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What is Algo Trading? Expert decodes important factors for successful Algo trading
Algorithmic trading is now used by most traders and it has the potential to change the way traders trade. The process of Algo trading uses computer codes and chart analysis to enter and exit trades without any human intervention.
What is Algo trading? Well, it is simply process of executing the trade orders in an automated manner, in the software without any human help. Algorithmic trading is now used by most traders and it has the potential to change the way traders trade. The process of Algo trading uses computer codes and chart analysis to enter and exit trades without any human intervention.
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Hemant Sood, Managing Director, Findoc Group and Angel Investor in Start-ups feels that one can create one's own set of strategies which are punched in the software and are traded by the software itself according to pre-defined parameters. Sood also decodes the factors, which are necessary for successful Algo trading. They are as follows:
1) Successful and profitable strategy - The first basic step to become successful Algo trader is to have a successful and a profitable strategy. Sood notes that the strategy will be made with the help of professionals based on the investor’s requirement, risk profile and expectations from the investment. There are n number of strategies like Delta- Neutral and Scalping which would be developed and back tested.
2) Back testing - One of the most important factors to become a sucessful Algo trader is back testing. Sood explains that a strategy is created, back testing will help in analysing the strategy in details to overcome any technical or theoretical errors. Furthermore, back testing would lead to strategy optimisation; it would give a certain idea regarding the volatility in the market, entry and exit points and various others parameters. He added, "Strategy optimization would ensure high level of accuracy and an investor could generate high amount of profits. Consequently, it could be said back testing a strategy and reaching strategy optimization will make successful Algo traders."
3) Multiple profit strategies - Sood reminds that when one strategy is back tested and turns out to be profitable, it is not necessary that it would give the same outcome in the current market. Most Seasonal traders realised that many of their profitable strategies are not working for them and are being used against them. Therefore, it is always better to have multiple strategies than just one in your portfolio. Increased number of profitable Strategies will lead to diversification and can also help to compensate for any loss-making strategy.
4) Discipline - Sood believes that discipline is the key to be successful in any field whether in your daily lives or the Stock Market. Algo traders need to do the same. It must be remembered that the traders should suppose on their feet and should be very particular regarding their entry and exit points, while forming the strategy as they cannot have enough money to slack around.
5) Specialise in studying the market - The Managing Director of Findoc Group feels that a trader needs to specialise in studying the market in details, for instance, how the market movements are taking place, how the developments work and other factors. proper research has to be done before entering Algo trading. Sood writes, "Algo Buying and Selling permits Investors to construct Strategies more effectively with the usage of diverse modeling Techniques, gadgets, better risk management and so on. This helps them gain an amazing hold into the Market."
6) Learn from failures - Sood advises that needs to Learn Lessons from his/ her failures. He says that successful traders tend to learn from their failures. They are more likely to make more profitable trades than those have no previous experience. In other words, traders just keep on trying better and better.
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