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Think That Investing is Like Gambling? This System of Trading Might Change the Game For Investors Forever

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Mark Cheng

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Speak to any semi-passionate football fan in Singapore, and he or she will tell you how easy it is to get swept up by emotions during the game. Now, speak to anyone who is a passionate fan who bets on football, and you will more often than not hear about how their emotions swayed their decisions when it came time to place a bet.

When it comes to growing your money, however, gambling is the last thing you want to be doing, especially if it is to build up a retirement nest egg. Unfortunately, the truth is that so many people fall into the trap of making emotional decisions either because they don’t have a clear goal, or they overreact to market sentiment without actually understanding what is going on.

However, new implementations in the digital space have empowered investors to make decisions in a more disciplined and systematic manner. What exactly am I talking about? I’m talking about algorithmic trading.

 

Algo-what?!

Algorithmic trading, or algo trading in short, is an automated process that allows the user to devise a strategy based on his/her investment goals, and then create automated instructions for opening and closing trades that is aligned to that strategy. If this sounds like one of the most low-maintenance trading strategies to you, well, it is.

The ability to use algorithmic trading is usually based on a digital tool that is provided by brokers that allows the user to build an automated trading strategy, and then monitor and test the performance of that strategy. Tools such as ProOrder, which is part of IG’s offering, allow you to build strategies using pre-programmed signals without the user having prior knowledge in  programming.

Now, while this isn’t exactly a walk in the park when it comes to setting up, there are plenty of resources and seminars that you can turn to for help in terms of understanding what strategy you should use. At the same time, it’s important to find a tool that is simple enough to use and is able to walk you through the process so that you don’t end up losing the value of such a system.

 

Why Should You Be Using Algo Trading Platforms?

If you’ve read our previous article about CFDs and the way they work, you’ll also realise that having a platform that allows you to execute trades and make decisions when you need to can actually go a long way to managing your risk appetite and not finding yourself in a situation where you only find out you’ve lost money when it’s too late. Using an algorithmic trading system, allows you to trade across multiple markets without having to worry about monitoring price movements throughout the day.

Being able to back test your own strategy with the data available from these systems allows you to use a more data driven strategy to make decisions, as opposed to what was mentioned previously about making decisions based on emotion. As we mentioned in our previous article, setting up alerts to make decisions is a key step in managing your risk, but if you are looking to be able to take action on those indicators but don’t have the time to actively trade, this might just be the perfect solution for you.

 

This is the third article in an investment series sponsored by IG, the world’s No.1 CFD provider (by revenue excluding FX, 2015). To learn more about trading, you can check out IG’s seminars. 

If you missed the first two articles, you can check them out here:

3 Common Myths and Misconceptions Singaporeans Have About Trading CFDs

Singaporeans Who Are Afraid of Investing Should Consider This Before Writing it Off Completely

 

Image Credit: Ken Teegardin

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Mark Cheng

I rant and rave a lot, but when I'm not busy doing that, I'm managing the content for MoneySmart. I love Singapore, but I also believe in helping it to improve bit by bit, and that's where MoneySmart comes in. Have some thoughts? Drop me an email at mark@moneysmart.sg.