Analytics

Analytics may be defined as the detection, analysis, and relay of consequential patterns in data.

Analytics also seeks to explain or accurately reflect the relationship between data and effective decision-making.

In the trading space, analytics are applied in a predictive manner in an attempt to forecast the price more accurately.

This predictive model of analytics generally involves the analysis of historical price patterns that are used in an attempt to determine certain price outcomes.

Analytics may also be structured with a descriptive model, where readers attempt to draw a correlation and better understanding of how and why traders react to a particular set of variables.

Traders sometimes implement technical indicators such as moving averages, Bollinger Bands, and breakpoints which are built upon historical data and are used to predict future price movements.

How Analytics Relates to Algo Trading

Analytics are relied upon in the concept of algorithmic trading where software is programmed to autonomously signal and/or execute buy and sell orders based upon a series of predetermined factors.

In the institutional space, Algo-trading has become vastly competitive over the years as trading institutions seek to outperform competitors through automated systems and the virtual application of trading strategies.

The digestion and computation of analytics are also seen in the emerging field of high-frequency trading, where supercomputers are used to analyze multiple markets simultaneously to make near-instantaneous automated trading decisions.

Platforms that support HFT can significantly outperform human traders.

This is due to the innate ability to comprehensively analyze big data sets while taking into consideration an innumerable sum of factors that humans are incapable of comprehending at such speed.

Additionally, analytics are seen with backtesting. Backtesting is used by traders to test the consistency and effectiveness of trading strategies and software-based trading solutions against historical price data.

Backtesting also serves as an ideal playground for the further development of high-frequency trading as well as for evaluating the performance of manual or automated trades.

Analytics will continue to have an increasingly significant role in trading as emerging technologies and the advancement of trading applications progress beyond human capability.