What is algorithmic trading?
An algorithm is simply a systematic method. To buy shares on Mondays and sell on Fridays could be considered to be an algorithmic trading method, but normally mathematical calculations or statistics are involved. Algorithmic trading can be based on e.g. some form of Fundamental or Technical analysis.
What is Fundamental Analysis (FA) and Technical Analysis (TA)?
FA is when the value of a share is calculated using models based on financial figures and performance indicators.
TA is a form of algorithmic method that looks at e.g. price curve shape and statistics for a financial instrument to find the best timing to sell and buy. However, the traditional form of TA, that looks at a single instrument and that one can find e.g. built into various trading applications on the web, doesn’t add any value in itself.
What do you mean “TA doesn’t add value”?
Visolvia has studied this carefully and found that some of these TA-methods do increase the standard deviation and risk, a form of leverage that will increase the return if one makes the right bets. However, measured over long time there is no commonly known TA-method that can be shown to improve the risk adjusted return (what is referred to as Sharpe in finance and Signal to Noise ratio in engineering).
The logical reason should be that there simply isn’t enough information in the price and volume information of a single financial instrument to create the market advantage required to make a profit after spreads and overheads, especially not if the method is common knowledge and used by lots of traders. One can’t rule out that some traders increase their success using TA, it might be that they are able to add their own experience and intelligence, but the point is that such manual decisions can’t be back-tested and demonstrated in simulations.
Why are the Visolvia demo systems on the web so slow?
It is to make it as easy as possible to follow and to reduce the information leakage regarding how the technology works. The Visolvia trading systems in use today have turnover rates ranging from a week to a year. Most providers of algorithmic trading technologies have been competing with increasingly faster systems, but at Visolvia we have even made a point out of going in the opposite direction.