For decades, stock traders and other investors have been on the cutting edge of technology. Theyre always looking for the slightest advantage that will allow them to be successful. And in recent years, the savviest traders have been relying on big data.
Big Data Improves Technical Analysis
Analysis has always played a significant role in the evaluation of stocks, bonds, and options. Specifically, technical analysis has played a key part. As RJO Futures explains, Technical analysis is the study of price action and volume through the careful analysis of various different chart types. Modern-day technical analysis looks to expand upon such principles as price trends, moving averages, volume and open interest, support and resistance levels, as well as momentum indicators.
Until recently, technical analysis has relied on outdated tools like spreadsheets and rudimentary equations to provide traders with insights into which trades make sense under a specific set of circumstances. When big data entered the picture, everything changed.
3 Ways Big Data Intersects Trading
Walk through offices on Wall Street today and youll notice some stark differences from what was happening 10 or 15 years ago. Lets take a look at some of the changes that have been brought on by big data:
Tex Mining
Text mining is essentially the data analysis of natural language, in which text is used as a form of data. Its often joined together with numeric analysis and is usually referred to as text and data mining, or TDM.
TDM involves using advanced software that allows computers to read and digest digital information far more quickly than a human being can, says expert Roy Kaufman. TDM software breaks down digital information into raw data and text, analyzes it, and comes up with new connections, from unexpected patterns in protein interactions that eventually lead to the development of a new drug, to subtle shifts in weather patterns that might predict a downturn in the price of wheat.
The last situation is an example of how big data can be used to give option traders an advantage that could be profitable.
AI and Algorithms
Its also interesting to note how big data is powering new artificial intelligence (AI) technology in the world of trading and investing. As one investor notes, The idea of automated trading has been around for a long time now. Also known as algorithmic trading, the use of automation to trade takes the human bias out of the equation which is what oftentimes leads to losses.
The more traders rely on big data and less on their own human emotions, like fear and greed, the more successful theyll be. So it stands to reason that AI and algorithmic trading represent the way of the future.
The SEC and Insider Trading
Interestingly enough, the U.S. Securities and Exchange Commission (SEC) is actually using big data to catch those who are involved in illegal insider trading schemes.
Its essentially the new frontier, says Andrew Ceresney, the SEC’s enforcement director. We have tremendous amounts of data available to use, and we’ve been developing tools to take advantage of that.
The SECs approach seems to be working. Using big data, theyve been able to launch nine new insider trading cases. That represents seven percent of the agencys total caseload since 2014.
Trading Becomes More Sophisticated
At the end of the day, big data has led to increased sophistication in financial industries. Theres less guesswork than ever before and traders have more information than they could have ever imagined. Its a good situation for everyone involved (except insider traders) and shows just how impactful the growth of big data has been.
