HONG KONG - An AlgoRates.com programmer has recently revealed one of the computerized methods incorporated into their trading robots, which the Wall Street Journal’s MarketWatch has named, “one of the most successful algo trading platforms in 2012.” (MarketWatch, Wall Street Journal, July 25, 2013, source: http://www.marketwatch.com/story/humans-to-be-outsourced-by-robots-2013-07-25)
During the past several years, AlgoRates.com has successfully employed its sophisticated algorithmic trading software with remarkable success. Recently, the Boston Globe (Business, Markets) reported that, “AlgoRates.com… correctly predicted [Gold's] price decline and by January 2013, the fund had sold the majority of their gold holdings prior to this year’s downturn.” (Boston Globe, boston.com, Business, Markets, August 02, 2013. source: http://finance.boston.com/boston/news/read/24799410/algorates.com_sold_gold_prior_to_downturn)
AlgoRates.com, which until this year was mainly open to investment banks and large hedge funds, has recently re-organized in the United Kingdom. Although in the past a limited number of non-professional investors were able to pool their resources into cooperative portfolios at its’ parent company, Algo Capital, this year’s restructuring is allowing smaller and medium-sized investors to more easily access one of the most state-of-the-art and profitable funds in the market today.
AlgoRates’ algorithmic programs remain a highly guarded secret, however, “one methodology we can talk about is called Technical Analysis,” explains Alex McLaren, an assistant programmer at AlgoRates.com’s trading center in the United Kingdom. “In essence, it is a methodology for the forecasting of future prices according to past data and trends in the marketplace.”
With Technical Analysis, computer systems and analysts search through thousands of bits of data and charts for what is often referred to as a “trend”. When they find a trend, it must be validated by additional technical indicators. Some indicators measure the strength of the trend, giving insight into how strong buyers/sellers are in the market. “Assisted by complex algorithmic programs and very powerful processing capabilities developed by our specialists during the past decade, we incorporate Technical Analysis in our daily work as we search for trends in the forex, stocks and commodity markets,” says McLaren.
“When our system spots a chart pattern in the currency markets, like a triangle or a ‘head and shoulders’, we follow it in order to validate it and then act. The big move occurs when the pattern is broken, namely when a very important resistance or support line in the pattern is breached.”
According to McLaren, this happened last May. “Since mid-2012 until May 2013, the AUD/USD had traded within a range mostly between 1.0175 and 1.0575. According to Technical Analysis, when a range is broken, a move of at least equal to the range itself is about to follow. When this rectangular looking range was broken last May, the AUD/USD plummeted even fifty percent more than the range within 20 days.”
Indeed, after a short corrective move, the AUD/USD continued in a downward trend, smashing multiple support positions. Having predicted this move in early May, AlgoRates.com sold the Australian currency and recorded significant profits for their customers.
While they are not the only fund to employ Technical Analysis to predict market movements, AlgoRates.com’s sophisticated computer processing capabilities managed by a highly experienced brokerage staff has given them a significant edge, making them one of the most consistently profitable funds of the past year.
Technical analysis is based on three main assumptions: 1. all known relevant information in the market is already priced in; 2. prices move in trends; 3. history tends to repeat itself.
History repeats itself, in the main, because human nature does not change. The former British Prime Minister Winston Churchill once noted that the further one looks into the past, the further one can see into the future. Traders are often motivated by greed and buy stocks which they feel are undervalued or will soon rally and gain in value. They sell stocks, currencies or other assets sometimes quickly or irrationally when they fear that they might have made a mistake or the rally has reached its end.
In order for Technical Analysis to be most effective, all information known in the market should already be priced into the market. According to McLaren, “the larger the pool of investors, the more accurate is the prediction since the fundamental market data is known to a greater number of people.” The most liquid and traded market in the world is the currency market, and therefore, McLaren believes that Technical Analysis has the greatest potential for successful implementation in this market.