In this episode of The Trader’s Handbook, Shaun Murison from IG Markets South Africa joined me to discuss the advanced tools available on the IG platform that empower traders to make informed decisions. From back-testing strategies and market scanning with Pro Screener to exploring client sentiment, alerts, and algorithmic trading, this episode highlights the cutting-edge features that simplify and enhance trading.
Whether you’re new to trading or looking to refine your approach, this episode provides practical insights into leveraging technology to stay ahead in the markets. To open a demo account, visit this link.
Listen to the episode below and enjoy the full transcript for reference purposes:
Transcript
The Finance Ghost: Welcome to episode 12 of The Trader’s Handbook. We’ve had a lot of fun on this podcast series. Shaun Murison of IG has been our guest on each show and there’s been so much to learn from him and from the team at IG as well.
In our last episode we covered demo accounts and why they are just so important for people to go and cut their teeth with monopoly money as I like to call it, before you go and actually have a funded account. Rather go and make the mistakes, learn the system, go and just get your head around how this whole thing works in a demo environment. Of course, the real benefit there is that you are getting access to exactly the same system that you would have if you had real money in your account. You get to just practice in the meantime.
That’s why in this episode we will be focusing on the technology sitting behind that system, some of its features, some of the good stuff that you can look forward to if you are an IG client or if you just want to go and open that demo account – go and check it out, if you are interested in the demo account, go to IG.com, it should autodirect you to whichever country you’re in. You’re probably listening to this in South Africa, so it’ll redirect you there. Go and check it out, go and open a demo account and start trading.
So Shaun, today is all about the tech of the trade as opposed to the technicals of the trade, which is how we’ve usually been finishing these episodes with some technical analysis. I think we’ll give that a break on this episode and just focus on what the system can actually do. Thank you as always for joining me for this. I’m looking forward to it.
Shaun Murison: Great to be back again.
The Finance Ghost: So I think first up, let’s start with this concept called back-testing. Now this is something I’ve certainly heard people talk about before. Basically the idea here is that you take a strategy that you think might work or some kind of approach to the markets, and then you want to actually see if it has any merit. And how do you do that? Well, the past is quite a good predictor of the future, in this case because I guess it’s just how people have behaved in response to a certain set of inputs. So that’s really what back testing is, trying to figure out how to actually go back and see what happened for a set of inputs. It’s quite a complicated thing, but apparently you guys do have some functionality there around backtesting, Shaun.
I think let’s start there. Let’s start with something really juicy. I’m keen to know what’s on the system for that.
Shaun Murison: Yeah, so IG has a function, a back-testing function on our advanced charts. There’s a saying that patterns often reoccur in markets and I think back-testing can help us identify those patterns. There are technical tools, so you could take a technical strategy, maybe looking at moving averages to gauge trend, we’ve talked about that, and an oscillator, like a stochastic to maybe trigger timing of an entry. Well, does that sort of system work?
You can test that over X amount of years on a particular market and see whether that has a statistical edge. Certainly what you’re doing there is you’re building a mechanical strategy and not only just the technicals – you can add in stop losses and take profits and you can tweak that system until you’re comfortable to use a system like that.
So it’s really about putting something under the microscope using our automated back-testing features. The really cool thing about that is that you don’t actually have to be a programmer. A lot of these software systems, you have to know how to program and look at things like Python and all these different languages to do that. Here, it’s really just if you can left click, you can do it. You click on the chart, you click on the indicator and you say you want to buy when it does this and you want to sell when it does that. So it’s an automated function, it’s called assisted creation. Really fun to use and quite a big rabbit hole once you get started.
The Finance Ghost: Yeah, I can believe it. That does sound like quite a fun way to spend a bit of time. A good reference there to the rabbit hole because I can imagine it’s quite easy to get swept away by some of this stuff. I guess the back-testing is all good and well because that’s trying to figure out: would this have worked? But of course, that’s not how you make money. You have to make money by actually trading and then getting it right.
And that, I think, is where the market scanning and screening tools would come into it. So screening is the terminology that I’m more accustomed to, obviously more of an investment lens from my side. That’s really looking at, just as an example, something like: I want to find things on a P/E multiple of less than 15x, growing earnings at more than 15% a year on the US market. Okay, great. You can plug those three things into an investment system and you can go and find all the companies that fit into that, and then you have to actually do the work to get through the noise, etc.
Now, in the world of trading, scanning is also about finding ideas. So it’s kind of similar to screening in investing, but I would imagine using very different metrics because as I’ve certainly learned on this series, trading is far more about chart patterns and technicals than it is about the underlying fundamentals of the business. So how does this work in the trading environment, this market scanning tool?
