Investing using Algo Trading

Today, there are many methods to invest your money. On the other hand, there are many options for investing money from mutual funds to IPOs.

Traders require lot of things such as tolerance, dedication, flexibility etc. Further, a successful trader needs to account many parameters by not losing concentration. Most traders get affected due to the things like market volatility, emotional and psychological factors or sometimes, just by pressing the wrong key would lead to dangerous situation.

In today’s cost-conscious and competitive trading environment, these mistakes are considered to be very costly. The advancements in trade technology have now reached a stage where they can be easily unavoidable. With rapid evolution of technological changes, the way we trade in the stock market is slowly undergoing a change too. One of the innovative methods of trading is Algorithmic trading, it has revamped the stock market trading. Since its inception by SEBI in 2008, it has been welcomed with open arms by the trading community and is now a mainstay with around 50% of the stock market trades executed through algorithms.

Majority of the traders would lose money while trading in options owing to market speculation, emotional trading and lack of risk management. When options are traded algorithmically, it is known as algorithmic trading. Unlike automated trading techniques, algo-trading is more perceptive to changing market scenarios. This brings about a systematic order to the options trade, generating a better liquidity position on the market. However, the risk still remains. Selecting the right strategy for the market conditions is the biggest hassle.

To create a trading strategy, all you need is to have a strategical trading idea. Additionally, you need to write an algorithm by describing your idea as well as the conditions for execution. Also, you must ensure that your strategy is feasible and you would not lose much if it goes nonfunctional.

Backtesting Strategy

Backtesting means the process of testing a trading strategy on historical data to assess its accuracy. Technical traders often use this to test the trading strategies to find how it is likely to perform in the real market. Though, no funds are invested in reality.

According to the NIFM report, around 50% of the total orders in the Indian stock market are executed through algo-trades. With this, it is important to understand that algo trading might have an impact on trading activities even if you don’t use it.

Trading strategies built on statistical and mathematical models have historically offered higher returns than their benchmarks and mutual funds. But selecting the right strategy is what makes the entire process difficult.

Why Should You Consider Algo Trading?

  1. Automatic Trading, no manual interventions are needed.
  2. Allows executions of large volumes and parallel processes to be traded simultaneously.
  3. Traders can make incorrect analyses, but algorithms run with perfect accuracy.
  4. Faster and more precise reaction response to market movements
  5. Pre-formulated strategies with no room to get affected by their emotions.
  6. Ability to apply trading rules to historical market data to determine trading strategy viability.
  7. Allows traders to use multiple strategies and accounts at once to spread the risk across various asset classes, strategies and investment instruments.
  8. Does not require constant monitoring yet it is being constantly monitored via the algorithm

Experience the Algo benefits yourself

The market is constantly moving, and a human trader cannot hope to match the pace. Algorithmic trading will make sure that your trades are executed at the best possible price, with the least slippage and maximum profit. There are many available software platforms which offer different features. While it may be a bit overwhelming for a new trader to understand and implement these strategies, the experts at Chatur Wealth can help you get started and guide you to sustained success in the markets.

About the Author

Devesh Chawla is the Founder & CEO of Chatur Wealth & Chatur Ideas

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