Saturday, July 26, 2008

Fidelity Revs Up Its Trading System

SURE, THE MARKET’S SLID INTO BEAR TERRITORY, but that doesn’t mean that traders—playing either the long or the short side—have disappeared. And it certainly didn’t deter Fidelity from a successful upgrade of its Active Trader Pro software, which became available in June.

Now up to version 8.0, the Active Trader Pro (ATP) program can be downloaded from Fidelity’s Website (http://www.fidelity.com). The application can be a little tough to find since it’s buried beneath a lot of the mutual-fund company’s menu choices. It’s only available to Fidelity customers who trade at least 36 times in a rolling 12-month period.

Commissions drop from as much as about $20 a trade to as little as $8 for active traders, and ATP itself is free to those who qualify. Transactions can include options as well as stocks and exchange-traded funds. As you trade more, ATP tosses more tools your way, all usable within the app, including Dow Jones news services (an affiliate of Barron’s), Level II quotes and interactive charting. Those who trade 120 times or more over 12 months are eligible for Fidelity’s back-testing tool, Wealth-Lab Pro. But more on that later.

A major focus of the updated ATP platform is streaming news from various sources. “Traders look for an edge in volatile markets, which lately have been news-driven,” says James C. Burton, senior vice president, Fidelity Personal and Workplace Investing. “The enhancements we’re announcing to our trading and research platforms deliver on our commitment to provide our brokerage customers with institutional-grade tools to help them become better investors and traders.”

GETTING STARTED WITH ATP involves downloading and installing the 29-MB file to your Windows-based PC. Fidelity recommends that you use one of the flavors of Windows XP (Home or Professional), or Vista, and have at least 1 gigabyte of random access memory (2GB is preferable). A high-speed DSL (digital subscriber line), cable or T1 (fiberoptic) connection to the Internet is also recommended; using dial-up or a satellite or cellular modem may result in data loss. You have to go through a security setup the first time you launch the application. ATP must be installed on every computer you use for your Fidelity account.

The focus on news includes tools such as pre-built and custom searches, tabbed navigation, and news alerts. When you get an alert, a small box pops up on top of your display, and a chime sounds. You can search the streaming news by ticker symbol, market sector, or the company shares you’re currently trading. The custom searches you create can be saved so that you can pull them up and run them quickly in the future.

News stories include embedded quotes and charts that float up when you mouse over the ticker symbol. You can also get an options chain from the floating chart by clicking on a link. If you’ve got several searches running simultaneously, you can tab back and forth using the folder labels, and ATP includes a quick link to a trade ticket from every headline. I got to the point where I had a dozen news tabs open; to close one, you just have to right-click on it and pick “Close Tab” from the menu that pops open.

Like most downloadable-trading applications, ATP lets you customize the layout to your heart’s content. Customization can include the location of your trade ticket, graphing applications, news alerts and portfolio management tools. ATP 8.0 offers the ability to undock a particular item, such as the trade ticket or the news alerts, from the main application, and place it wherever you want on your screen. You can also use multiple monitors with ATP 8.0.

Placing pretty complex orders is possible in this upgrade. You can make conditional trades—like, say, buying 100 shares of Intel (ticker: INTC) when the Nasdaq index hits a certain level—as well as set up exit points for positions when you open them. This system allows you to create multi-contingent orders, using three basic directions: “And At The Same Time,” “Or,” and “Then.” By combining these directives in different ways, you can create a variety of contingent transactions.

The options-order entry screen allows you to create strategies with as many as four legs, so that you can be selling and buying calls at four different strike prices. Options traders will be able to view the greeks, which measure a particular option’s potential risk and reward over time from the option’s chain displays. They also can use a multi-leg pairing tool that displays bid/ask spreads. They’ll also be able to find historical options charts.

THE NEW TOOLS and capabilities are well worth the drudgery of the download and installation process. Fidelity will soon be updating Wealth-Lab Pro to version 5.1 (the current version is 5.0), which lets you build trading systems based on a long list of technical indicators and fundamentals, creating “Buy” and “Sell” alerts. In the previous version you had to move around within the system to trade whenever an alert was issued. Now you can trade directly from an alert.

There is also an omnipresent manual-trade ticket window on the upper menu that allows you to immediately place an order. If you don’t want to take immediate action on an alert, you can stage trades in the Orders tool for later consideration and submission. Wealth-Lab Pro 5.1 fixes a small problem with the earlier version, allowing you to easily cancel and replace orders.

One of the most interesting tools built into Wealth-Lab Pro is the drag and drop Strategy Builder. This lets you develop your own trading strategy by choosing particular technical or fundamental indicators and then inserting them into a formula. The update includes parameter sliders for easy customization once a trading strategy is up and running. Good luck.

Published in Barron’s, July 21, 2008.

Posted by twcarey on 07/26 at 12:47 AM
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Saturday, July 12, 2008

A New Way to Tell When to Fold 'Em

TOO BAD THIS SERVICE WASN’T AVAILABLE a few weeks ago. A new company called SmartStops (http://www.smartstops.net) will go live Monday (July 7) with an advisory that will tell you when to bail out of a particular stock.

