In Trading Routine and Psychology

For most retail Forex traders, quality software options are scarce. At least on the retail side, there has been a severe gap that hasn't appeared to close itself since the boom of FX trading back in the early 2000's. In a world where technology is so rampant in just about everything that we do, isn't it about time that FX follows suit?

One of the primary reasons I have always found currency trading so appealing is due to the decentralized nature of the market. On the institutional side, this decentralization brings in innovation due to increased competition in execution venues. Where futures and FX are essentially capped from an execution standpoint (limited number of exchanges), currency trading benefits from competition. This alone has led to some of the most innovative technologies available to date, and in fact many common practices now found in futures and equity markets have their roots in FX.

But this is not true for retail trading platforms. Far from it.

Despite all of the advancement on the institutional side, the retail side has a very hard time growing up. As an example, this older platform that has been around for close to 15 years now is still very heavily used today:

Trading platform

A Dying Breed of Software

Simply stated, there are better options.  Better data.  Better research.

A Brief History of Retail Platforms

While retail FX brokers commonly tout “upgrades” to their platforms, the fact of the matter remains that these are the same pieces of software, without many front-end material changes, that have been in use since the early 2000's.

As a comparison, the iPod (not iPhone) didn't even exist back then. These days, it is hard to imagine not having many of the common conveniences used by our mobile devices. And after all these years, the majority of retail FX traders are still looking at the same exact screens they were 15 years ago.

OANDA launched FXTrade in 2001 (year of the iPod release). Additions have been made, but it still looks very similar to the trading platform in use today (and still uses…need i say…Java).

GainCapital (Forex.com) launched in 2001. Their FOREXTrader platform (built by a 3rd party)  hasn't undergone much in the way of material front-end changes since then.

FXCM launched in 2003. Their core, TradingStation Platform (built by a 3rd party) looks very much the way it did many years ago. In their defense, they have indeed adopted more alternative options than most others.

MetaTrader launched in 2002. Larger attempts to change the interface have been made over the years with the latest release considered somewhat of an initial flop due to material issues in backwards compatibility. It seems to be picking up now but not at, I imagine, the speed of the previous release. MetaTrader, unlike other platforms, took a commanding lead due to popularity of the end users. The primary reason for this was the ease to access and code custom indicators and trading systems. NinjaTrader is now the essential futures equivalent of MetaTrader, but with admittedly a far superior engine running it.

On the short side of defense for these platforms, quotes, charting, market buying, market selling, limit and stop orders, etc., are all necessary functions. This much will never change, but I am sitting here wondering what the next market leader is going to look like.

Many of these platforms have seen additions over the years. These are little perks that essentially boost the user experience. Third party integration, add-on research, and so forth. But where's the material technology (or just integration) shift? CTrader is one of the few that seem to want to forge such a path, yet it is not yet widely adopted. And even if it is, then it suffers from major limitations due to the fact that is strictly, once again, geared towards nothing but FX. These groups tend to forget that the person trading FX has a lot of interest beyond the walls of what is just simply naked currencies.

ECN's Have and Will Continue to Change Everything

Many of you know by now that I am a major advocate of ECN's when it comes to trading anything OTC (over the counter) FX. ECN's offer far more benefits than just added depth of book, or volume data. And don't forget: even though you have access to the volume data, it is still only going to be one small piece of a much larger pie. Therefore (from the standpoint of a retail trader) things like cumulative delta, transactions at the bid or ask, etc., will remain generally irrelevant because you're not seeing the entire picture. And at least as it stands in 2015, you never will, so don't even waste your time trying. CME FX futures volumes can indeed hold value to a point, but with illiquidity rampant outside the US trading session you essentially need to block out and filter data that has occurred before the start of a session if using any form of calculated volume averages.

This being said, tick volumes derived from a common retail ECN can serve their value. Ideally, you want tick volumes coming from the most liquid source possible, because you are getting more points of data. Alternatively, taking tick volume from a market maker is perhaps the worst way to go because of this reason.

Enter Volumes

Anytime you have a decentralized marketplace, volumes are going to be scattered like the marketplace itself. Recent attempts by a new breed of technology experts have given rise to the many uses of liquidity aggregators. The problem, of course, is that such platforms are not going to be accessible by the masses and institutions are once again the only ones accessing the data.

In addition to the platforms themselves, you also need to plug in all of your sources. This means opening an account with a prime broker and paying the various fees to EBS, Integral, FXAll, and whoever else you want on there. At the end of the day you're looking at a massive investment that only makes sense to a fund or broker with $20m+ under the hood.

And so partly because of this, retail brokers shy away from true volume data. They have also steered clear of volume data because they  have historically followed market making models in which, in many cases, client positions never even go out to market. Gain Capital, for instance, is still a market maker for retail clients and while they have their own ECN, only make it accessible for a $100,000 minimum. And even then, the ECN is very, very small compared to anything that passes through EBS or Reuters.

The end result of this structure is a lack of any form of sophisticated volume indicators or strategies for retail FX. Volumes are not the key to the vault by any means, but they can be immensely beneficial when it comes to seeing a bigger picture and confirming what we already know from a price action standpoint.

