Trading is algorithmic when you use codes and software to open and close trades based on specific rules such as price action points in the primary market. Once the current market conditions match any predetermined criteria, algos can execute a purchase or sale order on your behalf - saving you time by eliminating the need to manually inspect markets.
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| What is algorithmic trading? And what are its uses? |
Why use algorithmic trading?
Remove human error
Trade without allowing emotions to stand in the way of profits, or reducing losses
Take advantage of rare or special events
Interact with rare events, such as closing the Dow at 500 points without its moving average in 20 days
Complement your current strategy
Improve your risk management well by using trading algorithms (algos) to implement limit and stop requests on your behalf
No need for great effort
Set up your algorithms and let them trade around your agenda
Test on previous data
Improve your algorithms on previous data to form the best mix of purchasing or selling transactions
Increase opportunities with immediate implementation
Maximize your exposure to the core market through automated purchase and sale orders
What is the best platform for algorithmic trading?
It depends on what you want from your platform - many traders use installations, to achieve a range of goals.
For easy-to-build algorithms
ProRealTime is the leading online charting package, and you can use it to create your own trading algorithms. ProRealTime is designed to make it easy to build your own algorithms.
The tools in ProRealTime - which include a package of improvements and unique code language - make it easy to create, test and improve your algorithms from the start. This means that your algorithms will work according to your specific specifications when you run them on the ProRealTime platform.
Pre-prepared algorithms
MT4 is a tried and tested trading platform, with a wide range of users actively creating and improving trading algorithms. These are readily available to you in the MT4 store, providing a wide range of ready-made solutions.
MT4 is known for its technical indicators and additions, some of which you will get for free when you use our MT4 offer. These may help you analyze charts, as well as enable you to fully customize the MT4 platform to your specific needs.
Algorithms from the beginning
The API enables you to automate trades, build integrations, and create apps and trading algorithms from scratch. Our API is an easy way to get previous market and price data.
Creating an API is only recommended for people with a background in programming and encryption, as it is the most complex of the options available here. However, APIs offer the most customization, as you build them yourself from the first to the last using encryption languages such as Java, Excel (VBA), and NET. - Or any other programming language that supports HTTP.
What are the main strategies in algorithmic trading?
There are three main strategies for algorithmic trading: Price Movement Strategy, Technical Analysis Strategy, and Composite Strategy.
1. Price Movement Strategy
The strategy of price movement in algorithmic trading will look at the previous opening and closing or prices of lower and higher sessions and will order or sell if similar levels are achieved in the future.
For example, you can create an algorithm to enter into purchase or sale orders if the price moves above point X, or if the price falls below point Y. It is a popular algorithm for brokers wanting to make a quick but small profit chain throughout the day in very volatile markets - the process is known as HFT.
To create a trading algorithm, you will need to assess whether you want to buy or sell, and when you want to do so. You will also need to take measures to help you manage your risks, such as limiting requests and stops.
You can configure a trading algorithm by market, time frame, volume of trading, and timing when the algorithm needs to start running during the day - which can help you seize fluctuations when markets open or close.
2. Technical Analysis Strategy
The trading strategy with a technical analysis algorithm is based on technical indicators including the Bollinger bands, the stochastic oscillators, the MACD, the relative strength index, and many others.
With this strategy, you will create algorithms to act against the criteria of these technical indicators, such as closing centers at high volatility levels.
To create a technical analysis strategy, you need to do research and be ready to use different technical indicators. For example, you can create algorithms based on the Bollinger bands to open or close trades during highly volatile times. Your procedure, whether to open or close, depends on your attitude to risk, and whether you have a buying or selling position in an up or down market.
With a technical analysis strategy, your focus on price is lower, while you are increasingly interested in using technical indicators or a combination of technical indicators to run your purchase and sale orders.
3. Complex Strategy
The combined algorithm trading strategy uses both the price movement strategy and the technical analysis strategy to identify potential price movements. Thus, algorithms may enter into purchase or sale orders based on this information.
To create a composite trading strategy, you will need to analyze past price movements in the underlying market. This means understanding the different technical indicators and what they tell you about an asset's previous price movements.
In the compounded strategy, you must determine whether you want to buy or sell short, and when you want the algorithm to do trading during the day.
You can configure the combined strategy by market, time frame, volume of trading, and various technical indicators that the algorithm is designed to use.
Frequently Asked Questions
What is the difference between automated and algorithmic trading?
The difference between automated and algorithmic trading is open to interpretation because some people use the terms interchangeably. However, automated trading usually refers to the automation of manual trades (i.e. making them automated) through limit and stop requests, which may automatically close your positions when they reach a certain level, regardless of whether you are on your trading platform or not.
On the other hand, algorithmic trading usually refers to the process through which traders will build and improve their own formulas and codes to inspect markets and enter into or exit trades according to current market conditions.
What are some algorithmic trading strategies?
There are many algorithmic trading strategies to choose from. Most traders choose a price movement strategy or a technical analysis strategy, but some traders combine the two.
The price mobility strategy uses price data from pre-market opening or closing along with high or low market levels to create later trades when reaching these price points again. The technical analysis strategy is based on technical indicators to analyze charts, and algorithms will interact according to technical indicators, such as high or low fluctuations.
What are the benefits of algorithmic trading?
Algorithm trades have many benefits. In particular, the use of emotion algorithms removes trades, because algorithms interact with predetermined levels and may do so even when you're not on your trading platform.
Other advantages include the time you save, the fact that you can react to price movements faster than manual trades - ensuring you get the best price - as well as redefining and testing past data, helping to ensure that your algorithms perform at optimal levels.
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