Henry Thomason

As a society, we have become increasingly reliant on technology since the turn of the century. Almost every single growth industry has been driven by technological advancement, while even modest, everyday activities have been revolutionised through innovation and creative thinking. While this has been largely beneficial for businesses, employees and consumers alike, it is somewhat intimidating for those who have failed to embrace technology and its numerous advantages. In terms of financial market trading, technology has and will continue to have a significant impact on how investors execute transactions and manage their portfolios. This has led to a period of transition for experienced traders, who have been forced to reconsider their methods and incorporate technological tools and applications into their investment regime. Such a process demands a willingness to learn and evolve, which is not easy for individuals who have become set in their ways and existing routines. An Evolving Industry: How Technology has Changed Financial Market Trading With this in mind, it is worth evaluating the role of technology and the impact that it has had within the financial markets. Consider the following: - Online Trading Platforms and Mobile Applications Cloud and web based technology has had a huge impact within the commercial and corporate worlds, primarily because they have enabled businesses to embrace innovation without compromising their operational budgets. Financial traders have also benefited from the development of cloud orientated software, through the use of online trading platforms and mobile applications. These programs have helped to maximise the efficiency of modern day traders, as they enable investors to monitor the markets in real time and execute orders in line with topical price movements. The development of online trading platforms have also had a far deeper impact, however, both in terms of removing barriers to entry and changing the fundamental role of online brokerage firms. Firstly, the increasing accessibility of cloud based technology has removed many of the barriers to entry facing independent or part time traders, and enabled them to compete within a crowded and competitive market. Secondly, the service offered by brokers has also changed to incorporate technology, with many now operating online and marketing themselves through their range of trading platforms and software. Automated and High Frequency Trading (HFT) Increasingly, technology is also changing the trading strategies adopted by investors. Thanks to techniques such as automated and high frequency trading, investors are now able to execute profitable transactions according to predetermined programming and algorithms. Automated trading has become particularly popular since the launch of the inaugural World Championships in 2007, after which time it has been embraced by a growing number of investors operating in developing economies and nations across the globe. High frequency trading is a slightly more controversial concept, however, as it is a method that utilises sophisticated algorithms to execute numerous, instantaneous transactions. These generate profit from even minimal market price movements, and a number of government bodies have expressed concern that such short term positioning is likely to increase market volatility and trigger instability. With Germany the latest country to vote on new laws to help regulate the practice, high frequency trading may yet be an example of how technology can push boundaries too far. The Bottom Line for Financial Traders These developments have altered almost every facet of financial market, from the way in which trades are executed to the role of brokers and individual account managers. They have even helped to create a brand new range of trading strategies, which encourage an increasing reliance on technology and look to eliminate direct human involvement and emotion from the process. Although these strategies undoubtedly reflect how technology has the potential to divide opinions and push the boundaries of possibility too far, their soaring popularity among younger investors suggests that with proper regulation they can find a home in the financial market. In terms of online trading platforms and their corresponding mobile applications, the benefits to traders have been indisputable. This is especially true for independent and part time traders, who historically would have struggled to keep pace in a real time market and execute timely trades. To succeed as a financial market trader in 2013, it is crucial to partner with a reputable online broker and adopt an online platform that suits your portfolio. Service providers such as the internationally renowned, online broker Alpari offer an ideal starting point, largely because they offer access to one of the widest choice of trading platforms available.

