The European stocks registered a positive start in February despite the numerous Reddit retail investors that primarily focused on silver and other precious metals. Initially, the market had experienced sparks of excitement; however, by Friday last week, volatility had dropped drastically even though it remained high.
Shares of mining companies like Centamin, Hochschild, Boliden, Fresnillo, and Ploymetal international remained high. There were gains in the Pan-European Stoxx index, which increased by 1.24%. Other companies such as Anglo-American, BHP, and Glencore shares remained higher despite the fact that the price for silver hit an all time high since 2013. The metal became the darling of many online retailers who pushed the asset’s price beyond what the hedge funds managers had predicted.
Elsewhere, the recovery of the Euro zone’s manufacturing sector in January went against the expectation, considering that many countries were reeling under lockdowns. Statistics show that the purchasing manager’s index was 54.8, which higher than the estimate of 54.7
In the oil sector, BP made public the sale of a 20% stake in the Oman gas block, resulting in revenue of $2.6bn as it embarked on the disposal program intended to reduce its debt to its target of $35 bn.
JD Sports’ shares gained by 5.92% after the announcement of an agreement to buy a DTLR Maryland based sportswear retail outlet at $495m in its effort to boost brand across the United States. Other gainers were Housebuilders such as Berkeley Group and Barratt and Persimmon, which registered strong gains. On the other hand, Ryanair shares dipped slightly after the airline announced that it is expected to lose about €1bn euros in the current financial year.
Is automated trading software playing any role in the volatility?
Yes, algorithmic trading systems are contributing to the volatility. They allow traders to implement both entry and exit rules, which are automatically executed by the computer. In the US stock market alone, automated trading software accounts for more than 80% of shares traded.
The systems make it easier for traders to implement money management rules while allowing the computer to monitor trades. They help take emotion out of trading since the software executes trades if the criterion is met.
Most of the entry and exit rules implemented are based on conditions that include moving average crossover. But traders with programming backgrounds may use their expertise to determine the execution points.
Some trading platforms are already working on wizards that allow users to select a list of technical indicators to use to set rules for automated trading. For instance, it can allow the user to set the system to enter into a long position as soon the 12-day moving average crosses the 26-day moving average from above. With this system, it will be possible for the user to input the limits, including when triggered.
Why should one use trading software?
The advantage of automated trading software is that once the rules have been established, the computer will monitor the situation and buy or sell the assets depending on the strategy chosen. The software will then trail the stop loss and the profit targets to take appropriate action once the objective has been achieved. The stop-loss limits are vital; they protect the trader from possible catastrophic losses if the trade moves against the anticipated direction.
Indeed, the automated systems continue to play an important role in helping traders achieve their goal. It minimizes emotions during the trading period enabling the trader to stick to their plan. Also, it enforces discipline since the trade is executed automatically so they help the trader to determine how they can lose or win in any given trade. Lastly, automated systems generate orders if the market meets predetermined criteria and permits one to trade multiple accounts.
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