Algorithmic Trading

Algorithmic Trading

Algorithmic Trading

We all know trading can be stressful. It’s a well known fact that our emotions affect our judgment – that’s why it’s not recommended to trade when you’re under heavy emotional influence. Luckily, scientists have developed a reliable method that can nullify the human factor. In other words, with a little help from technology, sometimes you can simply turn the autopilot on when trading. The rest of this article will be talking about algorithmic trading and automated trading systems, and that’s something every trader should be informed about. Read on!

Algorithmic Trading | Definition

Algorithmic trading is a trading system that utilizes complex mathematical models for making transaction decisions in the financial markets. It’s a mathematical way of determining the optimal time for an order to be placed that will cause the least amount of impact on a stock’s price. Things usually go like this: algorithms divide large blocks of shares into smaller lots. This allows more complex algorithms to make an efficient analysis and decide when the smaller blocks are to be purchased. Algorithmic trading is commonly used by large institutional investors due to the large amount of shares they purchase every day, but it’s also a pretty common trick among regular binary options traders. If you want to know how this type of trading can help you achieve profit, keep reading!

Algorithmic Trading | Automated Trading System

As we have already stated, trading can be really stressful. If you use algorithmic trading, this is something you shouldn’t worry about because trading robots don’t need to cope with their Trading Fears and they won’t have an uncontrollable desire to regain losses. Sure, you can always improve your trading by learning to work with some analytical tools (such as Oscillators or trend lines), but the emotional factor is the one that separates humans from robots.

Automatic trading systems are supposed to always pick the most favorable conditions among hundreds of financial assets. They make deals within fractions of a second and reduce the risk of manual errors in placing the trades. Many trading strategies are used in algorithmic trading, and we will name just some of them here. The most common are the ‘trend following strategies’, where the trends in moving averages, price level movements and related technical indicators are followed. It’s the simplest strategy because it doesn’t involve any predictions or price forecasts. The ‘index fund rebalancing’ strategy has defined periods of rebalancing to bring their holding to the same level with their respective benchmark indices, in order to make profitable opportunities for algorithmic traders. Besides the two, algorithmic trading offers many other options to explore.

Keep in mind, however, that these are only pieces of software and will ALWAYS do as they are programmed. They cannot think for themselves, which can sometimes result in mistakes, so be careful how you use them.

Algorithmic Trading | Conclusion

In conclusion, we can only repeat that in some cases it can be very smart to let the computer run the show. It doesn’t mean that you don’t have any influence on trading because you’re the one that directs the computer. Algorithmic trading uses many different strategies and can be useful in many different trading situations. However, don’t think that you can just turn your robot on and get it right every time. Robots can be a useful tool, but you shouldn’t base your whole strategy around them. They haven’t surpassed human intelligence yet.

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FURTHER READING:

1. The Ascent Of Money: A Financial History Of The World (N. Ferguson, 2008)
2. The Little Book That Beats The Market (J. Greenblatt, 2006)
3. Japanese Candlestick Charting Techniques (S. Nison, 2009)
4. Cybernetic Analysis For Stocks & Futures (J. F. Ehlers, 2004)
5. Conclusion: The Future of Binary Option Trading (A Cofnas – 2012)

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Author: Ben Prescott
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