Effective Strategies for Algo Trading and How to Create Them

Diving into the
all-new world of algo trading can be an exciting experience and equally
overwhelming. There are countless different approaches to develop your own
strategies for successful algorithmic trading. So, if you are a beginner it can
be intimidating as you are unable to assess the risk.To ensure that
you follow the accurate strategies or develop accurate strategies, you can
continue reading to understand a few basic things about the quantitative
trading process. It is essential to improve your understanding in order to
calculate the implications of the strategies.Mean reversionIt is a good
idea to start with one of the most common strategies that work for algorithmic
trading: mean reversion. For example, if
the market shows a huge upward graph in one week, you can bet that the market
won't grow further in the next one month. And you can also expect that the next
month's move will be closer to the average price.The mean
reversion strategy will suggest using one or more of the multiple moving stock
price averages and trade during the average and current price discrepancy. This
will be profitable only when you are doing it in a pair with another stock that
has a consistent co-relation with the particular stock's price. Momentum in algo
tradingAnd here comes a
different strategy for the trading, namely the momentum strategies. The concept
is pretty much the opposite of the mean reversion strategy. Instead of betting
your profit on the price that returns to the same state, momentum strategies
aim to use the profit from the continuation of the same move. • The classic
momentum strategy of algo trading is a
"gap and go" strategy where you have to look for the overnight gapper
and bet on the continuation of the move.• Another
popular style is to look at events or news that will directly trigger the
upward move of the process of the stocks in certain categories.You can even
pair up the news with the overnight gaps to make an advanced strategy.Market makingA strategy based
on the execution of orders can turn out to be profitable. You can deploy the
strategy when a big financial institution or bank is trying to open or close a
position. Instead of making an unfavorable entry or exit prices, these
institutions open or close the position in many different but smaller orders.Although
dividing the orders does not solve the problem, but it will give you the option
for finding the best possible places to invest for algo trading.Calculate and
researchYou cannot
actually stick to a particular strategy in the algorithmic
trading world as the world is too dynamic. Data, statistical calculations,
and continuous changes in approaches can bring massive changes in the stock
process overnight. So, you should prepare yourself through extensive research
and data for the trading.Regardless of the strategies you implement, you
have to apply solid risk management practices for algo trading India. It
is mandatory as the market changes frequently, and you will take time to learn
the influencing factors that trigger sudden upward or downward curves in the
market's financial status.