Appendices

Now it is time to get started. You are getting ready to spend money. To succeed in this game, you will need the best data and software tools you can afford. The money you save with pennywise (mis)management is insignificant to the increase in risk exposure poor tools may induce. Plan a budget to spend money on a fast computer, solid software, hardware, data, and technical support. Appendices A, B, and can help you in these matters.

Lasdy, before you spend a dime, read Appendix D. It is a real treat-a rollicking true story about my trials and tribulations in developing an options trading system right ext to the exchange pits years ago. It has some important lessons pertinent to building your own system. The lessons I learned are as relevant today as they were back then.

Acquiring Market Data

First, you will need data, and lots of it. You cant do anything without it. Luckily, for system testing, historical financial data is inexpensive and numerous vendors offer it. However, not all vendors supply the same quality data. Ticks may be missing and prices may be inaccurate. So whats a trader , to do?

Decide what type of data you need. Appendix A will help you figure out what price level is best for you and includes lists of data vendors to choose from. But before you close a deal, it is wise to be a smart consumer and pump the vendors with hard-hitting questions. Otherwise, you may get hit hard instead. To help you prepare the right questions, Appendix provides detailed "behind the scenes" insight into the entire life cycle of a price quote: from its birth, all the way to your computer. The more you know how vendors collect, process, and transmit data, the smarter your questions will

become and the more you know what to expect and demand. After all, you are the paying customer and it is your money they want.

As for receiving the data, unless you live north of the Arctic Circle or in a valley surrounded by tall mountains, consider getting a satellite feed. This technology is getting cheaper all the time and can handle enormous data rates. Eventually, it will have to compete with the low cost of Internet communications, but only when the latter becomes more reliable.

ACQUIRING MARKET KNOWLEDGE

There are some very smart people out there. To learn what they have to offer, read good books. Not that you will find the Holy Grail inside a paperback, but that little by little, you will be accumulating wisdom. There are many good books on the market covering fundamental and technical analysis, as well as market and personal psychology. To save you time, check out my compiled list of books recommended by real traders, in Appendix C. If you discover just one good idea that works for you, it is worth it.

An inexpensive way to get and give information is through several very good moderated forums on the Internet. They are listed in the Preface.

If you want to attend seminars or purchase a tutorial course, be sure the method taught can be applied by someone with your account size, data access, and computer software. Also, demand to see account statements that were directly attained by trading the same system to be taught in the course. Remember, you are the customer. If the instructor is hesitant, dont consider him.

Consumers have rights. Whenever you suspect you have been a victim of disreputable or illegal actions, consult the appropriate authorities. There are numerous agencies chartered to protect you and your investments, and their services are generally free. See Appendix for a list of consumer protection Web sites.

Appendix A

Financial Data Sources

kevin marder

You have done your homework. You have read a ton of books, subscribed to various newsletters, listened to countless gurus, and perhaps picked up a new computer with all the latest high-tech gadgetry. And, after seemingly endless deliberation, you have armed yourself with great software for building a trading system. The next piece in the trading puzzle will be to choose a data provider.

Although data is usually looked on as an afterthought in the process of devising a trading system, once you begin to test the multitude of ideas pulsating through your brain, data assumes the importance of a powerful weapon. With it, you have the potential to win the battle for investment survival, and without it, you have nothing.

Data has come a long way from the days when aspiring traders leafed through scores of yellowed newspapers searching for historical securities prices. An increasing number of enterprising firms have developed state-of-the-art content and retrieval; all at prices that resemble the chart of a glamour stock in a bear market. Convenience, reliability, breadth of coverage and affordability, then, combine to give the individual trader data that was once reserved for Wall Street professionals.

Real-Time Data

Securities data falls into two categories: real-time and end-of-day. Real-time data, also known as tick data, represents a continuous stream of prices corresponding to each > trade that takes place in a security. Thus, it is possible to follow a securitys every trade throughout the market day. This type of data is necessary for the trader who will be making intraday (within the day) market moves. As the Information Age matures, market developments occur with startling speed. The result is that market moves that used to take days now take hours. And those that used to take hours now take minutes.

An interesting yarn illustrates just how much more efficient the markets have become in reacting to new information. A gray-haired salesman for a Wall Street brokerage house used to mail his firms research reports to his clients, most of whom were portfolio managers. The salesman would follow up each mailing with a phone call to determine what interest the client might have in buying the stocks that were the subject