Computerized technical analysis is more objective than classical charting.
You can argue whether support or resistance is present—but there can be no argument about an indicator’s direction.
Of course, you still need to decide what to do after you identify an indicator’s message.
Toolboxes When working with wood or metal, you can go to a hardware store and buy a set of
tools that can help you work smartly and efficiently. A technical analysis toolbox provides
a set of electronic tools for processing market data. When you decide to get into computerized
technical analysis, begin by drawing a list of tasks you want your computer to perform. This
will take some serious thinking, but it’s much better than getting a package first and scratching
your head later, trying to figure out what it might do for you. Decide what markets you want to
track, what types of charts to view and what indicators to use. A toolbox draws weekly, daily,
and intraday charts; it splits the screen into several windowpanes for plotting prices and
indicators. A good toolbox includes many popular indicators, such as moving averages, channels,
MACD, Stochastic, Relative Strength Index, along with dozens if not hundreds of others. It allows
you to modify all indicators and even construct your own. A good toolbox allows you to compare any
two markets and analyze their spreads. If you trade options, your toolbox must include an options
valuation model. Advanced packages allow you to backtest trading systems. Another feature of a good
toolbox is its ability to scan stocks. For example, you may want to find all stocks among the Nasdaq
100 whose exponential moving averages are rising, but whose prices are no more than 1% above their EMAs.
Can your software scan for that? Can it add fundamental parameters to your search, such as rising earnings?
Think what you want to find and then ask software vendors whether their products can do it for you. There are
good toolboxes at all price levels. A beginner making his first steps may sign up with an online service that
offers a basic set of computerized tools for free; you can upgrade to a paid level later. Most charts in this
book are drawn using just such a service, StockCharts.com, because I want you to see how much you can do while
spending very little. Some traders find that sufficient, while many of us buy programs that reside on our
computers, allowing greater customization. With prices of software in a steady decline, you don’t have to
worry too much. Buy something simple and inexpensive and upgrade later—it’s a date, not a marriage. Once you’ve
decided what package to use, you may want to hire somebody who already uses it to help you set it up on your
machine. This can save a great deal of time and energy for inexperienced users. A growing number of brokerage
firms offer free analytic software to their clients; the price is right, but they tend to have two serious
limitations. First, for legal reasons, they make their software very hard to modify and second, it only works
online. Traders often ask how to add my indicators to their brokerage software, and the usual answer is—you
can’t. Most brokerage house programs enable you to place and change your orders using the same analytic software.
This can be quite handy and useful for day traders, but less important for longer-term traders. Be sure to disable
a common feature that shows your equity gains or losses in real time. Watching dollars jump up or down at every
tick is stressful and distracting. As the song goes, “…never count your money
while you’re sitting at the table—there’ll be time enough for counting when the dealing’s done.” Focus on prices
and indicators instead of watching dollars and thinking what you can buy with them. Technical analysis software is
constantly changing and evolving; a book is not the right place for software recommendations. My firm Elder.com
maintains a brief Software Guide, which we periodically update and e-mail to any trader who asks for it, as a public
service. As mentioned earlier in this book, most programs for technical analysis fall into one of three groups:
toolboxes, black boxes, and gray boxes. Toolboxes are for serious traders, black boxes are for people who believe
in Santa Claus, and gray boxes are in between. When considering a new software package, be sure to know which group
it belongs to.