When someone considers winning they think of themselves as successful, but does success really stem from winning? In times of war, does a commanding general consider it a win to simply dominate the majority of battles or to achieve their ultimate goal? Sometimes winning is not the focal point in any war but the ability to achieve success in every battle without considerable losses in lives. The art of war is not a painting of men trying to fight each other with paintbrushes and canvases. Rather, a work of art that summarises the philosophy, theories and strategies of Sun Tzu. Not only can these stratagems be used in war and on the battlefield but also in any situation where people stand to lose something, multipurpose, great! Most people blame losing on bad luck, words of a sore loser. But even Sun Tzu, who wrote the book around 2000 years ago, knew that the first step or rather the first chapter to success is planning. You’d think they’d learn!
At this stage, a villain would only think of preparing a plan that might lead them to victory but a hero would prepare a plan that can handle multiple possibilities which can turn a potentially bad situation into a moderately acceptable loss. That is why good always triumphs over evil. Like any well thought out system or machine, we require the blueprints and the parts. A car, for instance, is a modern day miracle and an irreplaceable part of our daily lives. Every car has key components that are required for it to function, namely: the mechanics, the container, speedometer and rev meter. In the trading industry, we also classify essentials into 3 sections: hardware, software and services.
- We can start with the organs of every car, the mechanics under the shell, in our case the computer. What makes a Bugatti any different from Maserati, except the price tag? Horsepower, the one thing that puts you ahead of the competition, your ability to push your machine further and faster than anyone else. The only way to achieve this would be to build a computer that is capable of running multiple applications at the same time. So what do we look for in such a machine:
- Well, the brain to any computer would be the CPU (Central processing unit). A medium range CPU will suit a novice’s requirements.
- Working together with the CPU we have the memory or RAM of a computer, the less ram you have the slower your computer will run.
- The hard drive disc (HDD) is another key component that simply cannot be ignored. Like any well-planned outfit requires a handbag. I mean you never see Kim Kardashian without her Gucci or whatever it is. Now for all those couch potatoes or movie maniacs, large disc capacity is a must but for the rest of us simple-tins 150 GB should be more than enough.
- The purpose for any “average” young adult to get a computer would be to go on Facebook or Twitter, how predictable. For the smart ones, it would be to check up on stock prices and foreign exchange statuses – hint hint. For this we need our computers to support the Internet. Any sort of modem or wireless Internet device will suffice – it is the speed that counts.
- Next, on the agenda would be monitors. Most people would recommend that the bigger the monitor and the higher the resolution the better. Some more experienced traders favour having more than one monitor but this usually requires one or two graphics cards, not to mention a better motherboard and processor. One downside to having multiple monitors is that it just sounds pricey, even if you don’t know what it is. It’s like Versace, its expensive and pronounced weird. The advantages of spending the extra money would be that a graphics card would provide higher resolution for the larger monitors. Like diamonds, the bigger the better.
Have you ever considered the difference between looking professional and being professional, and if there was a way you can achieve both at the same time without compensating either side? We can all look professional by dressing smart. That is the easy part. But, how many can truly say that they can be professional instead of acting professional. With a computer, it is easy to look professional, simply by adding a monitor or two. Some professional traders like to have as many as four monitors.
For all those trend lovers, there are only two styles of computers that one can pick from, like the sides of a coin. Desktop computer or Laptop, each with its own set of pros and cons. The desktop does not require a battery and can accommodate better specifications due to the size of the computer casing but is not portable. A laptop, on the other hand, can easily be moved around but it requires a battery and is a lot more susceptible to damage and usually comes with fixed specifications. Therefore, the choice is up to the driver, would you prefer manual or automatic.
Now that we have all the mechanics of a computer sorted out we need to consider the software of our computer. Like any container, the structure is basic: we need an interior and frame on which the doors and windows are attached. And for a trading computer, this would be the operating system, the trading and charting software, respectively.
The operating system is the main software that runs the computer so that it does what you tell it to. Windows is obviously a very popular contender, coming up not far behind is the Mac OS and lastly, we have Linux and Unix. Most people would recommend that you use Windows as it offers a wider range of software than any of the above-mentioned operating systems, in other words, an all-rounder. It’s like jelly tots, they all the same thing but with different flavours, unfortunately operating systems do not come in one packet, though.
The trading software is mainly used to enter and exit orders for the trader. It is also the software that is responsible for live streaming of raw data relating to the markets and their price changes. It is also the software that usually requires an internet connection, the faster your internet the smaller the lagging factor in your analysis. I’m sure you would want to know if Ferrari went on sale immediately! Some of the more popular trading software’s are Bracket trader, Ninja Trader and Zero Line trader. There are many others that you can find on the web, and should all come with a demo version.
The charting software is the software responsible for turning your mincemeat into hamburger patties. In other words, it takes the data from the trading software and turns it into charts that make it easier for you to understand and analyse. This is more of a monitoring software as it allows you to recognise market patterns easily by a graphical presentation by combining past to present information. Some popular charting software’s are Google Finance, Sierra Chart, Trade Maven and ESignal. There is plenty more charting software that can be found on the Internet, that come with trial periods.
