What is algo trading? Can you really automate your crypto or stock income? – Life Hack for Traders
Hello Life Hackers.. Ever wondered if you could automate everything with a robot?
Our dreams come true… May be a lot later !
Well.. We cannot automate everything like THE JETSONS ! But we are almost there…
So… We’ll see about algo trading here.
I’ve been trading for past two years and I have seen that it is easy to profit from swing trading equities if you learn the basics right…
But when it comes to intraday trading I don’t think it is possible for everyone to be emotionally strong. So in order to have consistent profits every month, I thought of giving algo trading a try!!
So, What is algo trading?
Algo trading in simple words, is just automated trading where we give trading instructions to the computer either by directly programming them or through software that is already programmed for us. Then it follows the instructions and trades for us without some or any human intervention.
You can trade all instruments like crypto, forex, equities, options etc.
You can also change the variables in your trading instructions like entry time, price, volume etc. So that is the simple definition of algo trading. And that will be YOUR trading strategy.
Now, let’s move on to…
The first thing is backtesting which is you need to backtest a strategy before giving the computer the instructions because it can’t think and take action according to the market conditions so this is mainly important for algo trading. That is why most of the algo trading platforms out there provide backtesting features so that you can backtest and deploy them in their platform itself.
Another thing is discipline that is it is easy for our computers to follow the instructions as there are no emotions attached. So we can expect the software to do disciplined trades.
Next is the speed. Computers can execute the orders at high speed when compared to manual trading and another thing is you can also deploy multiple strategies and um to multiple assets at a time which is not possible in manual trading as we cannot concentrate on multiple trades at a time.
The main advantage actually is consistency since algo trading involves no emotions there will be no over trading. So, it is highly consistent.
Also, lesser transaction cost, that is you can reduce the brokerage fees and other charges so obviously lesser transaction cost.
Now moving on to …
The first thing is dependence on technology. There should be no problem with your internet connection in semi automated trading and no server issues in fully automatic trading.
It is also prone to mechanical failures like power cuts and system problems and depending upon the level of automation, you may need to give approval and keep monitoring for system issues every time.
When it comes to pricing there are both limited free features and paid features. though in forex there are completely free strategies.
Another thing is we need to be very accurate while back testing as it doesn’t understand irregular market conditions.
The major drawback is that it only minimizes the emotions, it doesn’t completely remove the emotions. As we can change the instructions anytime so that is also there.
Loss of human control. We cannot tweak our strategies according to the market conditions uh like a sudden spike etc
So that is that um that software cannot do that and the major setback is we need to learn the programming process or the software who need to deploy the strategy.
I also came to know that in some countries it is not legal to do algo trading so check with your country’s regulations.
Not all strategies can be automated that is it is difficult to set up a strategy in price action trading that is in setting up your entry conditions and exit then so that is also so keep these points in mind.
Now moving on to…
There are many platforms out there like in
India you can use Zerodha streak, Tradetron etc.
When it comes to forex you can try meta trader.
The lessons I have learned so far while testing algo trading are …
The first thing is do not run your software all the time as the market moves in alternate cycles of trend and range so it might lead to more failures so the time where the momentum is high should be preferred like opening time and like closing time or a particular session.
I have tested a few strategies so far, but none of them gave profits every month. Maybe that’s how it is or we should change the variables I guess. So you should save up some of your profits to compensate your losing months.
So I will update you on that and the most important thing is to not let your emotions interfere in algo trading . As we might feel the need to stop or change the strategy according to our emotions so that should be taken care of.
SO, IT IS NOT ADVISABLE TO START ALGO TRADING UNLESS
You understand the risks involved,
Are able to manage your money and emotions,
Backtested your strategy which works well according to your money management plan.
So that’s it for now.
Hope you found this article useful. I will learn more about algo trading and update you on my journey till then, happy automation!
Check out this youtube video…