10.05.2018 | Energy trading: How technical analysis can support traders
Is it true that technological progress will not stop short of energy trading, and that in the future deals will be processed by automatic systems? And will that make traders redundant one day? This is the scenario suggested by an international trading software developer. We asked an expert who should know.
Roman von Siebenthal is the Head of Forward Trading at Axpo. He has been working in the area of energy trading for 8 years. Previously the mathematician worked at Credit Suisse and Alpiq. So he's a professional when it comes to trading. He had to smile when he read the newsletter article by a trading software developer. "Man or machine, which is the better energy trader?" For experts this is clearly a rhetorical question. And the answer can only be: Man of course.
Roman cites Apple pioneer Steve Jobs: "Technology is nothing. What's important is that you have faith in people, that they're basically good and smart, and if you give them the right tools, they'll do wonderful things with them."
However, is it misleading and false to advertise a product that supports traders under such a premise? No, in fact specialised technology plays an increasingly important role in trading.
Today software solutions reliably and efficiently assist traders, portfolio managers and analysts in performing the tasks required: This includes automation of certain work steps such as screening securities according to recurring price patterns, the development and simulation of algorithmic trading strategies, and total trading deal automation. State-of-the-art technologies provide professional, flexible, comprehensive solutions for financial and energy professionals to support them in their daily work. The so boldly advertised software by the developer mentioned here covers various requirements simultaneously - from various levels of technical analysis to programming algorithms. And the platform enables simple, professional back testing.
In the future, more application possibilities in the software area will become reality: "I'm excited about what will be possible with block chain technology," says Roman. He works with various tools and has experience with assistance systems. And his experience is positive: "There are a lot of good software solutions available that are very helpful. For example, it's possible to manage complex rule sets and the machine can takeover certain competences that the trader outsources to the software. The software tells me as a trader where sales and purchase levels are, and provides important data and trends. Other tools help me record fundamental factors that influence the energy markets. This supports me in making decisions."
By means of a “stop loss” function the technology can also ensure that a trader does not back the wrong horse for too long. Some traders are tempted to continue while hoping for a turnaround later on. The machine can help reduce a loss and say: Stop, that's enough. "This can be programmed as a money management mechanism in order to protect profits and risk capital," explains Roman. Rational thinking, which is crucial for a trader, is part of the machine's DNA: "In trading you have to tune out gut feelings. A software solution is an excellent tool here."
But according to Roman, the machine will not be able to replace man. Creativity would not be possible without human beings. Astonishing words from the mouth of a math person? Not at all, says the energy trader and offers a comparison: "There are also more and more self-driving cars. But man decides where the car must drive to." In addition, man also plays an important ethical role: "Our comprehensive Code of Conduct and compliance regulations reflect the ethical framework that we adhere to. A purely, profit-oriented machine would not impose such rules."
Roman says truly good traders see themselves as a translator between man and the market. "They take a creative idea for a deal and make a rational decision." Obviously that's not easy. That is why it's so important for energy traders to have a great deal of experience, learn from bad deals, remain steadfast and use their cognitive and quantitative skills when necessary. Roman concludes: "These types of people are not a dime a dozen, generally they are hard to find."
So it becomes clear: Although machines can support traders, man is irreplaceable to minimise risks.