| June 07, 2021
Algo Trading India | Algorithmic Trading Strategies
Algo trading is on the rise across the global trading markets. Most noticeable is the India Share Market which covers about 50% of overall NSE values.
There are many significant benefits to algorithmic trading (Algo trading) that should be considered by every trader looking for new ways to build their portfolio.
Read the guide below to get an overview of why you should consider Algo trading in India.
What is Algo Trading?
Algo Trading is a computer program algorithm that automatically submits trades to an exchange based on specific parameters such as volatility levels and price movements.
This process uses computer codes and chart analysis to enter and exit trades without any human intervention.
Brief History of Algo Trading India
In 2008, the Securities and Exchange Board of India (SEBI) introduced Algorithm trading allowing brokers to provide their infrastructure with clients; this brought down costs and lessened time spent on routing orders.
It soon became clear to the Indian exchanges that Algorithm trading was welcomed and gaining in popularity.
Today there are many trading platforms and tools available for Algo trading. A trader starting out would need to fully understand the benefits of Algorithm trading before making an informed decision.
Benefits of Algorithm Trading
- Emotion-free Trading
Since Algo trading is based on computer-generated algorithms, there is no chance of human error or emotional trading decisions. Many traders have based their trades on intuition or gut feelings, this is not possible with Algo trading.
- Automated Checks
If you are out of the office or traveling, you can set up your algorithm to perform automated checks and follow your position in the market. Finely tune your algorithmic trading strategies to work on your behalf by implementing stops and limits.
You don't have to work too hard when your Algorithm is working for you. You can sleep well knowing your customized algorithm is on the job 24/7 and will take care of trading for you.
With Algo trading software you can backtest and refine your algorithms against historical data. This will allow you to find the best combinations of parameters to trade.
- More Opportunities
You can choose or create algorithm trading strategies to optimize your exposure to new opportunities in the market. Algorithms are able to take in more data than a human so you can customize based on real-time data.
- Speed and Accuracy
Using Algo trading strategies can help you save time. You don't have to spend time on your brokerage account. The algorithm follows your plan and places the order as soon as the signal is given.
- Transaction Costs
With automated trading, there is no need for human traders to spend a lot of time monitoring markets since the algorithm automatically enters and exits trades. This will help reduce the transaction cost.
Key Strategies for the Algo Trader
When choosing the best algorithm trading strategies, you will need to fully understand the options available. Let's take a look.
Price Action Strategy
This strategy allows a reader to read the market and make subjective trading decisions based on recent and actual price movements instead of relying solely on technical indicators.
Price Action strategy is dependent on technical analysis tools such as charts, price bands, trend lines, and candlesticks.
Technical Analysis Strategy
Traders who use this strategy seek to predict price movements by examining historical data, typically price and volume. Orders are released based on existing indicators or your own created indicators.
This strategy combines aspects of the price action strategy and the technical analysis strategy. Speak to your broker for guidance on Algorithmic trading strategies.
How Algorithm Trading Works
Algo trading can be a complex business. For some traders and investors, it can be intimidating but here are the basics of how Algo trading works.
- Come up with a trading idea
- Make your trading idea into a trading strategy
- Convert your trading strategy via an algorithm
- Backtest using historical data to check the viability
Who Can Do Algorithmic Trading?
Algo Trading can be done by anyone who has the skillset and knowledge needed for this complex trading. You will need to have familiarity with code languages so you can perform the required trade strategy.
You must have access to market data feeds that will be monitored by the algorithm, and you must know how to Backtest.
For those who do not have the technical know-how for Algo trading, find a broker that will help you execute your plan affordably and can provide the best platform with all the latest tools you will need.
Choosing the Best Brokerage
Algo trading can be quite profitable with the correct backtesting measures in place, validation, and risk management techniques. It is very important to have an algorithm trading brokerage that can guide you through the process.
Questions to Ask
Make sure you ask the right questions before choosing your Algo trading brokerage. Here are a few key questions to ask:
1. Does the trading platform allow you to diversify your trades?
2. Is the Algo trading software fast and reliable?
3. Are there any commissions or costs?
4. Do they have a dedicated support desk?
5. What type of programming languages are there?
6. Do they have an in-house development team?
7. Do they offer a customized order management system?
8. What about the latency of the trading platform?
Future of Algo Trading
The global Algorithmic market is expected to grow significantly between 2020-2027. As more companies recognize the advantages of Algo trading, there will be more services and brokerages needed to support the growth in India and other parts of the world.
Start Algo Trading Today
There are many brokerages offering Algo trading in India. Work with a brokerage that treats the customer as their top priority and has the experience you need to make the most of your investment.
One of India's leading financial service providers is the Findoc Group. They offer superior Algo trading services and great customer support.