After a couple of decades of participating in the market, I find myself pretty comfortable with investing. I have learned mainly through research, readings and experience, but I’ve also picked up a lot of information from the stray seminar or two, a handful of classes and many more animated discussions with fellow investors. These days, I’m beefing up my tactics by checking out stock charting tools and stock trading software to see what it is that stock traders do to make their money. I’m doing this mainly for educational purposes at this point, and not because of any desire to trade stocks just yet. As I’ve mentioned in many of my previous posts, I enjoy discussing the many dimensions of investing — from long term investing to short term trading.
Can Stock Trading Software Make You Money?
Here’s a video from INO.com showcasing their MarketClub software:
Click this link or the image below to watch the video.
MarketClub is a stock trading tool that demonstrates how you can make money using technologies based on charting and technical analysis. This particular video shows that in the span of a couple of months, traders would have earned the following returns by employing features of the software to help guide their actions.
- In Currencies: Using MarketClub software, a trader could have earned a 216% return by trading the British Pound (GBP).
- In Crude Oil: One could have made an 8% return in one month’s time by trading the USO ETF, which closely tracks the crude oil market.
- In Precious Metals: A 50% return in gold in less than a month was achieved by those using trading technology.
This particular tool is intended to spot big moves in the stock market before they happen. And this time, it’s worked out for anyone using it. Whether it’s consistently successful is another question — you’d only find out by trying it out for some length of time and seeing how it works. I can only relay one piece of advice an incredibly successful trader I know has told me about the art and science of trading: these tools are based on probability.
Just like with any other form of predictive technology, you can only be given the likelihood of events, and there are no guarantees. These tools can only tell you if a given stock or market will be more likely to move up, down or stay sideways, based on how well its algorithms are built to adhere to known investment theories and schools of thought. You’d first have to believe in the theory behind the tool, then believe in the accuracy and quality of the tool before you can trust how it works. Would you be willing to put your money on the line in this way? As for me, count me in as a fan of the “game” (still not a real player though).
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{ 20 comments… read them below or add one }
I don’t really know whether to believe this programs or not. Their sales pitches are always showing great results but I’m betting that there are a lot of people losing money from them as well. Is it better than guessing? Maybe… But if you have basic idea of what is going on I don’t think you’ll do that bad in comparison.
I have always wondered about the tools as well. I hope you can give us an update in a few months of how your tests have gone.
Even a pig makes money when the market is up. Try that when it falls.
Mikael,
I’ve certainly frowned on many of these programs in the past, and still do. I’ve recently started looking into these more (for the fun of it). You can of course try a lot of these tools for free. Some of them you can find available from your own brokerage or mutual fund company, although it depends what kind of orientation or view you take as an investor. For instance, ETrade has some power broker tools for this sort of thing, but it can be overkill for the average investor. These tools may be suitable for some people, but aren’t for everyone. Again, it’s a tool — depends on what you need it for and how you use it.
AA,
Not that I’d do this myself, but I guess you haven’t heard of shorting? Of course, I wouldn’t try it unless you really knew what you were doing.
EscapeSomewhere,
Well, there are tools that help you with general portfolio management, and then there are tools that traders use for stock trading. The latter isn’t for everyone and not for the average investor. I get a lot of passionate readers arguing both sides actually — that trading should be avoided and you’d be crazy to do it vs buy and hold being foolish. In this blog, I want to feature both perspectives and see the pros and cons of each. Do I take a stance? Sure I do, I consider myself an “average investor” so I do the prudent thing for myself and have a portfolio built for the long term — I don’t time the market. But this blog is not just for my opinion or my strategies, it’s also to deliver information and promote discussion; this particular article is written for those who want to understand how the market works (through other means). By the way, I do play with around 4% of my portfolio and do whatever the heck I’d like with it. If you can contain your risks to a small portion of your portfolio, I don’t see anything wrong with experimenting in this manner.
My fellow blogging colleague, Golbguru has a recent piece on stock market analysis that I enjoyed reading. This article expresses his rather strong opinions against the practice of investment analysis.
SVB,
It was gracious of you to link to my article … which strongly goes against these stock trading tools.
