personally prefer Interactive Brokers (IB) as my broker and DAS Trader as my trading platform. My broker, Interactive Brokers, offers their own platform called Trader Workstation or TWS, which I do not recommend for day trading. The DAS Trader platform is one of the nine Nasdaq Platinum Partner order entry platforms that offer the highest level of efficient execution and market functionality for online traders. 

DAS Trader is not a broker, it is only a trading platform, so I linked my IB trading account to it. When I enter my order in the platform, DAS will send my orders to Nasdaq data centers, and Interactive Brokers, as my clearing firm, will fill my orders. 

Fast trade execution is the key requirement for day traders to be successful. You need to be able to move in and out of trades quickly. If your broker doesn’t use a platform or software that has Hotkeys, you’re not going to get in and out fast enough. I can’t tell you how many times I’ve been up a thousand dollars because all of a sudden the stock spiked. When the stock spikes, you want to be able to put money in your pocket and profit from it quickly. You definitely don’t want to be fumbling with your orders. You need quick executions, which is why I highly recommend a good broker and also a fast order execution platform.

Real Time Market Data

Swing traders enter and exit trades within days or weeks, therefore end-of-day data that is available on the Internet for free is sufficient for them. But day traders need real time intraday data because they enter and exit trades within a few hours and often within a few minutes. Unfortunately, real time market data is not free, and you need to pay a monthly fee to your broker or to your platform provider, such as DAS Trader. Which market data you should buy depends on the market that you are trading in. If you are planning to trade in the Canadian market, you need real time Toronto Stock Exchange (TSX) data. I largely limit my trading to the U.S. markets because of its high volume (liquidity) and volatility; therefore I need the real time Nasdaq TotalView Level 2 data feed. Without real time market data, you cannot day trade properly.

Nasdaq Level 2 and Bid-Ask 

From my perspective, having access to Nasdaq Level 2 is virtually essential to day trade in the U.S. markets. Level 2 provides important insight into a stock’s price action, including what type of traders are buying or selling a stock and where the stock is likely to head in the near term. Level 2 is known to be a “leading indicator,” which means it shows activity before a trade happens. Moving averages, charts and most of the other indicators are known as “lagging indicators,” meaning they provide information after trades take place.

Level 2 is essentially the order book for Nasdaq stocks. When orders are placed, they are placed through many different market makers and other market participants. Level 2 will show you a ranked list of the best bid and ask prices from each of these participants, giving you detailed insight into the price action. Knowing exactly who has an interest in a stock can be extremely useful, especially if you are day trading. 

Figure 1 below is what a Level 2 quote looks like:

Whenever the market is open, there are always two prices for any trading stock – a bid and an ask. A bid is what people are offering to pay for that stock at that moment; an ask is what sellers are demanding in order to sell it. A bid is always lower, an ask is always higher, and the difference is called the bid-ask spreads. Bid-ask spreads vary for each stock and even for the same stock at different times of the day.

The image in Figure 1 above shows us (first row, right-hand side) that someone is offering 200 shares (2 (the “SIZE”, the number of lots of shares) x 100 shares/lot) of UNH for $157.43 on the ask side through NYSE (a market maker). On the bid side, there are various market players who are willing to buy shares of UNH at a price of $157.38. Traders who want to buy UNH at various prices are sending their bids through market makers to the bid side of the Level 2 (NYSE, NASD, BATS, NSDQ, ACB, EDGX, and ARCA are all market makers active on this stock).

Market Orders 

“Buy me at any price! Now!”

“Sell me at any price! Now!”

When you use market orders, you are asking your broker to immediately buy or sell the stock for you at any cost. Let me repeat that: at ANY cost. If you place a market order, it will be filled at the current price, whatever that happens to be. A limit order, on the other hand, allows you to specify the maximum or minimum price you will accept.

In market orders, essentially, you are getting filled at the bad side of bid-ask spreads. A market order buys at the ask (high side) and sells at the bid (low side). The problem with using market orders is that the market can quickly change, and so then does the bid-ask spread, and thus you may get your order filled at a very bad price. 

