What Trading Software do you recommend?

21st Nov '12 by manxman

28 comments 14152 reads

Does anyone have any experience of using trading software.

I'm looking for a program that I can implement my trading strategies with, such as the following:

Program my own screens using rules like PE10, Dividend streak = > 4yrs, Dividend growth streak = > 2yrs. dept:assets = <1 time the market average. etc etc.

I would also like to to program my exit strategies such as:
sell when max profits = -2% of growth from buying price, or when price drops below 2% of the buying price. etc etc.

Does anyone know of software i can use to do this? I am only just starting trading (using a value & income system) so i dont want to expensive a system.

Thanks

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Manxman

Premium Member

28 comments

marben100

23rd Nov '12

Hi Log,

I take your basic point... but:

If we assume Mark's point that 15% p/a is really very good and very unlikely then this would be about 10% out performance to a pretty boring low fee tracker type investment. Let's assume they have say 25K to invest actively. This means the extra time they spend on active investment is going to make them 2.5K a year extra or about £208/mnt.

you're ignoring the effect of compounding.

At a 5% total return, £25,000 becomes £40,722 after 10 years.

At a 15% total return, it becomes £101,139 after 10 years. That's a difference equivalent to £503/mnt. ;0)

IMO a deep understanding of compound interest lies at the heart of intelligent investment. Besides being essential for portfolio management & investment strategy, it is important to understand the role that timing (and timing risk) plays in assessing the values of future cashflows that your investee companies are expected to produce - which lies at the heart of fundamental analysis.

Cheers,

Mark

loglorry

23rd Nov '12

Mark I'm not no.

If you have a job and can supplement your returns by just topping them up with extra earnings so that the return is 15% so to speak then the same compounding happens. All you are doing is just re-investing dividends plus your extra bit of savings from your job.

My point then is that for most people it is better for them to focus on their carreer and squeeze a bit more income in there and chuck it into an ISA re-investing in a simple product than to go down the path of trying to top up earnings via investing in the stockmarket*. I'd be surprised if anyone actually outperforms if they count their time and their after-tax rate of income from their "main" job unless they have very large investment pots.

I take your point on timing though and compounding. It's the old falsely that stocks outperfom bonds in the long-term. Maybe true but there have been periods of time where it has taken many decades before this has actually happened.

Log
*unless you enjoy it anyway.

jseth123

23rd Nov '12

What size of portfolio do you consider makes it worthwhile Log?

Most people are not trying to top up their earnings though but to build a pot for later in life, therefore the income isn't drawn down and is reinvested. And all the while, savings accumulate and what would you rather, that by the time you come into enough money to make it "worthwhile" you have already had x years experience or you start from scratch with a sizeable portfolio (at whatever age that makes you)?

loglorry

23rd Nov '12

Actually what I just wrote is b***cks - Sorry Mark. I was thinking about something else similar and doing two things at once. You are right obviously that the top up route can't compete with the compounding once the pot gets large enough.

However my argument does still stand a little in the early days of portfolio building at least. At these times the out performance is likely to be very small and so the time spent achiving it on a small portfolio pot will not yeild much in absolute terms but the power of compounding should see it through eventually.

Sorry about that - promise not to be so dumb again!

Log

loglorry

23rd Nov '12

What size of portfolio do you consider makes it worthwhile Log?

Impossible to say really as it all depends on how much you enjoy the research and investing in general and how big your living costs are. When I started out I was single and a very low cost of living. A wife and two kids and I'm still not at a point where I could invest for a full time living without there being quite a bit of stress so I work 3 days a week as well on a consultancy basis.

I would say though that it can be quite a lot of work and quite stressful so you have to decide if you are willing to go the extra mile for the extra returns which you might not get anyway or rather just enjoy life* because we we are certainly not around for long.

Log
* unless it forms part of the enjoyment of life which it does for me.

manxman

24th Nov '12

So say i started out with 30 sets of £500's worth of shares and followed a value plan similar to John Kingham's at Uk Value investor. With such small starting account would I not be better off with my online broker who charges me £6 a transaction than natwest who charge £15 a transaction?

manxman

24th Nov '12

I think I should explain a bit better. I havent bought any shares yet but I've read Lawrence Cunningham How to think like Benjamin Graham and invest like Warren Buffet (because buffetts the best). Then I read Phil Fishers Common stocks and uncommon profits (because I read that buffet is 25% Graham and 75% Fisher). Then I read come into my trading room by alexander elder (because i read that it was a book was complete; it had sections on money management, pychology, record keeping) which was true but it confused the hell out of me with the rest of it. I just need to get my head round how to place my trades, because as far as I can tell they implement their trades using software, and use stops to do their selling, but if your a long term trader how do you program your strategy?

marben100

24th Nov '12

Manxman,

I think you've misunderstood. To the best of my knowledge, none of those you mention (including Elder) use automated software to implement their strategies.