Volume studies in any other market are just flat out normal, and there is zero luxury to the data. And presumably, because most FX traders don't have access to volume data, tend to believe that it will somehow save them and ultimately skyrocket their account values overnight. We tend to place a higher value on what we cannot have without realizing its best value.

Accelerating and Declining Volumes

Much more self explanatory, but think about it this way: if I'm trading an uptrend that has already undergone 2 legs, price is making new highs, and I see a huge spike in volume, I've just received a huge flag that my trade is about to end. These types of patterns can be “felt out” with a naked eye but the assurance is only going to help. Again, I don't intend to sell a “fact” that volumes are the end-all when it comes to trading…far from it. You can get cleaned out just as easily with volumes as anything else if used improperly or prematurely.

I have been doing this for far too long now and price structure comes first. Always. The more you can instantly see without any other crutches, the better. But having the option and knowing how to use it is nothing more than power to you.

Forex Tick Volumes

EURUSD 3 Minute with Volume, 1 Volume Ratio and 14 High Volume Paint Bar Attached

Range and Other Chart Variations = Faster Trade Identification

Some of you may or may not be familiar with anything past time-based intervals, and that's because once again, these ancient platforms commonplace in the retail FX world don't even offer them. Range bars, for instance, will create a new bar at every X number of pips (or ticks) you specify. Tick volumes can then be applied to the bars in order to see where activity is accelerating or volumes are scarce (as in the case of my liquidity gaps). Secondary and third pushed on support and resistance levels, for instance, become much more clear in the eyes of waning volumes.

One of the major disadvantages to time based charts is blatantly clear when it comes to volumes. Whereas with other chart variations, such as range or tick charts, a bar will close when the move is over, time-based charts wont close a bar until the time itself has expired. These other variations allow for faster signal identification, thus entry, when a move is underway.

Up/Down Tick Volumes / Ratios

You can plot up/down tick data using any of these platforms. Those of you who trade futures on a regular basis are likely to revert to volumes in this sense, yet when comparing the two you will see a very obedient correlation.

We all know that standard candlestick patterns such as hammers (aka “pin bars”) and random support and resistance levels can be about as useful as an 11th toe when taken for face value.  But when you apply standard tick data to the bar, and those surrounding it, you're going to see price in an entirely new dynamic.

Intermarket Research and Other Data Integration

FX is the most global of any market, thus, has its roots expending deeply across others. From time to time you'll see me doing a fair amount of intermarket research. This, of course, is totally impossible on any of the platforms mentioned above. The majority of futures platforms will just as easily integrate feeds from equity, fixed income or Forex market with zero hassle and as they have since the beginning of time. Arbitrage and other like-strategies also become available because of this very basic function of futures and equity platforms.

Additionally, many retail platforms will allow you plot economic data over price, something which is standard on any professional platform. Understanding many of these basic relationships can equal a huge leap forward for many people.

Futures Data / Volumes / Depth of Market

If you are indeed looking for true FX futures volumes, they are of course readily available via the CME. Once again, they are not representative of the complete picture but pose a correlation to OTC FX. If you are wondering what I deliberately seek, I would prefer using tick volumes from a highly liquid interbank feed as opposed to CME FX volumes. On anything else, volumes. Market profile, tape speed, and delta is perhaps the biggest beneficiary of FX futures volumes, allowing easier viewing of market order (thus mass participation), points of control, and other such studies.

Futures Cumulative Delta

EURUSD Prompt Month Futures, 0.0005 Range Bar 1 Tick with Cumulative Delta

Accessibility to Sophisticated Strategies and Participants

Let's face it: A retail trader with 15 years of trading experience and a million dollar account is not going to quickly jump onto any of the platforms above. The reason for this goes no further than the amount of knowledge he has accumulated over the years and understanding the tools, and the value they serve, at his disposal. Years back, a former partner of this blog switched over from FX to Futures, arguing about the more sophisticated nature of futures and equity traders. To me, this is more of a function of how traders are marketed to on a regular basis. For instance, the same search results for this site also bring up a slew of others which essentially dumb down trading to inevitable disaster. Trading is not a playground activity, regardless of the instrument.

Yes, these platforms are getting smarter, but they sure are taking their time

The sophistication curve is expanding for these platforms, but perhaps not in the manner one would want. Algorithmic trading, copy (social) trading and research “apps” appear to be the primary focus in terms of future development. All of these guys seem to want their own “app store” yet traders simply don't work in the manner that an iOS developer does. Getting people to adopt these apps isn't the issue. Getting people to build them is. And so custom indicators and trading strategies with drag and drop to a folder still largely dominate.

It isn't that the FX world wouldn't want to integrate such things – it is just that they are not “used” to these types of functions due to the manner in which the market is built. And indeed, some of the functions listed above can be used with some strictly FX platforms, such as tick volume studies, and so forth, yet they lack other functions that would no doubt be extremely helpful to just about any FX trader.

