What is Algo Trading? Basics & Strategies by KleverTrade

 

In recent years, there has been a massive growth of retailers in the stock market. Owing to the ease of access and cheap brokerages by discount brokers such as Zerodha, Upstox and others, retailers seem to have an undying hunger for risk. 

 

While the stock market certainly has risks, they can be minimized effectively with a form of trading called Algo Trading. This blog is a guide on what is algo trading, algo trading strategies and all other related info. 

 

Also, to make trading much safer and easier for you, we will let you know the best API for algo trading and the best algo platform later in the post.

 

What is Algo Trading?

 

Algo Trading (or Algorithmic Trading) is the use of computer programs based on a defined set of instructions to place an order and book profits or exit the trade. The speed and accuracy with which the orders are placed are almost impossible for humans.

 

The set of instructions, i.e. the algorithm is based on certain technical factors such as the number of securities, time, price, moving average and many other analysis tools.

 

A simple example to clear the concept of what is algo trading:

 

Let’s say, you want to buy a security at a breakout price from the previous high. You can then instruct the program to initiate the buy order with your desired quantity at any price above the breakout price.

 

For exiting the trade, you can either target the next resistance or choose a percentage of the buying price to exit at. This is what algo trading looks like.

 

Benefits of Algo Trading

 

Now that we are familiar with ‘what is algo trading’, let’s move on to the benefits. Here are the benefits that have made algo trading so popular.

 

• Trades are executed with the greatest efficiency and perfection.
• Since price fluctuations in the stock market occur within seconds, algo trading makes it possible to initiate trades at the desired price instantly.
• One of the major benefits of algo trading is that it prevents human errors and psychological biases while executing trades.
• Last but not least, algorithms can keep a check on more than one market condition and securities which is practically impossible for a human mind.

 

Algo Trading Strategies

 

Algo trading strategies are based on past trends, size, quantity and several other technical indicators. Since the strategies are based on a higher volume of back-tested data, there is a high probability of them being accurate.

 

Several strategies can be put to use to maximize profits and reduce operational costs in algo trading. Here are the most commonly used algo trading strategies:

 

·        Trend-based Strategies

 

One of the most common algo trading strategies is the trend-based strategy. Since the stock prices follow patterns and trends and other technical indicators, they can be easily predicted and implemented through algo trading. 

 

• Arbitrage Strategies

Arbitrage strategies refer to buying a stock that is listed on dual markets. The stock is bought at a price from one market, say X and is sold at another market say Y at a higher price. The difference gives a risk-free profit. This is also a common algo trading strategy.

• Mean Reversion

 

Several stocks trade at range-bound prices. In such cases, the high and the low of those prices are just deviations and it is only a matter of time before the stock price returns to the mean price.

 

Identifying the price range and creating instructions based on it allows the algorithm to make trades automatically. This is called the mean reversion strategy.

 

• Volume-Weighted Average Price

 

The VWAP strategy aims to executive orders close to the VWAP price. In this strategy, large orders are broken into smaller chunks so that they can be executed as close as possible to the VWAP price.

 

• Delta-Neutral Trading Strategy

 

Another common one among the algo-trading strategies is the Delta-Neutral Trading Strategy which is a mathematical-model based strategy. Portfolios which have the delta-neutral offset are immune to changes in the stock price fluctuations in either direction.

Although it is practically impossible for humans to manage delta-neutral strategies in the portfolio, algo trading can easily automate it.

 

How to Write Algo Code for Trading?

 

Although it may sound difficult, anyone with knowledge of the stock market and computer programming can write an algo code. Here are brief steps to write algo code for trading.

 

• To begin writing a code, you need to choose an API. KelverTrade offers one of the most intuitive and dynamic APIs that offers seamless algo coding for trading.
• Next, choose the securities to trade in. You must have a trading account for this.
• Choose the strategy or select from KleveTrades range of backtested strategies.
• Code the entry and exit strategies and you are all done.

 

Writing algo can be quite challenging, especially if you do not know computer programming. Thus it is best to choose the algos offered by KleverTrade. With back-tested data and proven results, this is your perfect choice to book sure profits.

 

Best Algo Platform

 

Looking for the best algo platform to begin algo trading? KleverTrade is your perfect option. With an intuitive UI, back-tested and proven algo strategies and advanced trading platforms, get ready to experience trading like never before.

 

Available on smartphones and PCs, KleverTrade is here to revolutionize algo trading for the better.