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What is Trading Analytics and How Can Traders Benefit?

October 8, 2022
Humza Sarwar
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Analytics tools have only recently become accessible to retail traders, and incorporating them into your trading process can be a daunting task—especially if you’re new to trading. 

It's not easy for the uninitiated to know where to start, or which analytics tools are best for the job. This article will help you understand the basics of trading analytics and how they can improve your trading performance.

We'll also walk you through some of the most popular analytics options today so that you can find a solution that meets your needs.

↑ Analytics can quickly identify outlying data points and determine if they represent opportunities

What is trading analytics?

Trading analytics are tools that process data and deliver it in the form of statistical analysis in order to help traders make informed decisions when placing or managing a trade.

These tools help traders measure current market conditions and compare the findings to historical benchmarks.

This makes trading analytics powerful instruments for identifying opportunities that arise when a datapoint moves far away from its historical average.

↑ This scatter plot shows the relationship between a metric and the forward price of asset FXI

How do analytics tools work?

In general, analytics tools pull in two categories of data: historical price data, and independent variables—the data traders believe may influence the forward direction of an asset’s price. 

The end goal of any trading analytics platform is to help the trader better understand the relationship between these two (or multiple) variables.

For example, a trader might want to evaluate the connection between the forward price of the S&P 500 tracking ETF (SPY) and the historical volatility of the S&P 500. Does the price of SPY tend to increase or decrease in the wake of a volatility spike? Trading analytics can help answer this question.

↑ Analytics compare current market conditions against benchmarks

Analytics can help traders make better decisions

Analytics give traders a formal framework for understanding the meaning of events and anticipating the ensuing market activity. This gives them context and places traders who use analytics at an advantage, helping them improve performance and reduce mistakes.

And of course, when markets move in unexpected ways, traders who rely on analytics often find themselves better prepared than those who do not.

↑ This analytics table displays historical probabilities

Trading Analytics Options

There are an increasing number of trading analytics options available to traders today. Let’s take a look at some top tools on offer right now.

For investment professionals that make portfolio-based decisions, the Bloomberg terminal is a standard option. Keep in mind that these tools are priced for the enterprise. A Bloomberg terminal will cost you approximately $2,000 per month or $24,000 per year, making them out of reach for the typical retail trader.

For retail traders who can know how to code, there are many platforms available for the purpose of building your own analytics tools. These include open source packages R , MATLAB , Python along with software products offered by companies.

For traders who cannot code—or wish to spend their time doing something else—Tradewell offers trading analytics tools that can be executed without code. The benefit of this approach is that it delivers traders actionable insights quickly so they can avoid spending time building their own software if they need to run statistical tests. 

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