The problem with folks touting such software programs is that it is very easy to make money in the market in hindsight. For example, I can easily argue now that investing in Bank of Ireland (IRE) in March would have given me rate of return slightly north of 1100% (no typo here). But if you take yourself back to March 6th, would you have had the stomach to put a chunk of your hard earned money in that stock? – especially when the rest of your portfolio is about 45% down the hole?
I am in a lookout for a software that predicted the 1100% rise on March 6th. 🙂
You know, I have been trying to build a model portfolio on Updown.com (simulated stock market) that I actively manage, using some of these stock analysis tools (even paying membership fees for some of them) and comparing the results to my real life portfolio (which is essentially a buy and hold forever type of deal). You can guess from my last blog post which portfolio is winning.
I am also following a lot of dooms-day fanatics on seekingalpha and…. man do they get all “charty” and vitriolic as the market rises everyday ignoring all their charts. 🙂
I used Invest Tools for a couple of years.
It worked OK, but generally underpeformed the market in a bullish period.
It definitely wasn’t worth the $500 per year.
I used to work in the financial industry (not going to reveal what exactly). But ask yourself this: If you have just discovered an arbitrage opportunity in the market, and wrote a software to take advantage of it (which many good hedge funds do BTW) why sell it to the “retail world”? Why not approach an investment bank to help you raise funds, get a couple of years of track record and earn the really BIG BUCKs like the really big and good hedge funds!
Why kill the goose that lays the golden eggs! Think about it – if you manage to raise $100mm for your hedge fund, 2% fee is $2,000,000 (not counting your 20% upside for beating your benchmark.
Selling software to “masters of the universe” wannabes! Don’t fall for that!
With or without trading software the fact is in the trading community is 90 percent of investors lose money in futures and stock trading! This leaves 10%, which is then broken down to 4-6 percent break even and only 4-6 percent make money.
Without a plan, rules and knowledge of consequences, not one of us can make real money.
Hi…
Great post. My question is, what features and tools are you looking for when deciding which stock charting software product to purchase?
I mean, there seems to be hundreds to choose from, each with their own set of tools and functions. What criteria do you use to determine how “good” software product is?
Jackson Golde
I assume you’ve read Taleb’s Fooled by Randomness on your path here?
The thing I’d watch out for, especially after reading Taleb (or Mandelbrot or Tetlock) is the phrase “more likely.” The thing to remember is that we never know, before or after, if a move was likely. Even when we are right in a stock market guess or prediction, we’ll never know if we were right for the right reason.
My own thinking on this leads me to be a near-Boglehead, relying on broad index funds which reduce the impact of black swans on a single company (or even segment). I do believe we have a chance at spotting the really wide slow movements in the markets, but that’s about it.
Fundamentally, tools to ferret out small signals in single stocks are madness. They make money … for their sellers, but beg the age old question “where are the customer’s yachts?”
I’ve always been interested in stuff like this. The problem is always that they show how great the product is and it never fails (yeah right). Like I am going to believe that.
I am kind of hard to convince though so maybe that is why I don’t use tools like this.
Trading software can help but you have to watch the news and make an educated guess because the software will not always be right. Cut your losses quickly and ride the winners out. But always try to take profits when you make them and don’t let greed cause you to give up profits.
I think this may work. Its always worth trying. If you’re not willing to risk something and are always playing safe, you’ll never gain anything.
When I was first starting to trade, I would always look at how much I could make on a trade. It didn’t take long to realize I needed a good exit plan, so my mentality shifted. Now I start every trade with a look at the potential for downside, and I structure my trades accordingly.
As far as I am concerned, stock market trading software always proves to be interesting and advantageous for you if you have good knowledge of the stock market and like to keep yourself updated.
I wouldn’t bet on software for the reason that it can never replace our intuition. While they can probably make some good predictions every now and then with some computation, there’s a lot of human factors that aren’t taken into consideration by software.
although there are a lot of software programs that are scams, there are some that actually work and can make you money!
I needed a good exit plan, so my mentality shifted. Now I start every trade with a look at the potential for downside, and I structure my trades accordingly.
Ok – so when it comes to trading gold online, does this software also work for these type metals?