Why Stock Trading Requires Data and Analytics
It is often thought that stock trading is the sort of activity that involves exciting, instinct-fueled decisions every time. But what most people don’t realize is how the power of data is now so vital for making stock investment decisions. From the swathes of historic and recent data used in technical analysis to the wider pools of information offered by company accounts and financial news, there are numerous ways to integrate data into your investment decisions.
Why do it?
The main benefit of data is that it allows you to take events and sentiment into consideration and build an informative picture for yourself. Say you’re considering buying some of a Canadian oil company’s stock and would be looking to sell in five years: with a strong data supplier on your side, you might notice that a new pipeline is due to be opened in the country in four years’ time. That could affect the value of the stock – but without the data supplier to point it out and explain its significance, you may never have even known.
Of course, no investment is ever certain, and no amount of research and planning can ever guarantee the outcome you want. However, research carried out using rigorous, accurate and precise data makes it more likely that the investment will work out because you’ll be making choices based on relevant potential indicators, like performance in similar conditions in the past. Wading blindly into the stock arena without any sort of data behind you, though, makes it less likely that you’ll succeed.
What methods are there?
When it comes to data strategies, most traders fall into one of two camps: technical and fundamental. Technical analysts tend to restrict themselves to the price of an asset, as they tend to believe that there’s no more reliable an indicator of market movements than the sentiments of other traders. Technical analysts, then, will usually focus on price charts as their main data source: these can go back quite far, or they can be recent. Technical indicators, which identify patterns and suggest where price shifts may be about to happen, can be applied using computer software: from volatility indicators to momentum indicators, there are lots to choose from.
Fundamental analysts, however, take a slightly different approach. They consider the wider health of the ecosystem in which a stock exists, such as relative company profit and loss, or any impending economic or political market-moving events like monetary policy changes or elections. For this sort of data analysis, a reliable information system will be required: a stock events calendar can highlight when events might occur, while a subscription to a financial newspaper can provide the sort of background analysis needed for fully informed investment decisions.
Using data in your stock investment decisions, then, is a pretty wise move. Not only does it mean you’ll get a more rigorous answer to your investment questions, it’s also easy enough to set up a data supply. From feeds designed to give you updates on the market to detailed price chart information aimed at technical traders, there are all sorts of ways to access data.