While many of us spend months and years perfecting our trading strategies, there are individuals who swear by the use of software that can act independently, seeking out patterns and projecting where the price might move to without any input. In theory, these systems are an excellent idea, because they can work faster, and multitask in ways that a human cannot. There is of course a considerable amount of debate surrounding their use, and how effective they really are. It’s important to question them, and look at how they can be used in order to incorporate them into your strategy. One of the main things to think about is the trust that you’re likely to be putting in the computer. This is something that people have argued as a negative aspect, but in reality, this is entirely down to the end user. The issue is that if you simply follow the instruction of the computer, you could be getting yourself into trouble. While the computer can accurately monitor price action, levels of support and resistance, and a number of other parameters, it cannot account for fundamental knowledge. This is to say that an announcement that a human might be fully expecting cannot be seen by the computer. The responsibility therefore lies with the trader to make the final call. You have to double check the position is viable before you make it, just like with any other trade. Do not blindly trust the computer; it is an effective aid, not an automatic money-making machine. Increase Productivity Aside from this potential problem, it does seem as though pattern recognisers are really quite advanced. As already indicated, they are able to monitor far more information than a trader possibly can. Most of these kinds of software will update you several times an hour, with whatever opportunities they have found. They can also monitor a huge number of financial instruments; far more than you could accurately keep tabs on. Of course, you can set the program to notify you of whatever you like, but this is an example of just how expansive the software can be. The obvious benefit of being able to monitor extra instruments is that you’re given far more opportunities to trade. It will still require a high level of market understanding from the person using it, but you will be able to see when signals present themselves over a great number of currencies for instance. Primarily, this means that you are able to choose the more profitable positions, and also mitigate risk. There are two reasons for this: • Firstly, the more options that you’ve got, the more likely one is to be successful. You can quickly go through all of the potential trading opportunities, and if you wish, you can put a greater focus on perhaps one or two of the signals. This is a good way of maximising profit. If you’d just been manually monitoring a handful of charts, then you may well be missing out on a better opportunity somewhere else in the market. Recognition software will help you overcome this potential problem. • The second potential benefit of having a wider range of suitable opportunities is that you can spread your investment over a wider area. Putting all of your eggs in the proverbial basket runs the risk of losing a significant amount, should the signal prove to be inaccurate. However, you’re less likely to lose money if your investment is spread out over several positions you are confident in. Of course, this isn’t quite as profitable. Now, as we’ve already mentioned, you can customise what recognition software actually looks for, and this is very important. If you already have a sound strategy, then this kind of program should be used to compliment it, not change it. What we mean by this, is that you should set the pattern recogniser to notify you of signals that you would look for yourself. If you allow it to look for anything, you’re changing your strategy, and this could prove to be problematic and unprofitable. Forex Trading Success Success rates for forex trading software in particular, are actually very high indeed. In most cases, you’ll actually find that the price does not move into the predicted range in only 25 to 30 percent of the time. While this does appear to be a relatively high amount, it does mean that you can expect around three quarters of all notifications to be accurate. It’s up to you to ensure that you’re still analysing each one on its own merits – you don’t want to end up trading only the 25 percent of unprofitable notifications. To conclude, pattern recognition software won’t do the hard work for you, but it will present you with a wide range of potential positions, which if used wisely, can be extremely effective.

Instability can be off-putting, but the correct strategy will allow you to take advantage of it. While there are of course countless exceptions, traders generally find that their positions are more profitable during less volatile times of day. There are a number of reasons for this, and it’s something that every trader should work on if it’s an issue. Ideally, you need to be able to trade effectively at any given time of day, following any news event. We all have our strategies, but it’s important to remember that they might need fine-tuning and altering depending on when we’re trading. You might find that your strategy is particularly effective for the most part, but is prone to considerable failure sometimes. You have to ask yourself what the reasons behind this could be. In many cases, the degree of volatility in a market can flip a strategy on its head. If you can ensure that you are taking volatility into account, and can adjust your strategy accordingly, you’ll find more success. To explain what generally happens when volatility shifts, we need to look at the most common mentality of a forex trader. As already stated, this is an over generalisation, and there are many differing viewpoints, but primarily, the most common trading strategies have the following as their basis. When a traders sees the price dropping down towards a level of support, whatever that might be, and however it has been calculated, the instinct is often there to buy in anticipation of the bounce back up. Conversely, if a price is moving its way towards resistance, then more often than not, a strategy will look to sell before the expected drop. The problem with this strategy is that, when the market becomes more volatile, the price will frequently move outside these levels of support and resistance. When they do, you may well find that you lose out more frequently than you are in profit. The solution to the issue is to not only mitigate the potential negatives of volatility, but to actually capitalise it. The best traders have a way to deal with nearly any eventuality. If you’re one of those people who avoids the market when it’s fluctuating rapidly, then you’re missing out on a considerable amount of trading time. The Breakout Strategy A breakout strategy is widely regarded as one of the most effective methods of trading when prices are capricious. It takes advantage of prices moving beyond given levels of supposed resistance and support. In the simplest terms, when the price moves above resistance, the strategy would have you buy, and when it drops below support, you sell. The rationale behind this is that when things are unstable, they are inherently likely to break above and drop below the levels you’d expect. So what’s the best way of determining the levels at which you should measure support and resistance? Many are of the opinion that a relatively simple Donchian channel is the best method. For those that don’t know, this takes the highest high and the lowest low of the previous x amount of time. One of the most common, and arguably the best length of time from which to take the points of resistance and support, is 20 hours. The strategy is relatively simple then. You have your trading platform plot in the Donchian channel, and then whenever the price moves outside the parameters, you open the corresponding position. It is essential that you monitor things; volatility means that prices will move quickly, and you need to ensure you realise the profit. It’s also prudent to decrease leverage and tighten up any of your stop orders. Measuring Volatility Of course, the secrets to making this strategy don’t end there. If the volatility was low, prices would be likely to move swiftly back within expected levels. If you trade a breakout strategy in these conditions, you’re likely to see more losses then profit. The golden rule then, is to make sure that the market is truly volatile before you switch your methods. There are a number of different ways of measuring volatility, and you should pick whichever you find works the best. Your forex trading platform is likely to come with several different options, but you can always download additional ones. The standard deviation over a given period is the most common way of measuring volatility. A breakout strategy is by no means a fool proof method of making successful trades when the markets are volatile, but it is certainly a very useful starting point if you’re generally very cautious when prices look unstable. If you can take advantage of any given situation, then you’re far more likely to come out with a positive balance sheet.