An algorithmic trading technique is a type of financial transaction that uses pre-designed trading guidelines to perform orders. It is commonly utilized to trade against human brokers. This type of trading utilizes a PC’s computing power and speed to achieve its goals.
The advantages of an algorithmic trading technique are its ability to improve the chances of winning by developing a better technique and executing it efficiently. It also helps the trader make quick money by reducing the time required to perform their work.
According to industry reports, the global algorithmic trading market is expected to grow at a steady rate of around 18% during the next few years.
Algorithmic trading example
An algorithm uses technical analysis to make informed decisions regarding a stock. They use moving averages and any other indicators specified in the strategy to identify trends and make trading decisions. For instance, if a stock’s 50-day moving average is above its 200-day moving average, the computer can buy 100 shares. The algorithm will sell a stock if the 50-day moving average is below its 200-day moving average.
With a robot, you no longer have to keep track of the market’s prices and analyze charts. Instead, it will scan the market’s moving averages and prices on your behalf. It will then execute the buy or sell orders based on the conditions that it has set. This method can be applied to different stocks depending on your chosen strategy.
Though creating a trading robot from scratch requires you to have development skills, there are still a lot of options remaining. A trading robot or Expert Adviser can also be purchased from a specialized marketplace or ordered from a freelance developer who can code your trading system matching all provided requirements.
MetaQuotes’ MQL5.com is a leading online community for traders and professional developers. It has over 7 million monthly visitors and is known for its unique knowledge base and community. The platform’s developers can sell custom trading solutions and complete freelance orders. Anyone can join the community and benefit from its global freelance service. Most of the time, these developers earn full-time by selling their trading solutions. Over the past years, hundreds of MQL5.com developers have completed over 90,000 orders.
Algorithmic trading profits
Algorithmic trading is becoming more popular among retail and big trading firms as the benefits of this type of trading start to dawn on their customers. However, with the emergence of numerous trading bots known to do more harm than good, it is still important to ask if this type of trading is profitable.
Yes, algorithmic trading is profitable if you can get a couple of things right. These include validating and backtesting the system, as well as risk management techniques and proper risk management. Unfortunately, many people make the mistake of assuming that this type of trading doesn’t work because they use the wrong methods. In reality, this is not the case.
It would sound weird, but the key to profitability is ensuring that your strategy has a high probability of success. In developing or choosing an automated trading system, you can backtest and even forward-test it.
Before you start implementing an algorithmic trading strategy, make sure that you have a positive expectancy. This will allow you to set the system up to trade efficiently and effectively.
Besides being more convenient, automated trading also helps minimize manual traders’ mistakes. These, for example, include the big finger effect, which occurs when a person accidentally enters a trade without knowing it is being made, and the extra zero effect, which occurs when a person enters a position with a larger size.
Where to start?
Various online courses are designed to help students learn about algorithmic trading, such as those offered by Worldquant University, Coursera, and the aforementioned platforms. In addition, some universities have started offering programs in this area.
Through a structured learning program, one can start improving their skills in financial markets. This can be done by developing a knowledge of various financial instruments and their derivatives. One should also be able to analyze statistics and math.
Although one does not need coding skills to start, one should still learn about various languages, such as R, Python, and Excel, to succeed in this field. In addition to understanding financial intermediaries’ multiple roles and responsibilities, one also needs to know algorithmic trading regulations. Various free online courses are designed to help you learn about this subject.
One of the main advantages of algorithmic trading is that it allows you to earn money if the strategy is validated properly. This is a great option for people looking to combine their full-time job with a successful algorithmic trading strategy. You can develop multiple trading strategies while at work, which a computer can execute while you are focused on your day job.