How Do Algo Trading Strategies Help In Trading?

1. How Do Algo Trading Strategies Help In Trading? Algo trading is becoming popular and is used in many forms of Trading as well as investment activities. Here, a computer is used to monitor and execute trades which generate profits at a speed that is impossible for any human trader to reach. Building algorithmic trading strategies take time, but they offer endless advantages and the peace of mind that makes it worth it.  Reduce the chances of human errors.  It can be backtested to check if it is a viable trading strategy.  Minimize human emotional factors.  Maintains accuracy and reduces transaction costs.  Automatic trade execution without continuous supervision.  Maintains discipline in volatile markets  Improve order entry speed.

2. Algorithmic Trading automatically keeps a check on multiple market conditions and executes the trade automatically at the best possible prices. Implementing an algorithm by using a computer program is all that an automated system does. There are numerous algorithmic trading strategies. So let’s discuss some of the algorithmic trading strategies that are used in Trading: Mean Reversion: Countertrend strategy is another name of a mean reversion strategy. It is the simplest and commonly used strategy. First, this strategy finds out the upper and lower limit of a stock price, and then trades are placed automatically when the price of the stock goes in and out of the specified range. Trend Following Strategies: It is the most popular strategy. As this strategy does not involve making any price forecasts, that’s why it is the simplest and the easiest strategy to implement. They take the advantages of market swings and desire to achieve profit from the existing trends. Volume and Time-Weighted Average Price Strategies: This strategy breaks the order into smaller chunks so that they can execute the order close to the volume-weighted average price. Also, they aim at minimizing the market impact by dividing time between a start and end time. Arbitrage Opportunities: Arbitrage is the process of buying and selling of stock in different markets at higher prices. So, here an algorithm is implemented to identify price differentials that help in placing profitable opportunities. Moreover, this strategy is used when there are price differences in different stock exchanges.

3. Market Making Strategy: Market makers are also known as liquidity providers. They provide liquidity to security which is not frequently traded on a stock exchange. The main aim of this algorithm is to give the market the best buy and sell price quote that is used for matching buy and sell orders.