Professional day trading, swing trading or even long-term investing nowadays isn’t possible anymore without sophisticated and reliable software for analyzing the financial markets. This includes professional chart analysis, fundamental analysis, sentiment analysis or even such simple tools as reliable news feeds or portfolio overviews. In this guide we’ll have a look at trading software and online trading tools for professional traders.

Trading Software
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What is trading software?

Devices / Trading Software
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Trading software includes any software tools used by traders to make decisions and execute their trades. As markets and technology have evolved, the number of different tools available has expanded considerably. Traders are always looking for an edge. That means there is always a market for new tools that may give traders new and different insights into the behaviour of stock prices. Day traders are up against investment banks, hedge funds and proprietary trading firms. These professional market players invest considerable capital in their technology and research to make decisions rapidly and stay ahead of their competition.

This means that to be successful in short-term trading, day traders need to use whatever tools and trading equipment they can to level the playing field and compete with these well-resourced professionals. Fortunately, the cost of software development has come down. At the same time broadband and computer processing speeds have gone up. As a result, sophisticated trading software is now available to retail traders around the world.

Why do traders use trading software?

Trader / Rear View
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To put it simply, traders use trading tools and software to analyse markets, make decisions and execute trades. Trading software is also used to monitor those trades and their risk. Professional trading is competitive, and traders need an edge to compete. Online trading tools are designed to give professional traders that edge.

Online trading tools are used to find patterns in price behaviour and create strategies that exploit those patterns. They are also used to keep abreast of any news or movements in other markets that may affect stock prices. Trading tools can be used to generate trading ideas and find stocks that may experience large moves. And finally, trading tools are used to manage risk and keep track of a trader’s positions and portfolio.

Common types of trading software applications and tools

Trading Software Applications
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The following are the online trading tools most commonly used by traders. Most of the well-known, standalone trading software packages include most of these tools, while other tools are more commonly available as standalone options. What kind of software you need as a trader always depends on your personal trading strategy and style.

Charting / Technical Analysis Applications

Traders / Chart Analysis
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Some of the first trading software packages on the market were tools that allowed users to display price charts. These came out as early as 1995, and have seen tremendous advances since then. Charting software was also one of the first online trading tools commonly available on stock broker websites. The charting tools on most broker websites are more basic than those available on dedicated applications like TradingView, but can still be useful if used correctly.

Charting tools use price and volume data feeds from stock exchanges to display price and data charts. They also display hundreds of indicators that are calculated from this data. The earliest packages only displayed daily and weekly data. However, modern systems can display charts that update every second – and even faster than that.

Charting tools are used to analyse price patterns and devise strategies, either using the price, or a combination of several indicators. Some very advanced systems generate automatic analysis using technical indicators like trendlines, moving averages and models like Elliot Wave and Market Profile.

Watchlists / Portfolio Management

Smartphone / Watchlist
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A watchlist is a list of securities that a trader is keeping an eye on at any one time. A watchlist may include stocks a trader already owns, as well as those they are considering trading. Watchlists can also include the prices of currencies, indices and other securities that may affect stock prices. Most trading software includes the capacity to create multiple watchlists with customisable fields, including price, high, low, percentage move and volume.

Stock Scanners / Stock Screeners

Stock Selection
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Stock scanners are primarily used by investors, but they can be useful for short term traders too. A stock scanner, or stock screener, allows users to filter stocks based on hundreds of criteria. Stocks can be filtered by fundamental factors like market capitalization, earnings growth rate, price / earnings ratio, dividend yield and more.

Investors use these types of filters to narrow a list of thousands of stocks down to a shorter list of those stocks worthy of further research. Stock scanners can also be used to filter stocks using technical data. For example, a trader can create a list of all the stocks that are above their 200-day moving average but below their 50-day moving average.

