Algorithmic Trading: What Is It All About?

Trading could get complicated at time. I know it’s not the first time you hear that.

If you ask the gurus out there they would tell you the same thing unless they’re looking to make profits off of you.

Not every day would be in your advantage, there’re some good days and some bad ones. You may even have to rely on your luck sometimes.

If you’ve been following my blog religiously you should already have a good idea as of how difficult it is to trade successfully.

Nonetheless, with the help of some tools that are available to us we can do pretty good, given that we know how to utilize them correctly.

Depend on the type of tools you’re using you may still lose money if you’re not using them appropriately. But if you do use them the way they were intended to be used they should at least make you happy.

If you happened to read my last post you may have seen that I’ve promised to write my next post about the use of algorithmic trading.

I’m doing my best from now to keep my promise to you guys. When I say I’ll write about something next you can trust on that.

For this reason I chose to write this post for you according to what I’ve shared with you from the previous one.

By the way if you’re not a subscriber to this blog I suggest you do that right now because you do not want to miss out on notifications of our new posts.

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Like I say previously, there are so many tools that can help you to be a better stock trader, but this post’s focus is on algorithmic trading. Let’s get to the point…

What is algorithmic trading?

We usually hear traders talking about this type of trading but they never give us a definition to it. Unless you look it up for yourself you most likely won’t hear its definition from other traders.

It’s a ¬†mathematical model that’s has the ability to analyze every quote and trade in the stock market as well as identify liquidity opportunities.

After having gathered all those information and more, they are used to make trading decisions for us traders.

You may have heard people refer to it as the algo or blackbox trading. either you hear algorithmic, olgo, or blackbox trading they all mean the same thing.

It’s a system used in trading that utilizes some very complex models to make transaction decisions.

It’s a good system because with its usage a trader can have a better day trading knowing that his or her transactions are being made as accurate as they could ever be made.

No trader can predict better than an algorithmic trading system. It’s totally impossible to find that.

This is a great system specially for those who find it difficult to control their emotion. If you’re some one who’s having emotion problems while trading then you should consider its usage.

It’s a nice computer based system which is programmed to receive your orders, with the use of an algorithmic it is able to execute those orders in the very best time possible.

Algorithmic trading is mostly use by large trading institutional investors since they usually have to deal with very large number of shares.

This system ease their job by enables them to execute their orders with more certainty that they’re not going to lose it all if the day is not going to be on their side.

But if it’s a good day they can also make a lot of money too. There’s always two sides in trading as you may have already known. It does not mean it’ll necessarily change with the use of algorithmic trading.

According Tata Consultant Services¬†¬†“An algorithm could, for example alert a trader if a news is released on a company X and if the company stock rises or falls by say one percent in the value of that stock within five minutes”.

It’s a great feature of this system to be able to now about the news as soon as they’re released. This itself also give you time to conduct your own research before placing your orders into the algorithmic trading system.

Remember that stocks move on news, if this software is able to know when there are great news as well as bad news released, it can definitely make some good decisions for you.

What are the down sides of algorithmic trading?

Mechanical failure is a concern when using algorithmic trading. Remember it’s all done through a computer software and it’s an automated system.

Computers do fail sometimes, this system is not an exception to this rule. We cannot always trust our computer 100% or else we might be in trouble.

Observation is still required although this system is working automatically. You may think that once you put your orders in you good to go. In reality it’s not that simple, you do still have to monitor the system to ensure that everything is working fine.

In case of a computer crash, glitch or a power outage, you would want to be next to your computer to find an alternative to resolve the issue.

To conclude, algorithmic trading is a nice software which enables us to trade more successfully. It allows us to diversify our trading through various trading accounts or strategies which we would not have been able to do alone.

Unfortunately, we do have to keep an eye on it because it requires our monitoring. This is the one of the very few bad sides of algorithmic trading.

Other than that, it’s a great software to help you to be as successful as you can be trading stocks.

Have you ever use algorithmic trading in any market? If so how was it for you, would you refer your friends or family members to use it?

Please share your thoughts with us.