Platform and Tools Tutorial – Using Analytical Tools in Trading

Trading in the financial markets tends to be fast-paced, requiring you to make quick decisions. To succeed in this environment, you need to embrace technology. With analytical tools like trading apps, robo-advisors, charting tools, and technical indicators, you can make data-driven decisions that can help achieve profitability. In this article, we will look at the use of analytical tools in trading and how they can help both beginners and expert traders make effective decisions quickly.

Analytical Tools For Trading

Earlier, stockbrokers only provided access to their basic trading platforms. The functionality of these platforms was limited to placing buy and sell orders. However, with the evolution of technology, stockbrokers began offering a host of analytical tools that provided useful trading-related insights. Here is a quick overview of some of the key analytical tools now available at your disposal.

• Trading Applications 

Trading applications provide access to the stockbroker’s trading platform and enable you to purchase and sell a wide range of financial instruments such as stocks, ETFs, and derivatives. They are the backbone of modern-day trading without which you cannot access the financial market. These apps offer a host of features ranging from real-time market updates and fast trade execution to portfolio management.

Trading apps can either be desktop-based, web browser-based, or smartphone-based. Smartphone-based trading applications are designed to provide you with quick access to the markets and have user-friendly interfaces. Desktop-based and web browser-based trading applications, meanwhile, offer more advanced features and analytical capabilities. With trading apps, you can access advanced functionalities and make data-driven decisions on the go.

• Robo-Advisors 

Robo-advisors are analytical tools powered by artificial intelligence. These tools use AI to analyse thousands of data points quickly to provide automated, algorithm-driven investment and financial planning advice. One of the highlights of robo-advisors is that they are capable of providing tailored insights and advice based on certain factors such as your needs and preferences, market trends, and risk profiles.

Such AI-powered analysers not only save time but also minimise risks and human error, making them highly useful for optimising investment strategies. For example, they can analyse your portfolio to identify overexposed sectors and suggest diversification or track your trades and provide actionable insights to help you become more profitable.

• Charting Tools 

One of the most essential analytical tools that can help you transform the way you trade is a charting tool. With the right charting tool, you can closely study price movements in an asset and identify patterns. These patterns can be used to determine the ideal entry points, exit points, and stop-loss points.

TradingView and ChartIQ are two of the most widely used charting tools available for traders. These tools provide access to real-time and historical price and volume data, comprehensive charting options like candlestick, line, and bar charts and advanced customisation features. By effectively leveraging charting tools, you can better understand market dynamics and make informed decisions.

• Technical Indicators

Among the widely used analytical tools for trading are technical indicators. Technical indicators are mathematical calculations that use price and volume information. They are essential for interpreting market data and forecasting future price movements. You can use these indicators along with chart patterns to identify market trends, volatility, momentum, reversal points, entry points, and exit points.

Some of the popular and highly useful technical indicators you can use include moving averages, Relative Strength Index (RSI), Bollinger Bands, and stochastic oscillators. Although these indicators can help you predict trends and future price movements, they may not produce accurate results. However, you can increase the accuracy of predictions by combining multiple indicators.

• Smart Order Execution Systems

A comprehensive order execution system is equally crucial for trading success. The well-designed system leverages technology to optimise trade execution such as automatically routing orders to the best available markets or exchanges, ensuring minimal slippage and lower transaction costs. It also ensures faster order placement and execution speeds, which are crucial especially if you are a high-frequency trader.

A good order execution system also provides multiple order choices, catering to all kinds of strategies, risk management practices, and requirements. Some of the types of orders these systems offer include limit orders, market orders, Good Till Triggered (GTT) orders, stop-loss orders, cover orders, and bracket orders.

• Options Trading Tools

The derivatives market is often considered even more fast-paced and riskier compared to the equity segment. Therefore, to tackle the increased demands of this market segment, traders require dedicated analytical tools.

A comprehensive options chain is one such tool that every options trader needs. It provides detailed information on all the available options contract for an asset, including both call options and put options. Additionally, it also offers strike prices, contract expiration dates, premiums, volume, open interest, and options Greeks.

Options strategy builders, position analysis tools, and pay-off charts are a few other options-focused analytical tools that derivative traders often use. With options analytical tools, you can effectively navigate the complexities of derivatives trading with greater confidence and precision.

• Algorithmic Trading 

Algorithmic trading, or algo trading, uses complex algorithms to execute trades based on defined criteria such as price, volume, and timing. Since algo trading executes trades based on pre-programmed instructions, you can effectively eliminate emotional biases by automating the entire trading process.

Furthermore, it enables high-frequency trading with millisecond-level precision, allowing you to effectively use strategies like scalping. Algo trading also lets you conduct backtesting to evaluate strategies and algorithms using historical data. For traders aiming to scale their operations or explore advanced strategies, algorithmic trading could be a game-changer.

Conclusion

With the way trading has evolved, the integration and use of analytical tools have become a necessity. From intuitive trading apps and AI-powered robo-advisors to advanced charts and technical indicators, these tools empower you to make informed decisions with precision and efficiency.

Whether you are a beginner or a seasoned trader, leveraging the right tools can significantly enhance your trading experience and profitability. As the trading ecosystem evolves, staying updated with the latest platforms and features is key to ensuring continued success.

Disclaimer: Investments in the securities market are subject to market risks, read all the related documents carefully before investing. This is for educational purposes only. The securities are quoted as an example and not as a recommendation.

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