There’s no shortage of brokerage analysts, newsletter writers, bloggers and in-laws who are happy to tell you what stocks to buy. But there’s less help when it comes to advice on closing a position. Taking a shot at filling this void is the newly launched SmartStops. The Electronic Investor was invited into the beta test group in mid-June, and we think it’s a site worth joining—or at least bookmarking if you only want to access its free services.

The founders of SmartStops believe current solutions are either too simplistic—setting a stop loss or trailing stop based on a percentage or absolute dollar drop in a stock price—or too complex—requiring investors to set and adjust a lot of complex technical variables.

“Investors assume a lot of risk without having the skills to put together a good strategy,” says SmartStops CEO Brent Collins. “Most people take the path of least resistance, which is to be a bit oblivious to time-sensitive decisions. They’re not prepared to react, and are thus exposed to risk, unable to lock in profits, and greater potential losses.”

HIS COMPANY’S WEBSITE CURRENTLY OFFERS
exit strategies for stocks only; it doesn’t cover options or futures, but is looking at those possibilities. Its algorithms categorize the overall market into up, down, or sideways movements, then calculate exit points for individual stocks based on an overall market trend.

When the market is going up, the calculation is designed to give the investor more room to generate added profits. When the market heads down, the exits are moved closer to the current stock price so as to preserve capital. The proprietary calculations are intended to avoid reacting to “market noise” or random events. That way, said Collins, the system avoids whipsaw changes or premature exit triggers of trailing stops. The company is reluctant to go into too much detail about the system beyond the fact that many of its indicators are based on technical analysis.

During the beta, we had a list of 10 stocks, including Google (ticker: GOOG), Intel (INTC) and IBM (IBM), we were following on SmartStops. Eight of them hit short-term exit points during the week of June 23, mostly late in the week when the market fell sharply. We got a sell signal at $21.75 on Intel, for instance, which subsequently dropped to $21.57. SmartStops members receive an e-mail alert when an exit point is reached, and can also check the Website during the trading day to see new recommendations.

Each covered stock has both short-term and long-term SmartStops. You should use the short-term stops for stocks you’re considering holding for less than six months. The long-term stops, which provide more breathing room, are intended to be used for stocks you plan to hold longer than six months. Stops are published for U.S. stocks with volumes that average over 40,000 shares per day, and are priced above $5 per share.

SmartStops executives showed us a comparison of three investing strategies for the S&P Depository Receipts (SPY) over a 10-year period. The short-term SmartStops strategy ended up with the highest profit, and unlike buy-and-hold, had the investor in the market just 57% of the time. The long-term exit strategy also out-performed a buy-and-hold approach, and was in the market 84% of the 10-year period. Collins says, “We’re showing that we can improve people’s returns with less risk and less exposure to the market.”

There are two ways to use the site. For no charge, you can check out SmartStops on individual stocks, though you’ll have to type in the ticker symbol each time. For $9.95 per month, you can track a portfolio of up to 10 stocks, which will allow you to save all the ticker symbols and receive e-mail triggers when a stop is reached. Subscribers also receive an end-of-day report; there are plans to create a mobile applet over the summer. You can add sets of 10 more symbols for an another $9.95 per set.

Down the road, SmartStops plans to partner with online brokers and financial data providers, and also will develop a dashboard application to provide still more help with subscribers’ sell decisions.

SmartStops’ “exit guru” Chuck LeBeau says, “People will try the free service for a bit; look at a stock and history, and ask themselves, ‘Would this have helped me?’ One good trade quickly covers the cost of the service, and then some.”

TOOL UPDATE:
Nasdaq has updated its Market Replay feature, which we reviewed March 24, 2008 ("A Timely Boon for Small Investors") to add the ability to offer intra-day replays and the inclusion of trade data, in addition to quote data, in the results. Market Replay 2.0 lets you see price changes in a Nasdaq, NYSE or Amex-listed stock in all its gory detail over a certain time. It, along with other Nasdaq trading tools, is available at the Nasdaq Data Store (data.nasdaq.com).

The tool is intended to answer a trader’s questions after an execution. Like “What the heck happened?” Market Replay lets brokers and traders reconstruct events around a trade to help validate the price received. The exchange is hoping that online brokers will use Market Replay to send their clients a Nasdaq-validated screen shot, taken when a trade was executed, to confirm the quality of the execution. This could also reduce client inquiries.

You’ll need the most recent version of Adobe Flash Player to use the tool. It displays a tick-by-tick graph over a particular time period, showing each execution of an individual stock. Market Replay 2.0 also shows order size.

One enhancement allows same-day replays of the market. The initial release of the tool provided historical data that was accessible to users beginning with the previous trading day and extending backward in time. Data are delayed at least 15 minutes for intra-day replays.

“With an enhanced Nasdaq Market Replay, all investors can now instantly discover in even greater detail exactly how a trade was executed,” says Nasdaq OMX Executive Vice President Adena Friedman.

The system is available to professionals for $50 a month via their data vendor. Individuals can access it for a lot less or for free via Internet portals.

Published in Barron’s, July 7, 2008.

Posted by twcarey on 07/12 at 02:05 AM
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