Bottom Line: Expand Your Horizons

I always encourage others to simply look around and explore other markets, techniques and technology. You never know what you are going to find. But in this case, there are certain tools that no doubt serve value to your average daytrader simply by hopping over to a platform with more sophisticated tools. Pain and agony lasts a long time. Filling out a futures brokerage account application takes about 10 minutes.

I feel as though too many people waste far too much time on limited options and essentially being bullied by subpar businesses that deliberately target a less sophisticated niche. These platforms have certainly had their heyday and more than enough time has passed for them to put on a bigger pair of pants.

Granted, there are research platforms, and then there are execution platforms. It is industry commonplace for futures brokers to attempt to marry the two. It is far less than commonplace for FX brokers to do the same. Some retail FX brokers do indeed offer what are normally considered futures platforms as well, yet lack the data integration, thus only end up serving a partial solution.

Better sources of liquidity and access to them allow a much greater transparency which, if done right, would be immensely beneficial to everyone involved. The client benefits from a high level of transparency and the client, satisfaction. I can only assume that this is going to happen over time, but we still appear to be far from the mark.

Have you been using something other than a strictly FX platform to trade currencies? Any other thoughts? Let me know in the comments below.

 

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Showing 9 comments
  • PK
    Reply

    I do not see Sierra Chart mentioned and it is hands down the best, including any institutional software I have ever tried. Regarding the rest of the article, I find that any and all indicators are of no value if one can read price using supply and demand principles as well as momentum, i.e. volume does not anything in my opinion as it is already visible in momentum, most of the time anyway. Take care, I like your articles and professionalism.

    • Steve W.
      Reply

      Hi PK, SierraChart is a solid platform and I know a couple guys that really enjoy using it. I’ve only gone so far as to mess around with it in the past. This article ended up being long but I mentioned your second point in the second paragraph of the “Accelerating and Declining Volumes” section. 10000% agree that price structure comes first – any guys I have ever known to trade just about anything else always find themselves reverting back to it. Thanks for dropping the note.

  • Uranus Heaven
    Reply

    hello Steve.
    really u said well
    Sierra nice platform……
    but i think it’s may difficult for newbie……!

    • Steve W.
      Reply

      Hi Uranus, Well, like anything else…..once you get used to it! Thanks for the comment.

  • Peter
    Reply

    Hi Steve,

    very important topic in my eyes. Theres a tool called bookmap (www.bookmap.com) which provides a visual representation of order flow including the book and price chart, all in one display. I like to believe that if you want to understand and study the interaction between order flow and the order book in real time, you have to take a look at this tool, if only for the sake of recognizing that you are trying to operate in an environment where your place is way down in the food chain… (-;#

    Cheers Peter

  • maximuszen
    Reply

    Thank you for your article. You are thorough as usual.

    Nevertheless, don’t you think that some trade platform volumes do reflect overall market volume especially the big players.

  • Jan
    Reply

    “And don’t forget: even though you have access to the volume data, it is still only going to be one small piece of a much larger pie. Therefore (from the standpoint of a retail trader) things like cumulative delta, transactions at the bid or ask, etc., will remain generally irrelevant because you’re not seeing the entire picture.”

    Are you still referring to ECNs in this paragraph? (I remember you rated ECN data with tick volumes above Futures data (only exception with 6E) the last time we talked about this.)

    PS: It might interest you that cTrader introduced FIX API to every account for free in August – http://www.spotware.com/about/news-updates/spotware-systems-announce-the-introduction-of-fix-api-with-every-ctrader-account/789

    I’m not sure if this means you can now directly go to something like Currenex and plug their data through cTrader as this is way beyond my understanding of how this things work, so that’s why I’ll rather drop it here.

    Seems like a good starting thread from the FIX API support: http://ctdn.com/forum/fix-api/9960
    FIX API FAQ: http://help.spotware.com/FIX/introduction

    Take care!

    • Steve W.
      Reply

      Hi Jan, to a degree. Segregating bid/ask transactions are another story vs. much of what we talked about where you’re basically plotting the cum. total (non-segregated) on the Y-Axis, in which case yes, definitely representative despite the differences in relation to size. Bottom line is you don’t want misleading data, which is what segregation could do depending on the nature of the feed. And that’s interesting but definitely warmly welcomed from Spotware. Happy to check it out and thanks

  • Jan
    Reply

    When you say “cumul. delta, market delta etc. will remain irrelevant for decentralized FX” – is that “etc.” implying ONLY all things related to market orders, correct?
    How would you than gauge the severity of (or just declare) unidirectional MO behavior of a specific bar for FX – using tick volume ratio or something else?
    Are these MO limitations related to LMAX aswell, since they use the term exchange one would (falsely?) think it doesn’t but since they don’t have a full picture I can safely assume they are indeed related.

    Lastly, I remember you had problems with your current FX data – was that related to IQFeed as a service or more like root problem, meaning issues with TenFore quality itself? (I also stumbled on an alternative in MetaStock Xenith, though for double the price, not sure if you rate them well) – I’m asking as I was a bit dissapointed to find out that LMAX only offers 20 levels of depth and even that only at a very high price.

    Have a wonderful day!

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