5 Amazing Ways to Use Data Analytics to Become A Profitable Trader

 3 years ago
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Big data has had a tremendous impact on the financial industry. One of the biggest financial applications of new data technology involves stock trading.

You can significantly increase the profitability of your trades by investing in top-of-the-line analytics technology.

How Can Data Analytics Assist with Stock Trading

Trading is an interesting and exciting endeavor, offering the best excuse to engage with the markets in a meaningful way. It is going to be a lot easier to trade effectively with new data analytics tools.

However, while there are lots of reasons people decide to become traders, the most common incentive by far is money. There’s nothing wrong with trading to boost your income, but you’re sorely mistaken if you think it’s a way to get rich quick. Truly profitable traders know it doesn’t work like that at all. Thy have to take advantage of the latest big data technology to have a competitive edge in this convoluted market.

Many beginners buy into the fake success stories on social media (there are countless images of amateur traders in designer clothes and sports cars, insisting their trades made them overnight millionaires). Yet in the vast majority of cases, these claims simply aren’t true. The reality is that successful traders need to make shrewd, informed decisions in order to build profitability over time. No fads, no gimmicks — just hard work and thoughtful actions.

If you want to increase the chance of you seeing returns, try using these five data analytics applications to outperform the market.

1. Do your research with analytics tools

This is arguably the most important use of big data for traders. You need to make informed trades, which is a lot easier if you have access to big data tools.

Traders typically perform best when they focus on a single market, rather than trying to keep track of several simultaneously. Some of the most popular markets to trade on include stocks, foreign exchange (aka forex), commodities and indices. The market you specialize in should very much depend on your own interests, as well as your financial position, your attitude to risk, the hours you plan to spend trading, and various other factors.

Once you’ve picked one, put all your energy into learning as much as you can about it. Plenty of helpful resources can be found online. There are accredited courses to enroll onto, or you can go for a self-taught approach by watching YouTube videos, listening to podcasts and learning through websites. However, do be cautious — there are plenty of trading scammers posing as educators. The Commodity Futures Trading Commission in the US has even explicitly warned the public to “watch for unregistered brokers and advisers, as well as fake testimonials and so-called trading experts on social media platforms” which lure people into schemes.

2. Understand the risk with predictive analytics risk scoring algorithms

You should also use predictive analytics for risk management. You can assess your long-term ROI targets and the risk associated with a trade by running complex, analytics-driven calculations.

Don’t get into trading if you can’t bear the thought of losing money. Even the most successful traders experience losses, and that’s okay. The aim is simply to make more profits than losses in the long-run. That said, it’s absolutely crucial that you always understand the risks of a trade before committing. If not, you could stand to lose a lot more than you think.

Education is hugely important because you must be able to make sense of all the figures, terminology and possible outcomes to really grasp how risky a trade is. The financial instruments you’re trading could also make a difference. For instance, many beginner traders will have heard of contract for difference (CFD) trading and could be drawn to it due to this perceived familiarity. However, as regulated trading platform Trade Nation notes, CFD trading is extremely complicated compared to something like spread trading, where “you can trade in the currency of your choice and also choose exactly how much you want to stake per point, giving you total control over how much you want to trade”.

3. Trade within your means by using analytics budgeting tools

Analytics tools are also great for helping you budget your money more effectively. We previously talked about the benefits of using big data to create a budget. However, it is also beneficial to use analytics to budget money for your trades.

The number one rule of trading is to only trade what you can afford to lose. This is a high-stakes activity which can be incredibly emotional as a result. Staying calm and objective is key to success as this is what will stop you from making rash decisions and risking money you definitely shouldn’t be. Losses are to be expected, and trading within your means will minimize the potential financial repercussions.

This is particularly important if you are trading with leverage, where you only need a small percentage of the amount you want to trade in your account. Though this can be an efficient use of your capital, leverage also means that profits — and more importantly, losses — will be greatly magnified compared to the money you put up. Therefore, this is something you have to be aware of in order to know and stick to your limits.

4. Follow your trading plan with machine learning

Profitable traders will create a trading plan and follow it no matter what. Machine learning tools can make it a lot easier. You can use the latest machine learning algorithms to manage your trades more successfully.

This puts your personal trading approach down on paper in line with your unique style, risk level and goals. For this reason, you should never use someone else’s plan, no matter how successful they have been.

Setting clear entry and exit rules is vital, as is recording the details of your trades so you can work out why you won or lost and analyze your performance. Remember that if you don’t stick to your trading plan, you won’t know whether it’s working. And once you know it’s failing, then you can learn what works and modify it accordingly. You may also want to update your plan as your skill level improves and when market conditions change.

5. Have patience

Trading is a marathon, not a sprint. You’re not going to be a pro straight away and you’ll constantly be learning and improving as you embark on your journey. That means if you experience a string of losses or realize there are still significant gaps in your knowledge, don’t give up. Persevere and have patience.

Trading certainly isn’t easy. It takes a lot of dedication and you need to spend significant time broadening your knowledge, immersing yourself in trends and techniques, and watching and gathering insights into the markets. Without this commitment, the chances of you becoming a profitable trader are slim. But if you’re willing to work hard, follow your trading plan and learn from your mistakes, you’re on track to become a better trader and, hopefully, you’ll start to see profits more often than not.

Use Big Data to Secure an Edge as a Trader

There are a lot of ways that big data can help you in the field of finance. One benefit is by using data analytics to trade stocks a lot more effectively.

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