Market makers and many professional traders make a good living from filling market orders. I discourage traders from placing market orders at any time. A market order is like a blank check. Most of the time a market order will be filled very closely to the quoted bid or ask price, but sometimes you will get a nasty surprise. 

Limit Order

“Buy me at this price only! Not higher!”

“Sell me at this price only! Not lower!”

A limit order, in contrast to a market order, limits the price you are willing to pay for the stock. You specify the number of shares you want to buy and the price you are willing to pay.

Marketable Limit Orders

“Buy me now, but up to this price! Not higher!”

“Sell me now, but down to this price! Not lower!”

The most important type of order for day traders is a marketable limit order. Marketable limit orders, once sent, will immediately give you as many shares as possible within the price range you have set. In marketable limit orders, you ask your broker to buy or sell stock for you immediately, but you specify the highest price you are willing to pay.

Hotkeys

Hotkeys are key commands that can be programmed to automatically send orders with the touch of a combination of keys on your keyboard. Professional traders will use Hotkeys to enter trades, exit trades, place stop orders, and cancel orders. They don’t use a mouse or any sort of manual order entry system. The use of Hotkeys eliminates the delay of manual entry. The volatility of the market, especially at the Open, can allow for huge profits if you can trade properly, but it can also result in significant losses if you fail to act quickly. Often, the proper use of Hotkeys distinguishes the losers from the winners.

Most of the day trading strategies I use require high-speed trading. In day trading, the market can move very fast, especially at the market Open. Stocks can very quickly hit your entry or exit price, often in a matter of mere seconds. In order to be able to day trade effectively, it is important to use a trading platform that offers Hotkeys. For high-speed trading, you should have all of the possible trade combinations in your Hotkeys. In my opinion, it is almost impossible to day trade profitably without using Hotkeys.

The following Figure 4 is the list of my Hotkeys in my DAS platform. Other platforms may use different scripts. It is best to check with your broker and trading platform support team to make sure you are familiar with how to write a proper script for your Hotkeys.

Bear Bull Traders now has an equalized risk per trade script that is used in a hotkey to automatically define the number of shares you take based on the dollar amount or account percentage you want to risk on each trade. You simply click on the chart where you want your stop loss and you hit BUY or SELL (to short). The script will buy or sell the number of shares at which, if your trade reaches your stop loss, you will lose the pre-defined risk (e.g., $100). Therefore, you don’t need to worry about calculations in your head while you are watching multiple indicators and charts. 

This innovative script was developed by BBT Member KyleK29 and is one of many practical illustrations of how effective a community of traders can be in sharing information, knowledge and experiences.

Community of Traders

If you have a favorite trading platform or application, connecting with traders who are using the same tools can be quite valuable. Trade Ideas runs educational programs and online chatrooms for their users that I’ve found useful.

I personally trade in our chatroom at Bear Bull Traders with some of my friends and family, in addition to a group of serious traders. We can talk to each other and everyone can view my live screen and platform and watch how I am trading. It is a fun, interactive environment, and we all learn from each other. I frequently answer questions from other traders, and if there is anything I’m not sure of, I will ask other traders. There are some experienced traders in our chatroom who I learn much from, and we tip each other off about potential good trades and setups. We would like to grow our chatroom slightly and therefore everyone who is reading this blog is welcome to join with us. I think you will benefit from both watching me trade and hearing my responses to questions people have, including your own questions. Don’t be shy to ask!

Resources: 

• Watch this video of our trading community during the Pre-Market prep where we find the stocks in play for the day. 
• Develop your trading skills with this free real time day trading simulator. 
• Check out the most advanced tools for traders and investors: https://tradingterminal.com/
• Learn about one of the best technologies for active trading.  
• A Glossary of terms frequently used in day trading.

…..Would you like to ask Andrew Aziz some questions or share your own experiences? He would enjoy hearing from you at  [email protected]