What is Analytic Trading?

Reading this page: Maybe 5 minutes.
Time & money saving: Well, it’s all about looking at price movements as the collective result of all news, rumours and market knowledge, so you might not have a god-like knowledge of everything and the reasons for it, but the market price does.
Trading times: Technical trading should be a lot more flexible and less stressful than trading the news.

The wisdom of crowds

Analytic Trading takes advantage of the principle that; within any market’s price movement data, is contained all the collective past and present knowledge of the market participants that have and are trading that particular instrument.

Liquidity

The best tradable instruments are the ones most traded (i.e. the most ‘liquid); currency exchange or forex (£ pounds , $ dollars, € euros etc); commodities (gold, silver, oil, wheat, sugar, coffee etc); indexes (FTSE, S&P 500, Dow Jones, Nikkei etc); bonds (German Bunds, UK Guilts); and stocks & shares (Google, Apple, Barclays, Lloyds, BP etc) – this is because the more people participating the the ‘value’ survey that sets the market price, the more statistically significant the results of their behaviour and ultimately the accuracy of the price patterns we are looking for to increase the probability of correctly predicting future movements.

These natural patterns are everywhere

These same patterns and effects can also be seen in other markets like; property, interest rates, antiques, fine wines and even sports and event betting odds due to the limits that participants in free market have to buy or sell based on supply, demand and of course expectation.

Price movement patterns tell us the amount of money changing hands in any particular market and the likely extent to which it can move in any given direction over various periods of time in the future.

The maths of probability and statistics

We can then use the principles of technical trading to create mathematically high-probability price-action strategies designed to profit from future price movements – all we need to do is open trades when conditions are favourable to these high-probability movements and close them when newly evolved price-action patterns erode the bias or reverse the probability of continuation of the target movement.

This is essentially how traders create profits from the rise and fall of markets but how much or little they win or lose is based on the experience and efficiency with which they process all the available information – hence we like leveraging the power of computers to do quite a bit of that for us.

(This is exactly the information and processes used by hedge funds, investment funds and pension funds – and it is often not as complicated as people think.)

The future becomes the present and then the past

Price-action data being is continually produced as market prices change based on sentiment, technical levels and media rumours, and then by the regular economic news data being released periodically.

All of this price movement data can be quantified in numbers – and therefore can be processed by writing software to visualise the significance of certain prices and manually or automatically place buy or sell trades based on the mathematical expectation of future price changes.

What about fundamental trading and economics?

Fundamental traders are real people reading and processing lots of various pieces of information on countries, economies and companies in order to buy or sell based on their belief in having better knowledge about the future movement of price than it’s current level; and where stocks and shares are concerned, the payment of interest dividends.

Due to the variety and difficulty of accessing all this varied information for the individual, we do not analyse and process this programatically using computers, however, the participants that trade this way still leave a trail of information that we can process because their trades will cause price movements that we can then follow.

30% of the time the markets move based on supply and demand, the rest of the movements are based on speculation by traders for future movements – and it is the combination of these movements that gives us our opportunities to profit by using the collective knowledge implied by the prices set in each market to see when it confirms that the underlying sentiment is changing direction.