The idea of describing the trading and charting software as the frame with the doors and windows of a car is to imply that the two are designed to work together, as they are interlinked and frankly, glued together. Every different trading and charting software offer different displays and features. Although, there are certain things that one should look for when shopping for software, namely: ease of use, flexibility and a range of features. In the end, you should choose whichever serves you better.
When feeling a little fast and furious on the road we tend to step down on the accelerator, giving it a little push. If you’re not completely ignorant, you would know that the higher you rev the faster you accelerate, being a girl is not an excuse. Similar to your Internet speed, the faster your Internet the more accurate your analysis. And the speedometer, obviously, shows the speed that you control, just like the brokers that only enter and exit orders at your command. Kind of feels like magic doesn’t it.
- Internet Service:
The Internet is usually divided into two parts: your service provider, modem and your landline.
There are certain qualities that you need take into consideration before making a choice. These factors are speed, stability and unrestricted access.
Even though we would like to believe that we could do it all, sometimes we just can’t and…yes it is because not all of us are certified. This is where an online broker comes in handy. Usually, brokers are divided into two general groups:
- Full-service brokers, like your major investment management or asset management firm, offers a wide range of products and service. From what to invest into to what position to take in an investment, they offer advice and guidance that will aid you in making the best choice possible.
- Discount brokers, on the other hand, are a much more affordable option, with a lot less service. They do not offer any investment advice and handle only the administrative part of the transaction. This is the type of broker you should be looking for if you want to start trading on your own.
Since discount brokers only offer administrative services, they don’t require huge office buildings and meetings with the clients. Therefore, they can usually be found on the Internet. There are two main categories of online brokers:
- Web-based online brokers are quite simple to understand. Normally what happens is you enter your order to buy or sell on the market right from home, on your web browser. This type of brokerage requires no third party program, simply register on their company website and trade using your username. Some disadvantages of this type of brokerage are that they will hold your order until payment comes through, this will result in either you getting a better or much worse price, depending on your luck. Either way, it is not the price you put in your order for. Another disadvantage might be that the brokerage firm already has the inventory for the order that you put in, and instead of buying off the market they sell you their stocks. Not only do they profit from the price difference but they also save the fees from using the Electronic Communications Networks (ECN), which they charge you for. This means that the web-based brokers also make use of a third party.
- With direct access online brokers you would be dealing directly with the broker, market maker or ECN. This type of brokerage operates through software, either offered by the brokerage firm or using third party software that they are compatible with. Using this type of brokerage you will control all your orders and deal directly with the market. Using direct access brokers usually require a small compensation, what doesn’t these days. You will also be required to pay for the third party software if required. This third party software is what we described earlier as trading software. Some brokerage firms also offer their own charting software, although this may seem convenient it might not be as easy to use and interpret.
We all know that in investment there is more than one type of trading, but in this section, we will focus on foreign exchange or Forex. There are certain types of traders that you will find online, some of which are not recommended due to legality concerns. There are five types of forex brokers that can be found online:
- The bucket shop: mainly deals with futures and options in foreign currencies, without participating in the actual market. What they do is they take the opposition of the retail traders and bet against these traders, like a bookie. This form of broker is of questionable legality and is therefore not recommended for beginners.
- Bookmakers: similar to bucket shops, do not deal directly with the market. The main difference is that they make the profits on the difference in prices and not by making the right bet. A simple example of a bookmaker is Delta Index and this type of dealer is also not allowed in many countries.
- Retail market makers: are found most often online and the one that most traders use. They provide a wide range of services and use a long list of different effective tactics that should be left for another day. Since they are so user-friendly, they are very suitable for beginners. Some common examples of retail brokers are FXCM, Ifx and Gain Capital.
- Institutional market makers or dealers: have a close connection with the market. They are similar to the retail market makers but require orders of larger quantities, suitable for institutional investors. A good example would be FXALL, which is also relatively basic to operate.
Back to the Art of War, Sun Tzu came up with 36 different strategies and divided them into 6 main categories. These 6 main categories were divided according to the 6 most possible situations that are likely to occur during war. Sun Tzu was prepared. Sun Tzu also believed in discipline and keeping yourself disciplined. It’s the same for trading; if you lose your head you lose your money. Everyone needs to develop their own discipline, you are an individual correct? For example, Place smaller trades so you can place more, practicing more and coming to grips with your tools. You think any of us can drive that Ferrari flat out for the first time?
We have discussed how you need to be prepared to trade from home – to go to war. But one must not ignore certain constraints, for example and off the top of my head, money constraints. Being successful is making the best of what we have. As a novice you should, therefore, consider the specifications mentioned for you; after all, you cannot be broke before you even start to trade. Every plan needs a backup plan, just in case your luck runs out.