Shares digital

If you are going to take on an increasingly volatile market you will need all the help you can get. Chris Bourke tools up with the hottest trading software around

How could a piece of trading software know that an apparently robust British bank was on the verge of collapse? One wet day in a very nervous August last year, a select group of traders were warned just that, and were among the first to cash in on the worldwide credit crunch. What’s more, the tools of their trades are easily obtainable.

In the early months of an uncertain year, private investors want guidance. The wild swings in share indices around the world are daunting to many, and are sometimes enough to deter the most thick skinned of traders. As seen by the unsettling price falls in January, the days of irrational exuberance have ended and have been replaced by an often irrational mindset of fear.

This is no time to be fearful of trading. Thanks to the wonders of IT, there is a range of software that has ben programmed to manage and profit from the market conditions we are living through today. Their built-in intelligence is designed to give traders all the strategy they need, including signals that tell you precisely when to buy and sell, and where to place your stop losses.

Banks and institutions in over 30 countries are forking out around £2,500 a year to install a terminal in their offices which do exactly this. The likes of Goldman Sachs are using software firm Updata’s products, in conjunction with their Bloomberg or Reuters terminals, to outperform indices, share and commodity prices, around the world. Unbeknown to many of these wealthy investment bankers, that very technology is on sale to private investors at a significantly lower price.

A certain trigger

Updata was founded by David Linton, who is one of the UK’s most renowned technical analaysts. Following the tech stock meltdown of 2000, his firm decided to target primarily professional traders with its products. However, it still offers two products to private investors, which are TA Trader Live (£499 a year) and TA Trader Real Time (£999 per year). They both offer full UK data, live foreign exchange, news, UK fundamentals and international prices of around 30 exchanges.

Linton says that the software’s ‘smartest’ feature – and its biggest selling point – is the ‘optimised stop loss’ feature that he developed himself. ‘We have no idea why some things happen – or care. We just know when something different is happening, or it is triggered on a stop. Our stops are based on abnormal retracements – if a bigger retracement than normal occurs, than we sell.’

A retracement? If that is outside of your vocabulary, it does not matter. Linton says you don’t have to be a technical analyst to use the software – the system will simply tell you what to do. ‘It’s not just a system for mining stocks to buy – it tells you when to sell. No one else does that – brokers won’t do it, tipsters won’t do it, as they have a vested interest. It is very hard to say “sell” when you said “buy” last week.’

It was back in May that Updata TA told investors to sell doomed bank Northern Rock, purely because the chart said the share ‘has had its run for now’. The Telegraph then told its readers to buy the shares at the end of June, at which point Updata advised a 12% stop loss for anyone who followed that advice. The stop was duly triggered in mid-August when Updata TA said that Northern Rock had an ‘awful’ chart. Some of those who weren’t holders took short positions, and the share price has since collapsed from 800p to 100p.

The Goldline standard

Another product that tells its traders exactly when to exit a trade is the Goldline trading system. Its website claims to have tripled the money of all of its users in the first two weeks of January – when market volatility was at its worst since 9/11. Goldline is based on simplicity. It does everything for you, from downloading and analysing market data, right through to telling you which markets to trade; when to get in and when to get out and bank a profit. All in five minutes a day, apparently.

According to Goldine’s founder, Mark Harniman, the secret is all down to the product’s use of unique algorithms, which adapt along with market conditions. ‘If somebody wants a method to simply follow, then this is that method,’ he says. ‘The algorithms relate to how the market is now – they are dynamic algorithms – they don’t age, they don’t fall over because markets are suddenly doing something different.’

The system is also unique in that it advises traders exactly how much of their capital they should place on each trade. Goldline claims that investors who started with them in 2000 with a balance of around £2000, would now be sitting on a cash pile nearer to £160,000 – or a gain of 8,000%. A staggering claim – but the calculations are all there for the public to see at www.goldlinesystems.com.

Hard Graft

Of course, there are many ‘old-fashioned’ traders who still prefer doing the hard graft themselves – or at least some of it. Trading software firm eSignal offers investors a variety of means to combine ‘smart’ trading systems with their own analysis. Traders are able to measure how ‘choppy’ a market is by using a range of analytical tools embedded in its products, even including a ‘choppiness’ indicator.

However, one unique piece of eSignal ‘intelligence’ is a function by which its software magically sends forth ‘market scanners’ to explore a certain market on the trader’s behalf. The scanners hunt down stocks which they detect are setting up specific price patterns. An enhanced filtering function allows the user to hone that list down to a core list of symbols to trade from. They can also be imported into one of eSignal’s newer features, the Advanced GET Dashboard, which views 100 charts at one time.

Advanced GET Traders also turned a quick profit in the volatile month of January by shorting the Chicago Mercantile Exchange before its share price suddenly went south. The stock (as per chart) had been in a strong uptrend for a few months to the end of December. Advanced GET users saw the signals that the trend was nearing its end, based on a ‘counter trend/end of trend’ trading strategy that was coming into play.

‘From that point, CME began to pull back sharply,’ said Craig Russell, eSignal Learning Manager. ‘During this pull-back, volatility was picking up in the stock. Many traders were likely looking at this dip as a potential opportunity to go long CME. But we knew this was the beginning of a new trend down. On 19 January, another of the Advanced GET tools gave a clear signal that a downtrend was in place. CME continued on down, meeting a price objective on 6 February, 2008 for a nicely profitable trade in a volatile market.’

Like eSignal, UK trading software firm Sharescope is geared towards private investors, and offers a range of packages for both novices and sophisticated traders. The software’s data mining allows traders to filter on a range of technical criteria – such as moving average crosses, volume, candlestick formations and swing chart signals.

Taking a simple example of a ‘smart’ feature, ShareScope will provide traders with a watchlist of company share price charts that exhibit a ‘golden cross’. This is a strong technical buy signal that forms when two moving averages intersect.

On target

However, you can create far more sophisticated filters, particularly using ShareScope’s own unique programming language. ShareScript enables the trader to perform customised analysis on ShareScope data and use the results as columns, indicators or data mining criteria.

‘One customer, working at a stockbroker, looks for charts on which four specific technical events have all occurred within the last ten days,’ said Tim Clarke, a spokesman for Sharescope. ‘Like most people, he doesn’t have the time or inclination to search thousands of charts every day so he has created two filters which provide him with shortlists of long and short trading opportunities every day.’

Sharescope also offers a feature ideal for spread bettors, where you can adopt a ‘top-down’ approach to target outperforming and underperforming sectors. The software lets you track the performance of FTSE 350 sectors relative to the index – either by building a table of price performance over various timeframes, or on ‘price relative’ performance charts. By using this approach, traders can hunt out the strongest stocks in the top sectors, and the weakest stocks in the worst sectors.

The software also allows traders to set alarms on support and resistance lines, by doing a simple right-click on the mouse. If the price crosses the line, the alarm is triggered.

ShareScope offers three trading software packages – Gold, Plus and Pro. The latter two incorporate tehcnical analyst Marc Rivalland’s ‘swing trading’ system, while it offers the Alpesh Patel trading system for an additional cost.