Scanning opportunities in the markets for a winning financial portfolio
Answering the growing demand for top-rated stock performance, Trade Ideas was born in 2002 and started collecting revenues in January of 2003. Proving to be very successful from the get-go, the company has been an innovation leader and must-have stock scanner for all active traders for nearly two decades. Since day one, their mandate has been simple: help their subscribers make better decisions in the US equity markets.
While this core consumer promise has never changed, how the company assists its customers in making better decisions than the market has, via technological advancements.
David Aferiat, Cofounder and Managing Partner of Trade Ideas, recounts an impactful interaction at the beginning of his journey, “I was cornered once at a conference, before I was meant to give a speech, and was asked ‘What’s your unfair advantage?’ Ever since then, we’ve really honed into what makes us different from others in the field.”
This unfair advantage is achieved by combining human and machine approaches to analyzing market opportunities. The outcome or product that a subscription to Trade Ideas provides is a plan for active investors to find opportunities in the US equity markets they hadn’t thought of or been able to see before.
By taking a route that utilizes AI and human insight, the company has been able to change traders’ lives.
Since the company started in 2003, the software part of its offering has been streamlined and honed into what it is today. Which has meant that it is now one of the most potent investment scanning tools on the market, and in some regards, it’s more than just a scanning tool.
The scale of the development is hard to comprehend. Aferiat describes this meteoric rise in development as going from a farmer allowing customers to pick veggies, to now, the software is like a bistro serving its ready-made meal.
This jump in the software allows the AI to not only scan for opportunities but conduct some backtesting to determine if the stock, within the scan that produced it, combined with current market conditions, can produce a return on investment (ROI) or not.
The company calls this ‘event-based backtesting’, which is their niche offering. Typically, to test stock, you take one stock a priori, apply the known indicators against it, and go back 10 to 15 years to show how it performed in a particular scenario.
However, with Trade Ideas, the software reviews strategies first. Utilising this approach means testing against current and looming situations, how is a stock universe performing where price is above the 200-day moving average, relative volume is 5x its average, and a short float of X exists, with quarterly growth of Y in earnings.
The Managing Partners and Tech Team at Trade Ideas, led by trading veteran and CEO Dan Mirkin, understand the need to constantly test financial scenarios to find investment opportunities. After running these scenarios, Trade Ideas does back-testing to determine whether you need to go with a buy or sell strategy. This approach makes the company unique and has only improved over time, with the growth in computer processing power.
After nearly two decades of experience, the company has seen several market cycles, which are now incorporated into the software. And the company can look back to numerous events that rocked the market.
“We can go back to the 2007-2008 financial crisis, Brexit, and obviously, COVID. And by analyzing how we were able to assist clients during those times, we’re able to help current customers make better decisions consistently with all the macro background events. The Black Swan events,” says Aferiat.
To assist these customers during Black Swan events, the company analyses all the data available about the market variances, starting with simple concepts. Aferiat says, “If these variances are statistically different or acting unusual, we start to pay more attention and investigate.”
An example that Aferiat gives for these variances is, “If Apple has a certain typical amount of volume by 11:03 am eastern time, but today that accumulated volume is significantly higher, the software will start to pay attention. This happens for every stock on the market.”
The software visually informs subscribers about price and volume volatility above or below standard deviations. It then crunches the data and presents information to decide whether to invest in a trade or opt-out of it. The second part of that process is unique to Trade Ideas.
When clients receive these notifications, they will be able to review the entry price, profit target, and exit or stop loss. These factors act as a guardrail and give subscribers the confidence to make solid decisions.
In the background, the AI takes all these statistically significant events and tests about 60 strategies using an optimization algorithm overnight. The following day the top performing 6 or 7 strategies are presented and used to scan the market, improving the AI and the client’s choices.
“The AI acts like a coach reviewing a baseball team’s lineup, accounting for the players’ health, performance, and hot streaks before making their selection. The AI fields the 6 or 7 scenarios that will look for short-term opportunities and even track over the long term, the performance of its choices,” says Aferiat.
Tapping into this optimization algorithm and unique visualizations are the biggest keys to making favorable decisions. According to Aferiat, there are four outcomes from trading: small loss, small win, big loss, or big win.
The only outcomes Trade Ideas is trying to avoid are big losses, and with its AI, it can direct users to avoid these situations. In events like Brexit, which was a cataclysm that happened overnight, the AI will simply suggest nothing – as nothing met its criteria.
Trade Idea’s core demographic using the product is active investors. These active traders have provided the company with many beautiful stories, from individuals looking to supplement their income like a photographer in Florida who has seasonal work and survives by trading. Another individual is a young active trader looking to open an inner-city soccer academy one day.
Succeeding in any business can not be achieved in isolation. Trade Ideas has been fortunate to work with the best online retail brokers, like Scottrade, E-Trade, and Interactive Brokers. And the company is always on the lookout for new partners.
“If anyone is looking to provide their brokerage clients with engaging content and insights, we can assist in spades,” says Aferiat.
For online retail brokers, the world of trading changed as commission-based trading dried up as a revenue source. Many brokers offer commission-free trading, and seek out traders who consistently make better decisions. This means such clients need the best information they can get.
“This need for brokerage clients to save time and consistently perform has played into our hands at Trade Ideas,” says Aferiat.
Another key company demographic is millennials, who have very little faith in investments. Millennials have lived through a financial era of extreme volatility compared to the “bull market” of the 90s and early 00s. This means encouraging them to take the plunge with better information.
Currently, the company leverages financial influencers on social media to educate this demographic. These influencers educate their followers through posts and newsletters, and then they introduce Trade Ideas as the platform from which their insights have come.
Trade Ideas has positioned itself for this market as an informational tool, and during volatile events like COVID, the Ukraine war, and more, the software switches to being more of a guiding application. This, in turn, means in nonvolatile times, there’s a slow uptake in this demographic, while volatile times sees a burst of new users.
In the next few years, the company is working towards incorporating AI into the crypto market, where its analytics can now be attached to a new asset class. Along with this new asset class is streamlining the product for first-time users. Making it easier to use and more accessible.
Aferiat believes that cryptocurrency will spur continued growth, “I would say the big next thing is cryptocurrency and applying our analytics to those currencies. This means making it easier to understand them over time, showing information in as clear a format as possible, and revolutionizing the way that market data is actually looked at.”
The company has developed a visualization within its platform called Stock Races that transforms the way stocks list are typically viewed so that customers can make better decisions.
This simplification will allow new active traders to join the market. For traders not sure how to start, Aferiat’s advice is to be constantly learning.
Aferiat elaborates on the mindset needed for new traders, “Buddha calls it the beginner’s mind towards things. You have to control your emotions and be kind, calm, and zen-like regarding markets and making decisions, not based on ego. You’re bound to win and lose, just lose small, and staying calm is the best method moving forward.”
AT A GLANCE
What: Stock scanning and visualizations
Where: Online platform