Algorithmic Trading

Computer codes and chart analyses are employed in algorithmic trading with the aim of opening/closing trades as per defined parameters. Relevant among the latter is price movement or volatility.

The trading algorithms may execute a sale order or purchase on the trader's behalf, soon as a specific market criterion is met by prevailing market conditions. This helps save a lot of time. Besides, trade execution is nearly simultaneous.

What Are The Most Important Strategies For Algorithmic Trading?
· You have the choice of three main algorithmic trading strategies.
· Price Action Strategy
It is on a candle chart that high/low points or opening/closing are deliberated when it comes to a price action trading strategy. When similar levels are reached in the future, the algorithm triggers a sell/ purchase order.

For instance, when the price moves above point X or when the price plummets below point Y, you may make a purchase/sale order abandoning the algorithm. Among scalpers wishing to rake in quick profits in conditions of volatility, the algorithm is well-known. This is also known as high-frequency trading

· Technical Analysis Strategy

Indicators such as MACD, the Relative Strength Index, stochastic oscillators and Bollinger bands form the technical analysis within the algorithmic trading strategy framework. This strategy can enable you to make an algorithm utilising these indicators' specifications. One such instance is the deciding one of a position as volatility rises steeply.

It is imperative that you get yourself used to several technical indicators in order to make a technical analysis strategy. For instance, Bollinger bands based algorithms may be created, enabling the opening /closing of trades during times of volatility. Whether you open or close a position depends on your risk setting and whether you take a long/short position in a rising/ falling market.

· Combination Strategy

An algorithmic trading combination strategy fixes the technical analysis as well as the price action. This helps the confirmation of faults as regards price action through the agency of chart analysis. Based on such information, algorithms may initiate sale/purchase orders.

You need to examine an underlying market price action if you seek to formulate a trading combination strategy. In other words, you might be called upon to make sense of various technical indicators. Besides, you are to have a sound comprehension of what they tell you about an asset's past price movements.
The call is on you to decide if you wish to take short/long positions and the timing of the algorithm action when you set down your combination strategy. Various actors might impact your combination strategy, namely the time frame, the trade size, and sundry other indicators.

· The Strategies of Algorithmic Trading

· There are many algorithmic trading strategies established by programmers into trading robots. The most vital are:

VWAP (Volume Weighted Average Price): it is the weighted average price.
It spreads the order volumes uniformly throughout a given time interval with respect to the price of the best demands /proposals.
Still, it does not be more than the weighted average price for the specified period.

TWAP (Time Weighted Average Price): it is the weighted average price.

It fulfils orders and distributes them uniformly after the same periods.

The strategy does not reckon any predicted change in auction volumes.

Percentage of Volume:

This is the percentage of the volume of the auction.

It ensures a fixed percentage of participation in the user-set market.

Trend Following Strategy. The strategy's tasks include the early detection of emerging Trends employing several technical analysis indicators, as well as the distribution of trading signals in the direction of the trend.
Arbitrage is a stock exchange robot that sets the divergence of prices for the identical or equivalent instruments on different trading venues.
Also, it buys cheaply in one place and sells expensively in another. It is reckoned that the prices for the instruments will match.
The positions close with profit. Arbitrage is a risk-free strategy, as the robot buys the assets for the short term and neglects the violent price fluctuations in time.
Scalping is the strategy limited to short-term intraday speculative operations.
High-frequency robots are deployed for scalping, which opens many positions simultaneously and closes positions following a small gain of a few pips.
Mainly the strategy is used in fast markets where the commission of the turn is considerably low.

Pair Trading Or Statistical Arbitrage:

It is a strategy aimed at detecting the correlation between different market instruments and the profit from the lack of balance between them.

The robot sets the running ratio's deviation from its value of the sliding mean.

The Main Advantages Of Algorithmic Trading Are:

· Speed
· Accuracy
· Execution on Request, Price Level
· Reduced Transaction Costs
· Pulling Human Emotions Out Of Trade

· Back Test Possibility

Conclusion

Despite the advantages of algorithmic trading, there are reasons that form a caveat. Not every algorithm works equally well. A successful backtest is no guarantee against failure. The more complex an algorithm is, the more backtesting it requires.

Traders wishing to run their algorithm have to be knowledgeable about the technical requirements of algorithmic trading. Irrespective of parameters, there is always the risk of system errors, time delays or connection errors. An essential requirement of algorithmic trading is historical data availability, as well as access to market data for backtesting.

Good brokers set aside your worries about complex algorithm administration. When it comes to making sense of algorithms, the brokers have your back!