Algorithmic Trading is also illustrated as automated trading, black-box trading or Algo-trading . Algoithmic Trading is a pre defined set of instructions to place a trade and execute the order at high speed and frequency which is impossible for a human trader, This could result in more objective and consistent trading strategies.
The explicate set of instructions are based on “timming, price, volume, market indicators or any mathematical model or strategy which is also further defined as Algo strategy”. Apart from profit opportunities for a trader, algo trading provide more clarity and systematic programming. Instead of human trading which relies on judgements and emotions which impact the trading activities.
Algo strategy can be used for various purposes such as identifying market trends , managing risk, analyzing the market and execution of trade at high speed. These strategies are designed to craft wide range of financial instruments, inclusive of stocks, future options and currencies.
One of the prime benefits of algo trading is to identify the opportunity and taking the first mover advantage by making logical decisions. Algo trading also helps to put an end to human biasness that can impact human decision making .
How Algo Strategy Works?
Algo strategies operate through computer-defined rules and mathematical logic to computerize the process of trading in financial markets. They accumulate the data from numerous sources like market data, and historical prices. This data is then fabricated and analyzed to pinpoint potential trading opportunities. Once the figure has been collected, a set of rules or commands are developed based on certain criteria, such as price fluctuations, market index, and other variables. These algorithms are then back tested on actual data to see how they would have enacted in different market circumstances. When the algo strategy finds a trading opportunity based on the established logic, it executes an order in the market impulsively. This can be done using diverse order types, such as market orders, limit orders, and stop orders.
The algo strategies constantly monitor the market for any changes and modify the trades accordingly. This process helps to enhance the trading strategy and boost its performance over time. Algo trading action plan also embrace risk management strategies to minimize the future losses from any adverse market action. This can be done by setting stop-loss orders, using hedging strategies, and keep an eye on overall portfolio risk.
Advantages of Algo Strategy :-
- Traders can save a significant amount of time and effort by not having to spend hours designing and testing their own trading methods.
- Risk management is an essential element of trading, and traders using algo action plan can manage risk in several ways.
- A stop loss is an order to automatically exit a trade if the price moves against the trader beyond a specified level. By using stop losses, traders can their potential lossesin a trade.
- Diversification is a risk management approach. By diversifying their portfolios, traders can reduce their exposure to individual market risks and potentially boost their overall risk-adjusted returns.
- Traders should constantly monitor their positions and modify their trading strategies as require. Traders can identify potential dangers and take remedial action before it is too late if they constantly monitor their positions.
- Regular back testing of trading strategies is crucial to make sure that they are still productive and suitable for current market circumstances. By back testing their strategies, traders can pin out any weaknesses and adjust their strategies to bring down potential risks.
Algo Strategy Platforms :-
- Zerodha Streak – Best for Back Testing
- Zerodha AlgoZ – Best for Technical Analysis
- AlgoTraders – Best Reliable Algo Trading Software
- RoboTrade – Best for Automated & Manual Trading
- Robotrader – Best Cost Effective Algo Trading Software
- TradeTron Tech – Best for Event & Quant Based Algo Trading
- Omnesys Nest – Best Automated Software for Indian Markets
- ODIN – Best for Risk Management in Algo Trading
- MetaTrader 5 – Best for Professional Traders
- AlgoNomics – Best for using Multiple Trading Strategies
- EToro – Best for Copy Trading
- AlgoBulls – Best for Deploying Strategies for Various Assets
Conclusions:-
Multi-exchange Algo trading platforms have made it very timely and reasonable for traders to use pre-built trading strategies to computerized their trades whether it is stocks, currency or commodities or crypto currency. This allows them to conduct high-volume transactions more frequently and with higher success. The restrictions in algo trading arise from unpredicted volatility or black swan events which may require human intervention for more informed decision-making.
Once the trader well organized and back tests a winning strategy, execution becomes very structured. Given the fast growth of the trading community in India, it is just a matter of time before the majority of serious traders transfer to pre-built trading strategies that line up with their risk profile and financial goals.
