Big data improves trading strategies
Trading on big data, which can help to combine behavioural factors with more traditional trading signals, has become mainstream within the last five years, as this article explains. It highlights that there seems to have been a realisation that trading on the news or financial events is not enough, and that the value of considering other factors help to form a bigger picture on which to trade. The author suggests that the emergence of these big data strategies, and their effectiveness, is good news for the trading industry, as "the more people that dive into it the more everyone will enjoy: new target audiences, new services, and higher volumes."
Have you all noticed the silent shift the industry has made in the past 5 years? When I was a (relatively) young entrepreneur, trading was all about MT4 and trend following. I did not collect any statistics but it looks like there is a dominant presence of psychology and behavior in professional discussions.

More and more companies are providing services that revolve around behavior analysis of traders, personality analysis, decision making and mentoring. I find this fascinating and highly interesting.

Is Our Industry Maturing?

Many vendors in the financial trading arena seek to expand financial trading to a broader target audience (“the bored housekeeper” as someone recently coined smiling). Meaning, offering trading opportunities to the inexperienced who have no background in finance or trading. Copy trading is a good example: you can follow a Trade Master and wait for him to make profits for you.

So perhaps now, when there are more traders and more heterogeneity, it could explain why more and more discussions are focused on psychology and behavior: the secrets of these worlds could be the key to success or shorter learning curves for novices and improving trading performance for the experienced.

It may be that the industry has opened up and become much more diverse not only in its target audience but also in product offerings: more gamification of trading, emphasis on top notch UI and UX, high quality education materials, and a large variety of trading aids.

If I could be judgmental for one second – I would say this is a good development. It suggests the industry is not rigid – it evolves and adapts. If it had remained the sole property of serious professional traders and EA developers, then it would have probably eventually stagnated and froze.

The Psychological Buzz

More and more writers and opinion leaders write on these topics and how they influence trading performance (recent examples: “Trading outside of Your Comfort Zone – Fear vs Greed” by Khaled Slim, “How Personality Profiling will Help with Your Trading” by Lee Sandford, “How is Your Brain Wired Up?” by Robert Taylor).

A few years back this was too esoteric but now – a mainstream. It looks like people agree that trading the news or financial events has limited results and that awareness of your own personal bias (personality, decision making style) has an important contribution to your ability to make higher returns in trading or at least suffering fewer losses.

This makes sense: one could be more accurate in understanding the impact of a particular news event and react in a compatible way while another trader could be more “hysterical”. The former would have lower standard deviations in his average deal size and the latter could have larger variations. This will eventually result in how one is likely to succeed or be wiped out.

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I think the Psychological/Behavioral Science fields could and should be the blue ocean for the trading industry. The more people dive into it the more everyone will enjoy: new target audiences, new services, and higher volumes.

What’s Next?

Yes – now you expect me to tell you where this is all going to, right? Well I don't know and I think no one does. But, from witnessing the growing interest in these fields I think the natural direction of development is an increase in the ability to cater for more needs, such as cultural differences and sub-cultural differences.

For example: not only what an individual trader expects or feels or perceives, but also the cultural context of a particular trader. Based on what people call “Big Data Big Data Big data refers to the collection of data that is too complex and too large for processing by standard database tools. There is no specific quantity of data, which is set as a minimum level to be considered Big data. Image the data collected on global credit card transactions. Many governments used Big data analysis to study the recent pandemic spread. The term Big data was first introduced in 1980 by Charles Tilly.The term Big data was primarily used in computer science, statistics, and econome Big data refers to the collection of data that is too complex and too large for processing by standard database tools. There is no specific quantity of data, which is set as a minimum level to be considered Big data. Image the data collected on global credit card transactions. Many governments used Big data analysis to study the recent pandemic spread. The term Big data was first introduced in 1980 by Charles Tilly.The term Big data was primarily used in computer science, statistics, and econome Read this Term” – I think it could create meaningful insight on how to convert and retain clients in our industry. What works and what does not, based on the combination of psychology and culture.

We are only at the beginning and some companies have already started working in that direction. This could eventually prove to be a very important aspect of how we trade and how we run a brokerage. You can call me in 5 years and tell me if I was right!