It’s hard to perceive it now, but not so long ago, everyday investors didn’t need to know how to read trading platforms. Most made investment moves through third-party stockbrokers.
Analyzing market data and developing investment strategies weren’t duties that individual stockholders performed, if they thought about them at all. The act of trading was portrayed in movies and TV shows as a harried executive shouting “buy!” or “sell!” over the phone — and that was it.
That’s obviously changed, thanks to the internet. Now, retail investors have a wealth of online brokerages with accessible interfaces to choose from. Trading actions happen with the click of an HTML button. Detailed news and information about commodities lies right at your fingertips. But having access to all these tools and data doesn’t mean everyday investors know what they’re looking at when they read trading platforms.
Especially because you, the common investor, control so much more of the process now, it’s crucial that you know how to read trading platforms. In this guide, Gorilla Trades offers basic advice on using platform tools, reading charts, and understanding trading indicators to help you make better investment decisions.
What Is a Trading Platform?
A trading platform is the software interface investors use to access a brokerage. Traders use it to buy and sell commodities like stocks, exchange-traded funds (ETFs), bonds, options, and other financial instruments. Trading platforms are accessible via the web, desktop programs, and mobile apps; most large brokerages use all three media.
Trading platforms can be designed to appeal to all kinds and levels of investors. Some, like Robinhood, are fairly simple, focusing on ease of use and limited tool sets. Others, like TD Ameritrade’s thinkorswim, have more advanced analysis and complex order types for more experienced investors.
Still other platforms — especially those by major brokerage houses like Fidelity and Charles Schwab — offer a “middle-of-the-road” compromise between the two poles.
Convenience and speed are hallmarks of trading platforms. If all you want to do is make transactions and keep watch on your portfolio balance, you can certainly execute those decisions. But by understanding just a few more concepts besides transacting, you can take full advantage of everything a trading platform has to offer.
Common Trading Platform Tools
Every trading platform has its own look and layout. Most, however, have some kind of variations of common tools to guide their clients.
Watchlists
With a watchlist, you can set up a custom list of securities to track stock prices, trading volume, and relevant news about them.
Order Entry Window
This pop-up is the vehicle for making transactions. You can select what order type you want (e.g., market, limit, stoploss), set quantities, and modify transaction parameters, such as take-profit or stop-loss orders.
News Headlines and Alerts
Many large brokerages offer automated news feeds with the latest updates from the investment marketplace. You can also set up news alerts for selected stocks to get notifications whenever news about them breaks.
Overviews
If you use a single brokerage for multiple investment accounts — stocks, 401(k)s, IRAs, health savings accounts (HSAs), and so forth — an overview panel displays current holdings and charts their performance, price movements, and profit/loss status.
Getting comfortable with these common tools comes from spending a lot of time with them. Many full-service brokerages offer training videos or demos that explain how they work. You may even have the option of “paper-trading,” where you can practice transactions in “game mode” without using actual money. Whichever you choose, frequent practice can build your fluency with these tools.
Understanding Market Data
Market data is the engine of all trading platforms. Stock prices, trading volume, bid/ask spreads, historical price data, and volatility metrics are information that can help you understand real-time events and project future market moves.
Generally, market data is divided into two levels. Level 1 market data is the most basic information investors need for trading: price data, bid and ask prices, and numbers of shares traders are attempting to buy or sell at those prices. Level 2 data has more market depth. It includes all Level 1 information but offers additional insight into outstanding limit orders placed below the national best bid and above the national best ask.
How relevant is this data? Suppose that you see a commodity with a very narrow bid/ask spread that’s experiencing a high trade volume. That suggests a very liquid stock — if you place an order for it, it’ll most likely go through quickly. If you see a sudden, strong volume spike, it suggests breaking news about the commodity, or possibly a large, institutional trader coming into play.
Chart-Reading and Technical Analysis
A big part of learning to read trading platforms is knowing how to interpret charts. Visual representation is always an effective means of explaining causality and relationships. In trading platforms, stock prices and movement are the basis for many dynamic measures.
Different types of charts and graphs form the backbone of technical analysis. The most common are line charts that show closing price movements connected by a line — a good basis for seeing long-term trends. Bar charts representing high, low, open, and close prices speak to potential market volatility. Most professional traders use candlestick charts that analyze price movements more dynamically.
Chart data can be fashioned to show a snapshot of trends and even investor sentiment. The support/resistance levels and volume signals that candlestick charts show can give insights into potential price changes and trader psychology.
Important Trading Indicators
Trading indicators expand on the information given in stock price charts. They are calculations showing stock price movements over defined time periods. Traders combine and review them to identify momentum, trends, possible reversal points, and other essential analyses. Some of the most essential technical indicators include the following.
Moving Average (MA)
MA smooths out the spikes and valleys of a stock price line chart to indicate an average of movement for a given commodity over a certain time. It’s a moving average because it’s always being refigured when new data comes in.
Relative Strength Index (RSI)
RSI uses a scale of 1 to 100 to identify whether a certain stock is being overbought or oversold. It’s also an indicator of potential momentum and price changes.
Moving Average Convergence Divergence (MACD)
Usually found on the baseline of an MA chart, the MACD graph calculates the difference between two exponential moving averages of closing stock prices. It’s helpful in determining possible buy and sell triggers, especially for position entries and exits.
Bollinger Bands
Bollinger bands show price movements over time in a sort of cloud-like depiction of expansions and contractions. They can help identify important flex points, volatility, and potential breakout points.
Mastering How to Read Trading Platforms
If you’re ready to jump into reading trading platforms, here are some suggestions for building your analytical skills:
- Open at least one “demo” or paper-trading account in a simulated trading environment
- Customize the appearances of your charts, indicators, and data feeds to fit your workflow
- Set up templates for charts and order types for easy access and updating
- Take a look at your trading history to see what strategies work (and don’t work)
- Stick to a single trading platform — it’s easier to master one than dabble in five or six
If you still struggle to grasp concepts, use the instructional tools your brokerage offers, such as videos and tutorials. They should have at least a few deep dives that will move at your speed.
Gorilla Trades: Data-Supported, Winning Picks
Gorilla Trades harnesses our analytical tools to come up with promising stock opportunities for everyday investors. To learn more, start a risk-free trial to get free stock alerts for 30 days.