Shaun Murison: Well, you have access to both of those types of tools. And we do actually call it – maybe it’s me that calls it a scanning function, but we do call it Pro Screener. So we have a fundamental screener, so you can search for companies based on e.g. dividend yields, earnings yields in international markets. Still to bring it to the local markets, but we do have that available on the platform.
Then when you look at the technical side of things, we have something called a Pro Screener. So if you’ve developed a technical strategy that you’re happy with, I’ll use that example of having a moving average to gauge trend and then maybe using an oscillator like a stochastic to trigger entries and exits – you can now go into the market at a click of a button, you build the scan again, you don’t have to program it. And you can run it across all the instruments, across the world or locally. And it’ll trigger, it’ll pick up where your criteria for entering or exiting the market have triggered in the market. You can actually use that as a watchlist, so it will update real time, live – so it fits in well with the back-testing we talked about, you might develop a strategy and think I’m happy with this type of strategy. And then you can go and scan the market using the Pro Screener function to see where that criteria has triggered in the market. You don’t have to sit and manually look through each chart. You can just automate that process.
The Finance Ghost: So scanning, screening, tomato, tomato, all the same stuff really, but ultimately just a different lens and a different outcome. Investing versus trading, that is how you find ideas. You’ve got to have your system and then you actually go through and scan for them. And it’s very, very powerful tool.
But it’s also not the only way to generate trade ideas because within the IG platform there are also trade ideas that are generated by a third party. I have seen some of that. Just to confirm with you, how does that work and how often do these ideas come out, who’s actually doing them? And is it mainly South African assets? Is it indices, is it global, is it a bit of everything?
Shaun Murison: So it’s indices, commodities and currencies, third party trade ideas. We used to call it Signal Centre, now I think it’s just called Signals. Basically, it’s taken the two companies there that we’re getting trade ideas from – Autochartist and a company called PIA First. It’s independent analysis. The one runs algorithms which are automated, the other one is a manual approach, but they input it to the system. So they’ll say, okay, we think that this is where they’re looking to buy on this criteria. This is where they’d look to exit if the market moves favourably for them or if it moved against them.
You can assess your risk and reward. So if you like that idea again you can just – I always say make your own decisions – but you can reference other opinions out there. And that’s quite a good tool for that. But if you did like that idea, you can copy that order and you can actually place a trade from that guidance from that trade setup. Really, really cool tool on that.
I think there’s lots, depending on what your flavour is in terms of trading. Signals is one thing, third party reference, you can use the back-testing to test your own strategy. Maybe cross reference it with that. Always good to just check up on that live news feed that we do have on the system to see what is moving markets right now, what could be changing sentiment.
And then just looking at that economic calendar, we have quite a cool feature there where you can just pop that economic calendar – the key points, things like inflation, interest rates, announcements, things like that, onto the chart. I can show you what is expected of the news, what the previous figure was. Generally, better than expected is good for the market and worse than expected is bad for the market. Lots of different tools there that you can aggregate together.
So Signals is one, third party ideas, you can generate your own ideas with the facilities there and you can cross reference and just be aware of news items through those economic calendars and those news feeds, those live news feeds.
The Finance Ghost: Yeah, that’s really important, right? You’ve got to have this constant handle on what’s coming in from a market perspective. That’s something I actually wanted to ask you about, is that you’ve referenced before how markets are really just big voting machines and the share price or the index price – I still have to reference share price, I can’t get out of my head – or the currency price or whatever it is, is just a function of all these votes coming into the market. Literally – yes, no, buy, sell and here’s the thing in the middle.
These news feeds are very important because a lot of trades are in reaction to news. You’ve referenced it there in terms of the ideas, but it’s also about planning your trades, right? It’s about looking ahead at that calendar, what’s coming out, some of the other news feed stuff. And obviously news is news, it’s breaking, generally it’s not something that you knew was coming, but not always. There’s other stuff linked to economic calendar type stuff – when the Fed is making a decision about interest rates, that’s one part of it. But then there’s all the news about the press conference afterwards and how people are reacting to it and the whole story. Being able to build that world out with all those alerts and that plan, that’s very important, right?
Shaun Murison: Yes. And you can do that on the system as well. So you can set alerts. you’d have the platform which you can log into from your browser, but you also have the app that you can download to your phone and they link. If you’ve got the app on your phone, you can set alerts to economic data so you don’t actually have to miss it. You might be out on the road, have a normal job and you’ll have a little pop-up notification, push notification that can come to your phone. You can also have it email you.