You're right that with a diversified portfolio and modest capital, keeping broker costs low is important.

Keep it simple:

You can use Stockopedia to run your screens
Decide how much of your capital you want to invest when. If you have a fixed amount it may be unwise to invest it all at once. Always useful to keep cash aside in case of market selloffs that allow you to take advantage of bargains. If you'll be adding to your investment pot on a regular basis, then that's less of an issue, as you'll be able to add to the pot when stocks look cheap.
Consider carefully how often you need to review & revise your portfolio. Your buy screen will give you a list of investment candidates. It may make sense to check your portfolio weekly for whether any stocks in it have met your sell criteria - and if so, instruct your broker to sell.

You don't need software to do this. NB, in the header you say:

I would also like to to program my exit strategies such as:
sell when max profits = -2% of growth from buying price, or when price drops below 2% of the buying price. etc etc.

You can do that simply by leaving stop-loss orders with your broker. All on-line brokers let you place stop-loss and limit orders, which you usually can leave for any timeframe you choose. Please ask if you need more explanation of that.

I would add that setting a stop loss when the price falls by 2% makes no sense whatsover with a long term strategy. Prices can easily move by more than than within 1 day. If you intend to keep a holding for 5 years, how can it make sense to sell each time it drops by such an amount (which will happen dozens of times within that sort of holding period)?

Personally, I don't use stop losses at all: I've found that often they will stop you out at the worst possible time. When the price of a stock that I hold falls, that's a buying opportunity for me, unless there has been news affecting the stock that changes my view of its value.

I recommend this excellent recent article from Fool USA: http://www.fool.com/investing/general/2012/11/14/50-unfortunate-truths-about-investing.aspx "50 Unfortunate Truths About Investing".

Note #22:

Professional investors have better information and faster computers than you do. You will never beat them short-term trading. Don't even try.

Cheers,

Mark

Cuthbert C

24th Nov '12

Manxman

Not wanting to teach you to suck eggs, but you do sound to be making things over complicated. If you have never bought any shares then the last thing you should be worrying about is a system for placing automated trades.

Field Marshal von Moltke famously said "no battle plan survives first contact wiith the enemy". he didn't mean that planning was a waste of time - he was himself a meticulous planner. But he recognised that the most brilliant plan needs to be developed and refined in response on events in the field and not simply devised in a remote conrtrol room and then slavishly adhered to. Th esame thing applies in investing.

I'd suggest you acquire an account with either an execution only broker or a full service broker and make a few small* investments. You will learn by doing. Reading the wisdom of great investors might be useful, but focussing on that right now is running before you can walk. Walking comes first and it can only be mastered by trial and error and lots and lots of practice.

* The thing about starting with small investments is that if you get it right they can grow large. The thing about starting with big investments is that if you get it wrong they can grow small.

Good luck.

T

manxman

24th Nov '12

Thanks for the replies.

I thought the idea was to put stop losses 10% below the lowest price the stock has hit in the last 10 yrs? Alot better than my less than 2% of the buying price idea.

I was planning on buying £500 of shares in a single stock a month till I build up my 30 share portfolio so i think that is taking my time and allowing me to develop my strategy. I'll be reviewing my portfolio montly and my notebook 3 months after each trade to give me chance to get hindsight on what happened.

Cuthbert C

25th Nov '12

manxman
"....I thought the idea was to put stop losses 10% below the lowest price the stock has hit in the last 10 yrs?.... "

whose idea is that? and what exactly is it intended to achieve? Sounds like an exotic proposition to me. I've been investing for about 30 years or so and can homestly say that such a stop loss would have been of zero benefit to me in that time.

I'd say forget all that complicated stuff.

The problem I see in your approach is that you are over-diversifying and ending up with individual holdings which are sub-economic. You will be putting such small amounts into each stock that the trading costs will be signifcant as a %. And the bid-offer spread will also have a significnat impact. If you pu £500 into a stock with a 5% spread then your shares will be worth only £475. If that stock then takes a bashing - let's say it falls by 25% - then your £475 holding will be down to £356. By the time you've accounted for dealing costs, it just doesn't look viable to me.

Instead of aiming at 30 holdings - each worth £500 for a total of £15000 - I'd be thinking of 5x£3000 or 3x£5000. I think that would be more manageable and more economic - and you'd have a chance of doing the research right and timing the transactions right.

