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hi here is the article for thise who don't subscribe to the wsj online
rich t
The Wall Street Journal Interactive Edition -- September 21, 1998
Users of System-Trading Software
Can Be Their Own Worst Enemy
By ROBERT E. CALEM
Special to THE WALL STREET JOURNAL INTERACTIVE EDITION
Tired of incurring losses from bad trading decisions, Sonny
Esposito of
Centreville, Va., last March went in search of an electronic
wizard to
reverse his fortunes. After some careful sleuthing, he
believes he's found
one, in the form of system-trading software.
The software follows built-in sets of rules culled from
statistical research
that dictate when a trader should buy or sell a stock, index
fund,
commodities or other securities. And Mr. Esposito and other
proponents
of such programs say that, more often than not, the software
does
generate profits.
But even those who swear by system-trading software concede
that it
doesn't work under certain market conditions. Moreover, they
add, to
derive the greatest benefit from the software it is vital to
follow its
commands religiously. That means users must trust it
implicitly and ignore
any emotional inclination to trade against its
recommendations -- a tenet
which is easier said than done.
"It's hard to shut your emotions completely down when it's
your money in
the marketplace," says Dennis Ward, a stock broker and
investment
advisor in Fort Worth, Tex., who uses system-trading software
for himself
and his clients. "But emotions really are your enemy. If you
let your
emotions dictate your trading decisions in today's market, I
do not believe
you will be a successful investor. You need a tool to
equalize all the
market vagaries, and so I believe in system-trading"
software, he says.
The system-trading program that both Messrs. Ward and
Esposito use is
Indigo, from MicroStar Research & Trading Inc. of Sarasota,
Fla. The
program is available in two formats: as a software package
for Microsoft
Windows, or built into a subscription-based Web site. The
software
package costs about $2,700, and offers more features than the
company's
Web site, which charges approximately $700 for six months.
Since he started using the Indigo software package, Mr.
Esposito says his
portfolio is up more than 100%, rescuing his portfolio from
the near
wipeout he'd suffered by following his own emotions. Mr.
Esposito says
he recouped the cost of the Indigo software in the first
month he used it.
Mr. Ward says he chose Indigo in June
1997 after testing several
system-trading
software programs that claimed to
help
investors take advantage of market
volatility. He used the software to
simulate
trades before investing real money in
August 1997, after the trial proved
successful. In the last four months
of last
year, he says, Indigo rewarded him
and
his clients with real returns on investments averaging 40%.
In addition, during the wild market swings of recent weeks,
Mr. Ward
says Indigo's recommendations have been "superlative."
Greg Meyer of Santee, Calif., swears by rival TradeStation, a
system-trading program produced by Omega Research Inc. of
Miami. "I
couldn't trade without it," he says. "With TradeStation, I've
been able to
develop a systematic method of trading that tells me when to
get into the
market, when to get out of the market, and also gives me
discipline. I trust
my system and I do not try to second guess it."
Whereas Indigo offers a large selection of pre-set trading
rules and
investment portfolios, along with trading instructions for
the next day that
can be downloaded from its Web site each night, TradeStation
is aimed at
traders who want to build their own systems and get trading
instructions
during the day when markets are open. Priced at about $2,400,
TradeStation also is slightly less expensive than Indigo.
An upgraded version of TradeStation, expected to be available
in
October, will have Web integration, says Janette Perez, vice
president,
sales and marketing at Omega Research. It will allow
investors to connect
to financial news sites, investment forums such as The Motley
Fool, and
on-line brokers like E*Trade Group for order execution, Ms.
Perez says.
Some traders who have tried both programs say Indigo is the
easier to
master. Frank Alexander of Arlington, Texas, says
TradeStation is
"extremely complex, but it's a beautiful program if you've
got time to sit
down and learn it." To simplify using TradeStation, Mr.
Alexander says he
purchased a couple of add-on programs from third-party
vendors. (More
than 200 companies sell add-on programs, education and
investment
services for TradeStation, according to Omega Research.)
Mr. Alexander says he likes the automatic nature of Indigo's
pre-built
systems and portfolios of stocks and mutual funds, and the
ready-made
downloadable trading instructions. Indigo is much easier to
learn, he says,
and has given him better returns on his investments than
TradeStation.
But Mr. Alexander also believes his comparison is not
entirely fair because
he doesn't use both programs the same way, and he has owned
Indigo
much longer, giving that program the benefit of more time to
prove itself.
He trades futures and options using TradeStation, but prefers
Indigo to
trade stocks. And whereas Mr. Alexander has used Indigo since
November 1997, he purchased TradeStation only four months
ago.
Mr. Esposito says he switched to Indigo after first trying
TradeStation. He
found TradeStation too difficult to learn and use, and sent
it back to
Omega Research during the company's 30-day trial period.
Caitlin Cavalier, a user of TradeStation who lives in San
Francisco, says
she had no difficulty building a trading system with the
software, despite a
lack of programming experience. Still, she says, it took six
months of
practicing and testing the system with simulated trades, for
three to four
hours a day, to learn how to properly use TradeStation.
Her own testing of TradeStation proved that system trading
leads to more
positive outcomes than either random picks or going on
intuition to make
buying or selling decisions. For example, Ms. Cavalier says
that using a
feature named "backtesting" which is built into the software,
she
discovered that randomly trading the Standard & Poor's
Futures Index
would have returned 100% over the past six months, whereas
trading with
TradeStation's "moving average" system would have earned a
300%
return. By comparison, following her instinct lost her 300%,
Ms. Cavalier
says.
System-trading programs also have Achilles heels, the traders
noted. Mr.
Ward, the stock broker, says they don't work well in what he
describes as
"choppy markets," such as where the Dow Jones Industrial
Average
gyrates up and down in a 100- to 200-point range.
And even the makers of the software admit that the products
are only as
good as their customers' commitment to them -- a fact that
Ms. Cavalier
learned the hard way. She has lost money since buying
TradeStation a
year ago, she says, because she didn't always follow its
instructions.
In a perfect world, system-trading software "takes emotion
out of the
trading. It takes out fear and greed and replaces them with
logic and
reason, which is what we should use. But as human beings we
rarely do,"
declares Greg Roper, MicroStar's sales manager.
"It's a scary thing to surrender to automatic pilot," Ms.
Cavalier says.
"There's these bizarre emotions that defeat you." Now she
vows she will
"surrender to the mechanical system."
Tom Teitsworth wrote:
> There is an interesting article in today's Wall St Journal
> about system trading and TS is mentioned. Here is an excerpt:
> ------
> An upgraded version of TradeStation, expected to be available in October,
> will have Web integration, says Janette Perez, vice president, sales and
> marketing at Omega Research. It will allow investors to connect to financial
> news sites, investment forums such as The Motley Fool, and on-line brokers
> like E*Trade Group for order execution, Ms. Perez says.
> ------
>
> Not sure if this is in the print edition. If you have the online edition
> search for OMEGA, it is interesting reading.
>
> Tom T.
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