What’s up everybody? It’s Eddie Z here from EZ Trading Computers, and you’re watching Trading Computer Secrets.
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So why are trading computers needed? People ask me all the time, Can I just go down to Best Buy or Costco and buy a computer off the shelf? And that’s a good question. But really, what it boils down to is what I call the trader’s biggest misconception…the number one misconception.
What most traders don’t understand, is not realizing the sheer quantity of data that’s pouring into your machine all at the same time. It’s like a fire hose of real time data.
And as our Internet’s get faster and faster Internet connections, it literally is a fire hose of data that’s continuous when the market’s open.
It’s not like when you go to a web page, you go to Amazon, and you pull up a product. That’s just a static page; there’s no continuous flow of data.
So let me give you an analogy so we can talk about this a little bit.
So think about this. When you go to Netflix and you go to start a movie, have you ever seen this, the little circle or spinning wheel? This is something called buffering.
What your computer is actually doing as it connects to Netflix or YouTube or some other service… any website that sometimes when you have to log in, there’s a bit of a delay… what your computer is doing is it’s taking in a giant stream of real time data.
So in the example of Netflix, it’s taking a giant, real time stream of high definition stream of data and your computer’s processor, its main processor, is turning that data into the gorgeous high definition picture we’re all now used to seeing.
The machine is actually gathering all this data, putting it all together into an image before it shows it to you. The machine wants to make sure it has enough data to show you a perfect picture. And that’s called buffering.
But here’s where the problem comes when it comes to trading. We take in a very similar level of data, a continuous level of data, fire hose level of data, similar to a High Definition movie. But we do not have time to buffer that data.
Your computer has to turn all that data into charts and into indicators in spot-on real time. Your prices have to be spot on to the nanosecond. The same with your charts and indicators. Because if your computer can’t handle all the data that’s coming in, a bottleneck will develop. And what’s displayed on your screen will be slightly stale, slightly old.
In other words, your pricing and your indicators could be a fraction of a second to even as much as several seconds old. So the prices you’re seeing on the screen and your indicators that you’re seeing on the screen are several seconds off.
And so when you put your orders in to buy and sell, you’re going to get order executions that don’t match up to what you expected. This is something called slippage. Slippage is when you enter an order to buy a stock.
It could be any security, but imagine you put a market order in to buy Apple at $358.20 cents, and you get filled at $358.72, because the price that you saw on your screen is not a perfect match to where the market really is. That is called slippage.
Let me show you another example.
So, I’m sure you guys have been watching CNBC lately, and everyone’s working at home. So you see these folks here on CNBC, like a little panel of people, all working from home, right? We’ve all seen this. They’re all using the Internet.
And have you noticed when they have these panel discussions, there seems to be this little delay from when someone stops talking until the next guy starts talking? Or sometimes they wind up talking on top of each other because they think it’s their turn to speak.
That’s because of that little Internet delay, the Voice Over IP delay. It’s a signal processing issue.
As traders, we cannot have any delay like that in our market data. This is the little time delay I’m talking about.
And that’s what can happen with your trading computer if it’s not fast enough and powerful enough to take on all that real time data, turn it into your prices and your charts and your indicators in spot-on real time.
And that’s the trader’s biggest misconception, not realizing they’re taking in so much data, this fire hose worth of data.
And so again, when you put that market order in and you get filled at a price that you didn’t expect, that is something called slippage. And it’s infuriating when it happens. Has that ever happened to you? It’s an awful, awful feeling.
And if it’s happened to you, you’ve probably done what this guy’s doing. Have you ever yelled at your screen, maybe cursed at it? That’s what happens when your machine’s not powerful enough.
And you know what? I’ve been trading for over 30 years. If you get triggered psychologically while you’re trading because of a bad execution, unfortunately, the truth is (and I’m sure you guys are experienced traders in here… maybe some new traders in here)… if you get triggered psychologically, when you’re trading, you tend to make a series of bad decisions, a series, a cascade that can get out of control.
The more pissed off you get, the worse your decision making. This is called the fight or flight response.
So the last thing you need is your computer giving you a hard time. So, there’s so many other things that you need to be thinking about when you’re trading. Your computer hardware really needs to be spot on.
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Thanks for watching. And if you haven’t already, please go ahead and download our Complete Guide to Trading Computers by clicking the link below. This guide is jam-packed with great tips so you can totally optimize your trading experience.
My name’s Eddie Z, and I’ll see you in the very next video.