| October 11
Algo Trading: A Customized Investment for Future Possibilities
“Why is Algo trading such a hot topic these days in the markets?” asked curious Rajesh while talking to his old friend Anil over a cup of coffee.
Anil has been a mastermind in trading for the Indian markets for the past 15 years and always looks out for evolving technologies to gain profits from the new aged data.
Algo Trading is already controlling seventy-five per cent of the total trades on the Indian markets; how can it not be a big deal for traders and investors like us? It is the present and the future of trading, you should already know about this Rajesh, and if you don’t know, you lack behind in the race, you better buck up, my friend”, clarified Anil.
“Oh, I see! I love to trade, but in these hectic schedules and work, I don’t get time to know about these things in detail, but you have caught my attention for Algo trades after praising it so much. What do you mean by Algo trading?” Is it worth the time and effort? Will you take me through it?
Now the real discussion was about to begin, and Rajesh was very excited and a little nervous in his head to understand the Algo trades, something very new he just came across. Anil, who happens to be have deep knowledge in this area said, fasten your seat belt for the next few minutes as it will be a roller coaster ride for you which will take you to places like never before. Anil rolls up his sleeves to explain the concept further.
He asks Rajesh, have you ever thought you will trade without using your fingers or any manual help. Years back, no one could ever imagine this but today with the advanced technology Algos have made it possible. ‘Algo trading is simply the process of executing the trade orders in an automated manner, in the software without any human help. It is faster to execute, comes with more accuracy and free of emotions’, he says.
Rajesh was already astonished by this information, that the software will trade for you itself, and you are not required to be physically present. He already had many questions running in his mind and wanted to dig in deeper. He asks, “How is that possible and what is the procedure?”
Anil further adds, “Algo trading doesn’t mean free of human interventions. Initially, manual work needs to be done but post that it is free of the tiresome task of manual trading. When we trade manually, we tend to miss many opportunities like the entry and exit points due to volatility, or sometimes we don’t trade due to improper knowledge and the risks. Algo trading helps overcome all these problems.”
“In Algo trading, we can create our own set of strategies and trade according to them. Let me explain to you with a simple example. A stock opens in the market at Rs.100. Now you say you want to trade and buy when the prices go up by 2 per cent, which is at Rs.102. You want to enter the trade at Rs. 102 and keep a target of Rs. 108 with a Stop loss of Rs.99. This strategy will be made for you by the developer in the Algo software, and the order will be punched.”
“Now, the software will work automatically and trade for you according to the parameters set. In this way, any strategy could be made and implemented as per the client’s requirement. That’s not all. Algo software is much more qualified than you think. In addition, if you reach your target, you do not wish to square off and want to add more buying position here as you feel the market is an upside. Even that can be done, and more positions will be added here while stop loss would keep getting trailed as per the condition.”
“This means that the individual will contribute more time in developing winning strategies and less time in executing them. It is a set of pre-defined instructions or algorithms that are punched in the software used for placing the trades in the market. This execution is majorly based on the trading strategy that is backtested on the historical data,” he adds.
Rajesh was utterly blown away after hearing this. “Sounds fascinating!”
Anil takes him through a simple step-by-step process of forming a strategy, coding it with a computer language, backtesting through various ways and then making it live in the markets.
Till this time, Rajesh got ready to try his hands in this new-age technology-driven trading. “What all skills and knowledge should I gather, and what would be the steps of becoming an algo trader?” asked Rajesh to Anil.
Algo trading profession requires considerable hands-on skills to create a successful working model in the market. The following steps cover the set of necessary perquisites by the individual algo trader:
- Develop your programming skills: Programming is required to implement the trading idea developed by the quants. To do this, one must have sound knowledge of computer languages like C++/R/Java/Python. Without this, the process of trading remains incomplete at the execution stage. When your strategy is ready, one needs to learn how to punch in that strategy in technological language to be friendly with the software and do trading for us.
- An adequate amount of trading knowledge and experience: A good programmer will not do much with their knowledge without understanding the financial markets to the core. One must become a profitable trader first and then learn other required parts. We all enter the market intending to make profits. Only a successful strategy will get us profits, and that needs to be brainstormed, which is done with experience and market knowledge.
- Read free resources and books available: With the rising popularity of the topic, there are many resources available on the internet. This includes various blogs, YouTube videos, podcasts, knowledgeable webinars, and plenty of free courses provided by websites like Udemy, Coursera, etc.
- Get some professional help: In the end, it can be cumbersome for a single person to do everything on their own. It would be beneficial to reach out to the market practitioners and brokers who have relevant track records and experience in this field.
Above all, algo trading is a profession that requires ultimate dedication and patience to develop and execute the strategies in the market. As the systems are based on changing prices, there can be significant losses if not done with full proof. A few other challenges can be network issues, real-time price delays, malfunctioning of the computer, and flawed algorithms.
Lastly, we would like to say that our company Findoc is well equipped with all the functions to perform Algo Trades. We are your one-stop solution to overcome all the problems that a regular trader would face in executing such trades. We have in house developers who will make the strategy for you according to your preferences and house software for execution. Our software would be performing trades and making profits for you while you can be busy completing all your other hectic schedules. So what are you waiting for? Pick up the phone and kindly contact Findoc for hassle-free Algo trades.