Tips and tools for traders

Automate that part of trading where you have too much emotion: Shaun Murison, senior market analyst at IG Markets.
Image: Michael Nagle/Bloomberg

Technology is coming to the rescue of traders who fall into the deadly trap of allowing emotion to interfere in the execution of their strategies.

“Most traders have at one time or another allowed emotion to get the better of them,” says Shaun Murison, senior market analyst at online broker IG Markets. “They hung onto a losing trade for too long when they should have executed a stop-loss, or they got out of a winning trade too soon.”

To help clients over these common trading errors, IG Markets offers a range of tools to banish the curse of emotions.

Backtest your trading strategies before going live

One of these is an advanced charting system that allows traders to test different trading strategies and see how they would have worked historically.

Developers of trading algorithms know the importance – and the limitations – of backtesting trading strategies and then applying them to real-time market conditions. Until recently, only those with some computer programming experience could backtest strategies, but that’s no longer the case. IG Markets’ advanced charting system can be used by anyone, regardless of their computer knowledge.

“Algorithmic trading makes up 65% to 70% of trading in the US,” says Murison. “There are various levels of algorithmic trading. Just putting a stop-loss on a trade could be considered algorithmic trading. There’s a reason that more and more traders are automating trading functions – because it can help alleviate human errors such as those created through emotion.”

Trading strategies that succeed tend to be those that are simple, without adding too many trading filters, adds Murison.

“Many successful traders employ trend-following systems, which even though they may not have the best win/loss ratios, their winning trades more than cancel out their losses.

“There’s a danger of over-optimising trading strategies to improve historical winnings. It’s better to keep your strategies simple and adopt technical indicators that will work across different assets. Test your technical strategy warts and all, and then see how you can refine that – with stop-losses and take profits.”

A trailing stop is another tool that allows traders to lock in profits when a trend is in progress. The stop-loss level can be set to follow the profitable trade and exit the trade when it reverses direction. This helps traders avoid exiting a winning trade too early, says Murison.

70% of trades are made on mobile devices

One of the big changes in trading habits over recent years is the switch from computers to mobile devices, which now account for about 70% of trades at IG Markets.

In 2007, barely 5% of trades were executed on mobile devices.

The challenge for online brokers like IG Markets has been to get all the tools and experiences you would normally get on a computer onto a mobile device in a way that is both comfortable and intuitive to use.

Setting alerts

Another powerful tool offered by IG Markets is the ability to set market and economic alerts.

These can include economic news such as the release of unemployment data in the US or SA, inflation or manufacturing data, as well as price alters – such as when a currency pair moves more than, say, 2%. Another powerful tool is the ability to set technical alerts, such as when the 20-day moving average crosses (up or down) through a 60-day moving average.

“In years past, the broker was the person with all the insight and the information. One thing technology has done is make this available to everyone,” says Murison. “We are able to get all the relevant news to our clients, including fundamental information, trade ideas, charting tips, economic, price and technical alerts, as well as risk management tools such as automated stop-loss and take-profit levels.

“This is democratising trading. That’s why you’re seeing such strong interest in online trading, and why IG Markets has had back-to-back record years.”

Analytical tools to track your trades

Another analytical tool allows traders to review their trading performance and provides pointers to improve performance in future.

For example, you can graph your trading history and easily see the size of your average losing compared with winning trades. You can also analyse the fees paid while in the trade, and assess whether you were in the trade long enough to warrant that particular trade. If not, perhaps a change in trading style towards longer trend-chasing trades is required.

“No one likes to be wrong, so automate that part of trading where you have too much emotion,” says Murison.

“We are all logical when we enter a trade, but once in a trade, rational thought is diminished when money is involved.”

About IG Markets South Africa:  IG Markets South Africa was established in 2010 and is regulated by the Financial Sector Conduct Authority (in South Africa) as an over-the-counter derivative provider and an authorised financial services provider (FSP No 41393). It has an office in Sandton to service its thousands of South African clients. Its board and senior management in South Africa consist of largely South Africans making it a truly South African operation. As one of the biggest employers in the online broking category, it is proud to be playing a leading role in the growing financial services industry in South Africa

Note that CFD losses can exceed your deposits.

IG Markets is part of the LSE-listed IG Group, which has a market cap of £3.4 billion (R71.4 billion). It has more than 330 000 active clients worldwide.

Brought to you by IG Markets South Africa.

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