Not just on the fundamental data or the news data or the scheduled news data – like you said, sometimes we don’t know news that’s coming out, but also maybe you’re just watching some shares or forex price and you want to be alerted as to when the price gets to a certain level, because that might be somewhere where you’re looking at buying. And you can set that system as well and it’ll pop up with the push notification. And even further than that, if you want to get really technical, you could set up oversold indications or other technical indicators and get that push notification just to alert you that, okay, well, this market’s now moved into oversold.
And then you can reassess and say, okay, well, is this an opportunity for me? It’s really, really cool. Those alert features are very, very useful when you’re serious about trading. Take the time to set up your workspace to set up these notifications, know what you want to do, know when you want to buy, what price that you want to buy, know what news items are coming out that could change the direction of a market, whether you’re in it or you’re looking to get into it.
The Finance Ghost: Yeah, absolutely. That’s a big part of it. And what is also quite interesting is your client sentiment data, because that is basically everyone taking all of this stuff, economic calendar, news feed, you know, notifications around stock levels etc. and then reacting to it with trades like buys or sells or whatever the case may be, pairs trades and all kinds of stuff, which are just combinations of these things. Client sentiment is whether or not people, on average, expect something to go up or to go down. And you can certainly make money by being contrarian. But I think in trading, being contrarian is quite dangerous. That’s something that I definitely learned on the demo account. Investing with a contrarian lens can work quite well if you know what you’re doing. Trading with a contrarian lens, on leverage especially, is not necessarily the safest strategy in the world. I guess understanding sentiment is quite important. And IG does have some stuff around that, right?
Shaun Murison: Yeah. So on each instrument, you can see how IG clients are placed. It’ll show you a client sentiment button when you log into the platform. Just click on that little button – let’s say you’re looking at a share like Sasol, or a currency pair, whatever it may be, and it’ll show you how clients are placed. It might say that 70% of IG clients are long and that means 30% are short. So, 70% think the price is going up, 30% think that’s going down. it’ll show you how recently those trades came into place over the last hour, what the sentiment was over the last day, over the last week.
I think what you need to take into account is that most of IG clients are retail traders, so it is a retail sentiment. IG obviously is one of, if not the largest CFD provider in the world. It’s quite a good reference to retail sentiment.
In terms of the contrarian view, there are different outlooks on that. But one of the thoughts is that when markets are in trending environments, that’s where it works best as a contrarian indicator. The market is say in a strong uptrend, it’s been rallying, the initial instinct for retail traders is okay, well it’s gone so far up, surely it’s got to come back down now? They look at taking short positions, but that’s obviously not the case, and that’s where it’s most likely to be a contrarian indicator. When markets are a bit more range bound and moving sideways between levels, you find that that’s not really a good contrary indication.
The Finance Ghost: I think let’s talk stop losses, which is something that’s quite important when you are just trading in general, especially if you’re going to take a slightly contrarian view depending on how you want to play it.
Stop losses keep you out of trouble. Well, they can keep you out of trouble depending on how you set them up. And that’s the point here. We’ve talked about stop losses before. This is definitely not the first time in the season where we’ve spoken about this, but I think it’s always worth doing it again. There are different types of stop losses on the IG platform. I think there are three types. So I think, let me open the floor to you to kind of just run through them so people can understand how important they are and what the differences are.
Shaun Murison: We have to manage our risk in the market. We go in there, we want to make money, we don’t go in there to lose money – that’s not why we trade. But we have to prepare for if the market moves unfavourably, obviously a stop loss is to protect us if it moves unfavourably against us.
Now with a normal stop loss, what you can have is that you have your order at a particular level to get out if the market moves against you. Then maybe you have overnight gap risk and actually opens up lower and you get something called slippage, so you end up actually losing slightly more than what you had put into the system. That moves to something called a guaranteed slop loss where we take on the risks and you can’t lose more than what you anticipated if you’re using a guaranteed stop loss. But for that then we’ll charge a slight premium, which would vary depending on the instrument that you trade in.
Then the third type of stop loss that we look at is a trailing stop loss. And these are obviously all automated things that we put in the systems, whether you do it via the mobile app or via the platform. A trailing stop is actually maybe a bit misleading, because you can actually use that stop loss to try lock in profit. The market’s moving in your favour, you have a stop loss and then it keeps that stop loss tightly behind the price. The more it moves in your favour, the higher your stop loss moves up. You’re just trying to rally and capture as much of a trend as possible. Eventually when it does start to turn around, you might get kicked out of your trade, but your stop loss now is actually in a profitable position because it’s ratcheted up as the trades moved in the right direction for you.
So, normal stop loss, guaranteed stop loss and a trailing stop loss. Trailing stop loss is to try and maximise a trend. Guaranteed stop loss is to prevent slippage from happening. A normal stop loss, which most of the clients use, you’re not going to get that much slippage if you’re trading highly liquid markets. When you start trading illiquid markets, that’s where it becomes a little bit more likely for you to get slippage.