Just my opinion

T

marben100

25th Nov '12

Hi T,

Whilst I agree with most of your post, I strongly disagree with this bit:

Instead of aiming at 30 holdings - each worth £500 for a total of £15000 - I'd be thinking of 5x£3000 or 3x£5000

Even for an experienced investor, putting their entire capital into just 5 stocks is a risky proposition. For every few that make a fortune by backing "big winners" with serious cash, far more investors lose a large part of their capital when their "sure thing" fails. I have come across very few investors (I can count them one hand) who have the depth of knowledge - and the necessary ability/access to do really in-depth research - to run a concentrated portfolio successfully.

For a novice with little investing experience, it's an extremely dangerous path to tread IMO. I agree that 30 holdings is too many for a 15K "pot" and "frictional" costs are likely to take too large a bite. Manxman has not made clear whether he has a fixed amount to invest, or whether he will be able to add to his investment capital over time.

If it's fixed then maybe choosing 8 stocks initially (or over the first few months) and putting £1K into each might be a good idea. That would leave £7K which could either be used to add to those holdings over time or add further ones, as new opportuntities arose and as Manxman gained more experience. If there's more money to add to the pot over time, then that offers more flexibility and larger amounts can be deployed early, knowing that there's more cash available to drip in later, as and when opportunties present themselves.

Also, of course, just my opinion and not advice!

Cheers,

Mark

loglorry

26th Nov '12

Hi Mark - well you can use up another finger on me then. I started with a classic 12 share HYP type portfolio invested carefully on fundies and balanced across sectors etc. I stuck to large caps where possible and re-invested income. I was happy to stay hands off largely and let it grow relatively passively. I can't quite recall but my pot was around £250K initially.

It was a total disaster! Mostly because I invested at the wrong time. The worst performers were banks RBS was in there. This led me to study banks a lot lot more and get involved in much more special situations. I dropped the diversification and balanced approach and placed some pretty big bets (with some new money as well) on some specific special situations in O&G and banking. A few went bust but the majority absolutely flew and made me several times what I'd lost on the balanced porty.

Was I lucky? Was the initial problem just bad timing? Yep probably.

I'm not saying this instance is something that can be generalised but looking around at the investors here and on TMF quite a few of them have got to where they have by making "back up the truck" type investments on special situations that have come good.

It could all just be down to survivor ship bias though but I think there is more to it than that personally.

Log

Cuthbert C

26th Nov '12

Morning Mark

I think we are more or less in agreement here.

If the iniitial £15k is all there is ever going to be in terms of investment funds I would not disagree with your comment. But in that case I'd tend to think that that sum was less than the critical mass required for it to be viable to invest directly into a diversified portfolio of equities.

I read the previous explanation by the OP as implying that the intial £15k was an initial lump of funds and that there would be more to follow. I read the situation as being that the OP had decided that optimum diversification requires 30 different holdings so wanted to achieve that number asap and consequently was planning to do so by slicing each holding to a minimum with subsequent top-up investments being spread across existing holdings rather than adding entirely new ones.

I do think that size matters in this situation. Firstly because frictional costs (transaction costs + spread) are too great for such small amounts to be readily feasible for investors with a "normal" rate of success. maybe Warren Buffet can hit the bullseye with 30 consecutive investments but I know I never have and I doubt that even you have. :~)

But the real killer, surely is to do with the time required for research, monitoring and decision making and the return on time invested - ROTI.

To invest in 30 companies implies researching a significantly larger number - 60? 100? 150? 200? in order to select a short list and then more intensive research of the shortlisted candidates. Whilst that might be possible over time, it is a big outlay at the outset. And following 30 companies is a significant committment. And to do it properly you don't just follow your chosen 30 do you? you also follow their rivals/comparators - after all you don't want to stay in a company that is doing OK if all its peers are doing fantastically well.

That brings in the concept of ROTI. If you do your inital selection and research diligently and then follow up with close monitoring you want to see some benefit from the results. If one of your selected stocks did very well and returned 20% per year - a result I'd be pleased with - that would represent £100 of the proposed £500. How many hours would you need to spend on it? More than 20 per year, I'd reckon. So you'd be making £5 per hour. Not worth it. And you will have other unsuccessful investments, which will probably bring your average down from 20%. I'm simplifying here but you get my drift.

When I started saving/investing I started by using collective instruments whilst my capital built up to a critical mass. I used that period to develop my knowledge/understanding of the market and of potential investments and then I had a period of transition.

