PsyQuation: A robo trading coach that combines science and maths

Posted: 6 October 2016 8:57 am


The aim of PsyQuation is to help traders manage their behavioural quirks through a combination of science and maths-based advice.

The Australian financial advice industry is in the midst of a big transition. Affordable and convenient digital financial advice services, known as robo-advisers, are offering a new way for Australians to get expert assistance to help manage their money.

One company leading the charge in the digitisation of financial advice is PsyQuation. Using a combination of science and maths, PsyQuation acts as a robo trading coach to help forex traders make better investment decisions. spoke to David Hobart, PsyQuation performance consultant, to find out how the service works.

What is PsyQuation?

“PsyQuation is a robo trading coach for traders,” Hobart says. “Simplistically, a robo trading coach focuses on helping traders become more profitable. So what that means is it's basically a set of algorithms that are designed based on a database of over 3,500 traders. The algorithms are based on helping nudge traders to making more profitable decisions.”

As far as Hobart is aware, PsyQuation is the first robo coaching service to focus on forex trading, making it a unique tool for traders looking to improve their investment decisions.

PsyQuation uses complex algorithms to identify positive and negative trades for every trader in its database. The algorithms then identify patterns based on the trader’s behaviour, assessing how much risk they take. The results are then combined to determine a trader’s ability to trade profitably, including a comparison of how they score in a range of key areas, and areas where they can improve their trading habits.

The aim of all this is to help traders make smarter decisions, reduce risk and increase profits.

Analysing trader behaviour

PsyQuation’s machine-learning robo coach relies on unique behavioural profiling information to provide insights on how to improve trading performance. Hobart says that PsyQuation’s software focuses on a wide range of behavioural biases, for example, over-leverage.

“It will alert traders if the duration of their trade is too short,” he says, “because there's a whole bunch of research that we've done that shows a trade duration under a certain time period doesn't pay for transaction costs.

“Shifting goals is another thing. So when traders first engage with the PsyQuation website, they define what their profit and loss goals and their risk tolerances are. So when you change those, there's a consequence. It's like moving the goalposts. So when people add more risk when they're in a drawdown, that's typical. That's very standard trader behaviour that costs people money,” Hobart says.

He singles out behavioural alerts as one of the key factors that separates PsyQuation from other trading software providers. “Revenge trading and pain avoidance, these are very common behavioural biases. We've been able to identify the negative impacts of those biases on P&L and to be able to embed them into this software so that people know when they're engaging in those behaviours. And the aim is for them to go, ‘Oops, okay, we've got to modify our behaviour such that we're not doing those unprofitable actions,’" Hobart says.

The aim of all this is to help traders manage their behavioural quirks in a way that will, over time, produce more consistent outcomes.

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History of PsyQuation

PsyQuation CEO Michael Berman has a PhD in economics (behavioural finance) and joined forces with CTO Vladimir Krouglov, who has a PhD in mathematics, to create PsyQuation in 2015. “So those two got together and worked out, ‘Well, if we pool our skill set, we can actually become a benefit to the broader trading community,’ ” Hobart says.

“If we can help traders understand their own psychology, then the traders have got a better chance at making money.”

How can traders access PsyQuation?

PsyQuation is based on a simple three-step process:

  • Brokers add the PsyQuation app to their website.
  • Brokers’ clients can request access to the PsyQuation app. “The client doesn't have to load data. The client doesn’t have to do anything. They just click a button and then their trade data gets loaded into the PsyQuation infrastructure,” Hobart explains.
  • The PsyQuation app uses the client’s trading data to determine how they can improve their trading habits.

At the time of writing, PsyQuation had partnerships with 12 brokers. “Basically the best way for traders to get value from the psyQuation software is just to engage with it, so actually link their live trading account to the software,” Hobart explains.

“It's a web browser dashboard that that links directly into your current MT4 platform, and then you just use the dashboard on a daily basis and it shows your equity curve. It shows you your risk metrics and sends you alerts. It pings you as you engage in behaviours that potentially will cost you money, but then it will also ping you with rewards, i.e. tell you when you're doing stuff well. So it's a rounded solution to make sure your equity curve goes from the bottom left of your screen to the top right of your screen. It just wants you to make sure you continue to make money along your trading journey,” he says.

Any trader currently using an MT4 trading platform can easily access the PsyQuation app.

Looking to the future

Forex trading involves a high level of risk, and many of us have repeatedly heard the claim that around 95% of forex traders fail within the first six months. But PsyQuation hopes to increase the success rate of forex traders, providing benefits not only for the individual trader but also for brokers.

If a trader is more profitable, this will increase their longevity as a trader and the amount of commissions the broker earns. “Obviously, the trader wins. Obviously, the broker wins, and we've done our job, which is to help the traders become more profitable and prolong the life of your average retail foreign exchange trader,” Hobart says.

As the PsyQuation service is only in its early days, the company’s main focus at the moment is attracting more users. “The more users that we get on the site, the better outcomes for everyone, so our main focus is to continue to expand our broker networks and continue to work with our existing brokers to ensure that their clients are getting the best experience with the site,” Hobart says.

Disclaimer: This information should not be interpreted as an endorsement of futures, stocks, ETFs, CFDs, options or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involves substantial risk of loss and therefore are not appropriate for all investors. Trading CFDs and forex on leverage comes with a higher risk of losing money rapidly. Past performance is not an indication of future results. Consider your own circumstances, and obtain your own advice, before making any trades.

David Hobart leads PsyQuation's consulting business and has spent more than 20 years working in the banking and hedge fund industries.

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