Algorithmic trading is a trading approach that uses computer programs to execute trades based on predefined rules. These rules are based on things like market price, volume, or time. The main goal of algorithmic trading is to improve trading efficiency, make profits, and reduce human emotional involvement in decision-making.
Predefined Rules: Traders set specific rules based on technical indicators or statistical models.
Execution Speed: The system can make trades in milliseconds, reacting quickly to market changes.
Data Analysis: Algorithms can quickly analyze large amounts of data to spot trends and make decisions.
Speed: Trades are made almost instantly, taking advantage of quick market changes.
Accuracy: Automated systems reduce the risk of human error in placing orders.
Emotion-Free Trading: Algorithms don’t get swayed by emotions, which can affect human traders.
Cost Efficiency: While setting up the system may be expensive, algo-trading can save money in the long run by executing lots of trades efficiently.
Back testing: Traders can test their strategies on past data to see how they would have performed before using them in real trading.