Algo Trading for Retail Traders
What is Algo Trading?
Since the early 2000s, the phrase “algorithmic trading” has become the interest of investors and traders. Since SEBI legalized it in 2009, brokerage firms and large-ticket institutions have flocked to the markets to profit from the newest automated technology.
Any order that is generated using automated execution logic shall be known as algorithmic trading (Ref. SEBI Circular)
Even a retail individual trader employing simple trading methods such as opening range breakouts, crossovers, candlestick patterns, charting patterns, etc. using a little computer programme that puts his orders will be classified as an algorithmic trader under this criteria.
There is no differentiation made between machine learning, artificial intelligence, high frequency trading, or technical indicators-based techniques.
Machine Learning and AI, High Frequency Trading and Technical Indicators, Price Patterns, and so on are various forms of techniques that fall under the Algorithmic Trading vertical if their mode of execution is via a computer programme.
Benefits of Algo Trading
The popularity of algorithmic trading has skyrocketed in recent years, owing mostly to its several benefits over manual trading. Algo trading has been around for a while, but many players (traders/investors) are still unaware of the benefits of machine (or computer) trading over human trading.
a) Irrational Bias
One of the characteristics that distinguishes a human from a computer is the ability to feel and express emotions. While this is a benefit in many real-life situations, it may also be a disadvantage when trading, which requires more analytical thinking and less emotions. In this area, algo trading might be a specialist.
Algo-trading follows a set of instructions and adheres to them without any emotional bias.
b) Speed & Accuracy
When it comes to executing a set of rules, computers are far more precise. When a substantial sum of money is at stake, no one will rationally choose a less correct choice. Making more money is a lot simpler when you can avoid a number of hazards caused by human errors when trading.
c) Less Transaction Cost
Computer programmes can function over long periods of time without the regular supervision of humans, lowering the cost of human resources. A lower cost each trade increases your chances of getting a better return on your investment. Many traders around the world are becoming increasingly interested in algo trading as a result of this.
Backtesting is an application that allows traders to assess the viability of trading methods. In general, a strategy’s viability (how well it would have done) is assessed using historical data, with the assumption that if it did well on historical or previous data, it would perform well on future trades as well.
This provides traders with a significant chance to test and play with a variety of methods in order to eliminate any errors from the trading system before it begins to execute transactions in the real world.
3. Algos offered by brokers
If a brokerage house hosts and manages a discretionary algo (one that determines whether to buy or sell based on a strategy), the algo requires exchange permissions. This is true whether the broker uses the algo for their own private trading (prop) or whether it is made available to clients.
When a broker provides such an algo, the software or algo operates on the broker’s computers rather than the clients’. When the algo provides a signal, an order is immediately placed on the customer’s account without the need for the broker or the customer to intervene.
4. Algos created by retail traders
Since the beginning of online trading, tech-savvy traders with programming skills have been employing automation programmes to automate their trades. Any competent computer programmer may simply create a utility that collects data from any broker’s online, desktop, or even mobile trading platform (basically any software that runs on the clients’ PCs) and then uses automation tools (macros) to place orders automatically at their discretion.
A broker has no way of knowing whether a customer is utilising automation tools on their computers or whether a buy or sell button was pressed by a person or a macro. Anomaly behaviour, such as strange patterns and rates of orders originating from a consumer, can be discovered.
Customers can gain programmable access to their accounts using an API provided by online brokers. Customers that are tech-savvy can utilise these APIs to consume machine-readable data, such as reading their portfolios for analysis and placing buy and sell orders.
5. No code algos for trading
In the last two years, we have seen a significant rise in no-code third-party algo platforms. These platforms help you create, backtest and automate trading strategies with minimum coding knowledge. Also, these platforms provide readymade strategies deployed by experienced traders to gain profits with proper risk management on their algo marketplace.
Tradetron is one such platform that is gaining popularity for its seamless execution with multiple brokers and algo marketplace. The trading strategy creation can be easily coded on Tradetron’s strategy builder.
Note: Explore our algo trading strategies and live profit/loss summary here
1. XC — Shielded Straddle: https://tradetron.tech/strategy/1799391
2. XC — Swift Overnight Selling: https://tradetron.tech/strategy/1821064
3. XC — Transposed Strangle: https://tradetron.tech/strategy/1788799
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Written by Aashutosh Chandra (firstname.lastname@example.org)