Filters can also identify stocks that have crossed a certain moving average or that have an indicator that has reached oversold or overbought territory. Day traders usually find the best opportunities in stocks that are “in play”. Traders can use stock screeners to create watchlists of these stocks by looking for stocks that are trading at interesting levels, displaying increased volatility or seeing increased volume.

Strategy Building / Back Testing Tools

Trader / Modern Technology
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Most advanced trading software packages include tools to build and test trading strategies. Some of the makers of these systems have developed their own programming languages, while others have created drag and drop strategy builders. Traders use these online trading tools to test ideas and find patterns. They then use the patterns they find to create strategies which can be back tested on historical data to determine their profitability. In most cases they can also be optimized to determine the best parameters for each indicator.

While systematic traders mostly use these tools, they can also be useful for discretionary traders. For example, a trader can use them to verify a pattern they believe they have spotted in the market. Expert advisors are similar, but generate signals rather than running an entire strategy. Expert advisors use back testing to automatically create buy and sell signals for potentially profitable trades.

Automated Trading Tools

Automated Trading
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The more sophisticated online trading tools allow trading strategies to be automated. That means that trades are executed by the system with no input from the trader. These trading software apps connect directly to a broker’s server. In this way, orders go from the software to the broker and then to the market. By using these systems, traders can focus on research and let the computer do the work. Using these tools is also a good way to remove emotion from the equation. By automating trades, a trader will not be able to second guess a proven strategy. A good example of these trading apps are the Bitcoin Revolution App and Bitcoin Trader. If you’re looking for automated signals, one of the most common softwares for users that are looking to gain signals on a daily basis are the BTrade Signal Pro, and Cryptohopper.

Price Alerts

For traders who follow multiple markets or a long list of stocks, alerts are vital. Price alerts are available on most trading applications and on standalone websites. These can be set to send an alert when a stock price crosses above of below a specific level. Alerts can be set to send an SMS or email, or to play a sound on a computer.

News Feeds

Trading Software / News Feed
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News feeds are becoming standard on many trading software programs. They can be programmed to display news for specific stocks, sectors or countries. Having a good source of news is essential to keep up to date with what is driving the markets. However, there are alternatives and a news feed is not an essential feature of an online trading tool.

Many traders use news websites, Twitter and even Facebook for their news feeds. Twitter is especially useful, as you can follow the traders with similar interests to your own. Sooner or later, one of the people you follow will share a story that is relevant to your trading. However, it’s not recommended to make trading decisions solely based on news from social media. Stories on social media could be inaccurate or even fake news.

Trading Calendars

Economic data releases and company earnings announcements can both change the mood of the market in seconds. Some traders execute strategies based on these data releases. Even if you don’t plan to trade around the events, you should know when key data will be released. There is no point entering a trade just before a data release which may lead to increased volatility. Trading calendars are available on most trading applications, and on several market websites and broker websites. The best ones have alarms that can be set to remind you just before a data release.

Other software tools for traders

Team / Traders
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The online trading tools listed above are the ones that nearly every trader should consider using. There are however other specialised tools you may want to know about or consider using. This will depend on the type of trader you are, and the amount of time you have in order to monitor all these tools.

Quantitative Tools

Quantitative Analysis
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More advanced tools are now coming to the market that allow traders to combine diverse data sets to find an edge in the market. These tools can be used to find patterns and relationships between different instruments using price date, fundamental data, economic indicators and even the text from news articles. Some of these tools are open source, meaning anyone can use the tools, or contribute code and trading strategies to the platforms.

Fundamental Tools

Fundamental Analysis
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Similarly, new tools are being developed to show and compare company valuations, which are calculated using fundamental data. While these tools are of more interest to long term investors, they can be useful to traders too. Traders can gain an edge if they are aware of the fundamental factors that drive the behaviour of investors. Fundamental valuation tools can help traders understand the trends that may cause investors to change their behaviour and affect stock prices.

