Algorithmic Trading: How To Trade Like a Real Pro
As you gain more experience in trading and learn how to trade successfully, you might feel like it’s time to take your trading to the next level and get even more profits. Fortunately, there are many ways to achieve these goals, and one of them is algorithmic trading. In this article, you’ll learn algorithmic trading, how it works, and what to do to set this strategy up and multiply your gains.
What is algorithmic trading?
Algorithmic trading, also known as automated trading and algo-trading, is an advanced trading strategy that relies on computer software and advanced mathematics to find trading opportunities and execute trade orders. Algorithmic trading programs follow a set of rules (an algorithm) that a trader enters into the program, which prompts the program to open or close a trade if certain market conditions are met.
Algorithmic trading is mostly used in stock and currency markets, including Forex and cryptocurrencies. As for its application, algorithmic trading is prevalent in intraday trading, particularly in scalping, as it requires making a lot of trades in quick succession.
How does algorithmic trading work?
When it comes to algorithmic trading, it is the computer that makes key trading decisions. The only thing that traders need to do is define trading instructions. In order for automated trading software to work, a trader needs to determine timing, volume, entry and exit points, stop-loss levels, and other parameters required to make new trades.
After the preparations are done, traders don’t need to be involved in the trading process. From that point on, it is an automated trading software that monitors the price movements, analyzes the market, and places trade orders once all conditions provided by the trader are met.
How to set up algorithmic trading?
- Create an algorithmic trading program or choose an existing one. Traders who know a thing or two about coding can make their own software tailored to their specific needs. But if you don’t have the skills to do this, you can use software built into the trading platform of your choice.
- Make sure your connection is stable. A stable Internet connection is crucial when it comes to trading, and algorithmic trading is no exception. If your connection is unstable, there is a very high chance that even orders sent by your automated trading software will get delayed. This can lead to slippages as the price rarely stays the same for long, which can reduce your profits or even make your entire trade fall through.
- Make a trading plan and define the trading rules. Before starting trading, creating a trading plan and entering the required parameters into your automated trading software is important to protect your trades from adverse market moves.
- Backtest your strategy. The last thing you should do before launching the software is test the algorithm. This can help you see if your strategy works and adjust it if something is wrong.
Algorithmic trading: advantages and disadvantages
No emotions. Traders often get attached to their positions, which can get in the way of making successful trades. Algorithmic trading programs eliminate emotions from trading and execute orders strictly following premade instructions.
Lack of flexibility. Automated trading software follows a set of instructions. This can be detrimental in highly volatile markets as the prices move too quickly and unpredictably, making it impossible for the computer to make profitable trades.
Fast execution. Unlike humans, computers can process information in the blink of an eye and send trade orders much faster than traders ever could.
Technical issues. Even though automated trading programs can run 24/7, connection issues can still interrupt their work.
Precise calculations. Computers are machines, so they don’t make calculation errors; the same can’t be said about humans.
Saves time. Traders don’t need to constantly monitor their positions if they use algorithmic trading. Moreover, trading software can also run 24/7 and make much more trades than an average trader.
Start trading like a pro with FBS
Are you thinking about switching to algorithmic trading? Then you can check out the new account launched by FBS: a Pro account.
The Pro account has been created for experienced traders who want to make the most out of each trade. It offers a wide range of CFD-based trading instruments, including 36 Forex pairs, eight metals, three energies, 11 indices, 127 stocks, and five crypto pairs, which gives traders an excellent opportunity to diversify their portfolio.
But most importantly, the Pro account supports algorithmic trading and offers a variety of benefits that can make using this trading strategy easier and even more profitable. With tight spreads starting from 0.3 pips and no limit on open orders, you can set up complex automated strategies for trading significant positions without worrying about costs. In addition, lower margin requirements will give you more control over your positions and help you reduce the risks. And a new upgraded VPS with 4GB RAM/2 CPU/60GB SSD is just what you need to ensure the smooth execution of your trades even when you’re offline.
The Pro account is supported by both MetaTrader 4 and MetaTrader 5 trading platforms, so make sure to use this fantastic opportunity to make the first step towards becoming a real pro and take your trading experience to the next level.