The Finance Ghost: So last little juicy topic, because you actually referenced this earlier, I think when you were talking about the back-testing, and that is algo or algorithmic trading. Now I remember from my banking days and I had a few years of those, that was still in a time when the banks had prop trading desks, which meant they weren’t just flow trading on behalf of clients, they were actually trading off the bank’s balance sheet. They were literally traders sitting there with an annual P&L budget. It was really fun to get to know them and see what they were up to. I distinctly recall seeing one or two algorithmic traders busy building these very hardcore models and it all looked quite interesting. But ultimately, in the wake of the global financial crisis, banks had to actually just shut it down. It just wasn’t worth them doing it anymore. The regulatory requirements were too onerous and a lot of that activity has now moved into hedge funds. Basically that’s where that prop trading has gone.
Algorithmic tools basically just mean automated trading rules that you set up. It’s like setting up an auto forward on your outlook very simplistically, but doing that in the markets. What tools do you have in the IG platform to do this kind of thing?
Shaun Murison: Yeah, so an automated trade, algorithmic trade could be something like we’ve just talked about – a stop loss, because that’s an automated feature. It could also be something like your take profit levels.
But when you’re building strategies – and early on we referenced the back-testing side of things – what you can actually do now is you’ve taken a strategy, maybe you’ve seen that it has a statistical edge historically, now you want to trade it going forward.
You’re not always going to be in front of your computer to take every opportunity. You can take that back-test and literally just at a click of a few buttons, convert it into an automated system, so it’ll automatically trade your system going forward on the criteria that you’ve set. We do have that technical function of creating algorithmic trading and it’s not that difficult to set up. Like I said, when you’re doing the scans and the screening, the back-testing, it’s all assisted creation.
So with algorithmic trading, that is something you can do from our advanced charts as well with that assisted creation. You don’t have to be a programmer, just be sure of your strategy when you start to do that. If you are unsure, you can set up that instead of just trading for you, you can set it to alert and pop up with a deal ticket and you still have to manually execute the trade if you just want to double check everything, which is probably the best way to start. But if you’re comfortable, and you’re very comfortable with that, you can actually have this thing trading for you automated all the time.
The Finance Ghost: The point is there is a lot to get to know. And I think the one concept that came through when we spoke about demo accounts in the last episode was something you alerted me to, which the more I thought about made a lot more sense, which is that a lot of people have got a live account and a demo account and the point is that you can go and try stuff out in the demo account and then bring it across into a live environment when you are ready. The demo account is not just there to say, okay, let me learn how to go long or short, really basic stuff when you’re just starting. It’s actually there to also do some of this more advanced stuff, the algorithmic stuff, the back-testing if you want to, although that you can do that in a live environment because back-testing doesn’t mean you’re actually trading. But all those concepts, you can then go and actually set up in a demo environment and just cut your teeth on that kind of stuff and then bring it across when you feel confident.
Shaun Murison: There are so many tools at your disposal. I remember when I started out trading, you had to pick up the phone to find a broker, the broker would execute the trade for you. The broker was the one with all the tools and all the fancy functionality and access to information. That information now has been democratised. Companies like IG are bringing it and putting it into the palm of your hand literally through the mobile app or through your web based application. Retail traders now have access to advanced tools and sometimes advanced doesn’t mean difficult to use. They can still be simple to use, which I think is the beauty about a lot of what we do offer.
But Rome wasn’t built in a day. Like you said, start off on the demo account, test out these things, navigate your way to what you feel comfortable with and what works for you. And when you’re ready, then move to live account environment or run it concurrently. I think the trick here is just don’t be in a rush. If you want to get started in trading, just go through the motions.
The Finance Ghost: Yeah, absolutely. That’s great advice and that’s exactly the way to do this, is to just go and open that demo account, get started, don’t be too terrified by everything you’re seeing out there. Treat it with a lot of respect, but also give yourself a chance to just get up the curve and learn what’s going on.
I hope that this podcast series has certainly helped you with that. There is one more episode to come after this one, so be sure to join us for episode 13. It really has been a pleasure Shaun.
If you’ve only joined us now on this episode, go back and listen to the others. There’s a lot of good stuff in there, even if you don’t get to all of them, just go and pick out the ones that appeal to you that you think will help you learn something. Even if you’re a relatively seasoned trader in one asset class, you might actually really enjoy one of the shows dealing with a different asset class, so there’s always something to learn.
Shaun, thanks as always for your time and I look forward to doing our last episode with you soon.
Shaun Murison: Always a pleasure.