Sentiment Tools

Investor / Bull & Bear
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Ultimately, sentiment drives markets. The best trading opportunities also exist when sentiment reaches extreme levels. Many of the indicators used for technical analysis attempt to measure sentiment. However, they do so using only price data. More advanced sentiment indicators use news feeds, data from Twitter and open interest data on derivative exchanges to gauge sentiment. Some of these tools are available on broker websites, while others are available as standalone online trading tools.

Trading Journals / Paper Trading Tools

Forex / Trading Signals
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Many professional traders believe that having a trading plan and keeping a journal is an important part of the trading process. Whilst you only need a notebook to keep a trading journal, there is also software available to do the job. The advantage of some of the digital journal keeping tools is that journal entries can be linked to live prices. That means you can refer to your thoughts on a particular day and see how the price of a stock performed afterwards.

These trading software tools can also be used for paper trading. Paper trades and journal entries can then be combined to see how your emotions tie in with potential trading performance. Even if you are not paper trading, you can use these trading tools to track the trades you decided not to take which can result in valuable insights.

Other alternative tools for traders

There are other tools that we haven’t covered here, but which are self-explanatory. These trading tools include position size calculators, risk management tools and idea generation tools. In fact, if you can think of a tool that would be useful, there is probably one available to download or buy.

Should you use paid or free trading software?

iMac / Trading Software
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Many of the tools for traders listed here are available on free websites, or as a value-added service available from a broker. A lot of the free trading tools are as good as the versions you can buy or subscribe to, while others don’t measure up. All that counts is whether a tool does what it’s supposed to and if the tool is reliable. If it’s free and it works, then that’s fine. However, as a professional trader, you should never settle for substandard tools with erratic data feeds or regular periods of downtime. Trading is a serious business, and you need the best tools in front of you.

Desktop versions vs. online trading tools

Some trading software needs to be downloaded, while other tools are available online. There was a time when no professional trader would consider using an online tool because slow broadband speeds would mean they were looking at old data. These days, many of the online platforms are so fast that few traders would really notice the difference. For the most part, online tools are fine. However, if you are trading on very short time frames and periods as low as a second count, then it’s worth using a desktop version.

Mobile Trading Apps

Mobile Trading Online
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Many of the tools for traders listed here are available in the form of an app for mobile devices. These can be useful for monitoring the market and positions, but you should be careful of trying to do too much of your analysis using a mobile device. Remember, you are competing against traders sitting at desks with a bank of monitors and numerous tools in front of them. You are going to be at a distinct disadvantage if you try to take them on with a 7 by 4-inch mobile phone.

Avoiding Analysis Paralysis

Analysis Paralysis / Stressful Day
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Online trading tools are very useful, and to an extent essential to become a successful trader. However, trying to use too many tools at the same time may result in making life difficult for yourself and create confusion. More trading tools won’t make you a better trader, but there are a few tools you will need to trade effectively.

Successful traders are constantly trying to simplify their process, and use the least number of tools they possibly can. At a minimum most traders will use a few charts, a watchlist and news feed. They may also use a handful of other tools that give them an edge with their style of trading. Few successful traders use every tool available.

Conclusion: Trading software for professional traders

Now that you know about some of the most common online trading tools available, you can begin looking at the preferred tools for your trading. Most of the well-known trading software applications come with charting and back testing tools, watchlists and a few other tools. Before you start shopping around, you should decide on the online trading tools that are essential to your trading style. You can then consider the applications with most of those tools included. If then anything is still missing, you can use a standalone version.

What do you think about trading software? Do you think trading tools are necessary for professional trading? How many trading tools are you using and for what are you using these tools? What’s your favourite online trading tool? Please let us know your thoughts in the comments below!

About the Author:


Richard Bowman

Richard Bowman is a writer, analyst and investor based in Cape Town, South Africa. He has over 18 years’ experience in asset management, stockbroking, financial media and systematic trading. Richard combines fundamental, quantitative and technical analysis with a dash of common sense.