June 6, 2018

Data-Driven Decisions that Inform Your Trading Strategies

June 6, 2018
|
4 Minutes

Data-driven is a term we hear a lot these days, especially in the tech world.

Though this buzzword might be new, the idea certainly isn’t. It’s basically just a trendy way to say “informed,” and who among us isn’t trying to make informed decisions? We spend (often inordinate amounts of) time researching everything from our everyday purchases to our big expenses. Because when the stakes are high, it’s important that we know the facts before we act.

Financial investments are some of the biggest decisions that we make. These decisions not only affect our bank accounts in a big way, but they have a huge impact on our futures. So, it’s particularly important that we make well-researched, fully informed, data-driven financial decisions.

The thing is, our human minds can only process so many data points. It’s hard enough for us to remember where we put our keys. A computer, on the other hand, can process, organize, and draw meaning from billions of data points on just about anything.

That’s why algorithmic trading wields so much power in the trading world. It boosts traders abilities exponentially, making them more knowledgeable about the markets and better prepared to handle the rough patches. It can help traders make predictions about the markets and optimize their strategies.

Data-Driven Crystal Ball: The Prediction Power of Big Data

If you look at big data the right away, it can tell you a lot.

After all, history repeats itself, and market history is no different. By looking at millions (or even billions) of data points from the past, computers are able to identify trends and cause-effect relationships.

It doesn’t take a rocket scientist to understand how valuable that information is to a trader. Understanding trends and cause-effect relationships can be the difference between immense profit and tremendous loss. By knowing how certain events are likely to influence the market, traders can increase their profits and prevent loss.

While we humans can look at data, only a computer can sift through and pull out meaningful trends from big data sets. The difference between what we, as human beings, can process versus our handy-machine helpers varies in three defining properties, known as the 3 Vs: volume, variety, and velocity. Computers can process much more data, from more sources, much faster.

Access to so much information and the ability to process it so quickly yields unprecedented possibilities for traders. They’re able to make more informed decisions, more accurate decisions, and more successful strategies. With modern technology, financial analytics has evolved from a simple look at price and price behavior into a deep study of the factors that affect price, and even includes online social sentiment and political trends.

Make It All Better: How Information Helps Us Optimize

On top of helping us simple humans process data sets far beyond our capacity, computers are also able to optimize decisions. Basically, instead of just spitting out numbers to let us decide, they can make better decisions on our behalf.

In machine learning, computers constantly improve based on past mistakes. Better yet, since (for the time being) computers don’t have emotions, they’re able to make the emotion-free decisions that we emotional humans can’t. This opens up a world of possibilities for traders constantly plagued by FOMO, FUD, and other inconvenient feelings.

Plus, we now have access to real-time analytics like never before. Combine this with the decision-making capabilities built into machine learning, and you get control like never before: you (or more accurately, your computer) can adjust your trades based on news that’s hot off the press.

Oceans of Powerful Information at Your Fingertips

Add this all together, and we’ve got incredible amounts of information at our disposal. It’s astounding when you think that as late as the 1980s, traders were using the open outcry method, where hundreds of professional traders would gather on the trading floor to scream out their buy/sell prices.

Today, technology gives us access to powerful information. Traders can use news events, social sentiments, or anything else that’s measured to make data-based judgements on their trades.

Though all this information makes it easy for us to let computers do the work, it’s up to us humans to utilize the data.

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We’re excited to announce our upcoming partnership with Solume.io, an innovative tool that analyzes social media sentiment and compares it to coin price. Capitalise users will be able to incorporate their data into their trades. To stay up to date with this and other Capitalise news, join our Telegram!

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