Since then I don't think I have ever had as many as 30 holdings. Right now I've got about 15, but 3 of those are bank prefs so get lumped together for monitoring purposes. No way could I follow 30 different companies in many different sectors.

loglorry

26th Nov '12

Tournesol I totally agree. How could someone just starting off with 15K spend enough time on 30 holdings effectively? If they managed 20% return on £15K (very unlikely) that would mean a doubling of the pot every 70/20=3.5 years. They'd need to run that strategy for at least 14 years to get to a portfolio of just 70K. I can't see how monitoring and researching 30 stock for the next 14 years can be worth a return £55K profit (before tax although it could likely be sheltered).

Obviously if you can start with a bigger pot and/or run for much longer and still get 20% it is very worthwhile.

Log

marben100

26th Nov '12

Hi Log,

It could all just be down to survivor ship bias

IMO a large part of it is. This is also a key point:

Mostly because I invested at the wrong time.

Quite a few of us invested in bank prefs in the depths of the crisis and did well. However, not having your degree of confidence, I invested in a much broader range of investments in late 2008/9 (having, like you, had a pretty disastrous 2008) - the first time I'd experienced a negative annual return on my SIPP porty since starting it in 2002. Despite being broadly diversified I achieved successive gains of 50% and 42% in 2009 and 2010. Clearly, a) having the cash; b) being able to go against the crowd and actually invest at the depths of the crisis were the key factors, rather than running a concentrated portfolio.

Mark

loglorry

26th Nov '12

Of course, if I'd put a huge bet on Extract Resources (rather than a modest one), my returns would have been several hundred 100% - but, IMO that would have been more akin to gambling than sensible investment.

This is a very interesting point though. You might argue that because you can never know what might turn up (unknown unknowns) you should never go too overweight in a stock. However if you are pretty certain that the market has indeed got the price wrong for very good reason then I would argue this is exactly the sorts of risks you need to take early on in portfolio building to have a chance of growing your portfolio quickly in the early years.

There is still a very real chance you'll loose the lot but actually its not that disastrous if the risks taken early on relatively small sums of money. Once your portfolio is in the seven figure range that is exactly when diversification and looking to churn out 15-20% returns YoY should be your goals.

This all depends on how much you start with and how long you have to grow a pension pot obviously. However I think there is a lot to be said for taking some multi-bagger bets early on in the portfolio building phase and general market timing is probably a lot more important than stock picking at these points.

One of the few advantages that PIs have over Insti investors is that we can detach risk from volatility. Insti investors must make sure their performance doesn't suffer from too much volatility as large drops in portfolio value can lead to investor redemptions. PIs however can ride the huge waves of volatility as long as multi-year performance justifies it.

In summary I think the traditional route of diversification and compounding is not optimal for Private Investors. In the early stages I think a very strong stomach to volatility is required to achieve some large returns which are then later protected in a more traditional sense.

Log

manxman

26th Nov '12

Thanks, plenty to think about. Its now about as clear as mud.

But anyway. This is the kind of advise that is indespensable, and I think I get it. That due to fees and slip I should focus my purchases into fewer stocks. So as not to allow anything i do make to be diluted by exposure to losses, and provide me with staying power.

But simplier because my pot is so small i need concentrate the stocks and put all my returns (if any) back into my portfolio.

My apologies for asking such a trivial questions.

peterg

26th Nov '12

due to fees and slip I should focus my purchases into fewer stocks. So as not to allow anything i do make to be diluted by exposure to losses, and provide me with staying power.

That's part of it, but also if you have too many stocks you simply aren't going to be able to keep traxck of them. In the long term it's probably better if you end up making a bit of a loss on a small portfolio that you keep close track of, and understand, than it is to make market matching returns on a large diversified portfolio. That way you will be in a better position going forward to be able to make the right choices.

I also agree with Loglorry, that when you are starting out with a small portfolio you should probably be prepared to take more risk that you might later, that's the way to grow your portfolio quickly! I took a lot of risks when I started stock picking, and put a lot of money into a particular stock and sector that were very out of favour. The result was I managed to make annualised returns of over 30% for 9 years. Since then, with a much bigger portfolio now, and havbing become less prepared to spend the time I used to on this, or to move money around as much as I once did, I've ended up making a small annualised loss since 2008. That's partly also due to the economic climate, but it's also due to becoming stale and failing to be prepared to change my approach as quickly as I once would have done - and I will admit I was lucky over the first 9 years. But I am quite sure that given limited time it's far better to do high quality research on a small number of stocks, and be prepared to take some risks, than it is to over diversify.

manxman

26th Nov '12

much obliged peterg

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Manxman

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