Today’s market has made it tough to trade discretionarily. Markets are now more efficient, and the way to success is so competitive that the need for accurate tools that observe changes in the market is in demand. This is where reliable algo-trading platforms are required. Excellent trading strategies that record market behaviour and limits that cannot be noticed visually are crucial. Algo-trading is not complex, this is because the things that make successful trades are often the simplest.
So, if algo-trades are successful, then how can traders make it work? Let’s find out, but before that, let us take a quick glance of Advantages of Algo Trading can be.
- Algo-trading or algorithmic trading is popular due to its benefits compared to manual trading. This process is fast, precise, effortless, and efficient. Algorithms are documented beforehand and executed automatically which makes the speed of these trades in fractions of seconds and more practical. Its algorithms can scan and execute numerous indicators bringing more opportunities at better prices.
- With its unparalleled accuracy that avoids pitfalls such as buying the wrong currency pair, or for the wrong price that can occur during manual trade. It also eliminates human emotions, and irrational decisions while carrying out trades within the predetermined criteria.
- Backtesting is another advantage for traders to comprehend and distinguish the parts of their trading system that work and discard past data that cannot run on the system and remove flaws of a trading system before operating it live. reduced transaction costs also help traders to save time monitoring markets, saving opportunity costs simultaneously.
Table of Contents
This is the very essence of every algo-traders business. To find a trading strategy, the following steps are required:
Discover An Idea
Illustrate a trading idea that creates the foundation of your trading strategy. It is beneficial to be creative at this stage. Undiscovered strategies are the most successful. Trading platforms and other online resources are great resources for innovation and inspiring new trading ideas.
After the ideation process, the trader must backtest it. Backtesting is the procedure of putting your idea/strategy to the test based on historical data, to validate or debunk it. For this, the strategy must be programmed on your chosen algo-trading platform.
In the results, if the equity curve is ascending upwards then some level of quantified market behaviour has been detected, which also means you may have found an edge. Additional filters and conditions can be added to increase precision and form a better strategy!
After backtesting, trade can begin only after the process of curve fitting which is complex. Curve-fitting refers to a strategy that creates random market noise, instead of true market behaviour. It resembles gambling since the strategy falls short of an edge. Incorrect robustness testing methods can destroy a trading career because strategies do not make more profits.
Creating the Portfolio
Many traders assume that just one strategy can be profitable, however, all strategies will fall eventually which is why traders must ensure that all their profits are not based only on one single strategy.
Diversified strategies across various markets and timeframes generate smaller risks. While designing your portfolio you will notice how proper strategies can profit your potential. The lesser strategies correspond, the more profit is generated also extending into diverse markets and timeframes.
The only way to reduce the risk of extreme losses is to monitor the order performance every day. Monitoring is a healthy practice for learning and accountability and ensuring that you head in the right direction. Double-check your strategy, management and governance, outputs, uptake, outcomes and impact, and context.
Automatic trading platforms are a boon to traders and checking up on your trading strategies once in a while is very less effort for the huge benefits that the field of algo-trading offers!