Algo Trading Systems use algorithms to generate BUY - SELL signals.
A computer program is programmed
to specific trading strategies. It generates BUY - SELL signals based on these strategies
and predetermined guidelines that are programmed within the algorithms.
Algo Trading Systems take into account anything from technical analysis to very advanced
mathematical calculations. Once the Algo Trading System is completed, traders can take a hands-off approach to trading,
as the computer takes over the trading decisions. It is attractive to traders because it
takes the emotion out of trading, which can frequently impact trading decisions.
Algo Trading uses a computer program that follows a defined set of instructions (an algorithm)
to generate a BUY or SELL signal. Algo Trading makes trading
more systematic by ruling out the impact of human emotions on trading activities.
Using complicated instructions, a computer program will automatically monitor the market and signal the BUY or SELL signals
when the defined conditions are met. The most common Algo Trading strategies follow stochastics, moving averages,
and technical indicators. These are the simplest strategies to implement because these strategies do not involve making
any predictions or price forecasts.
Advantages of ALGO Trading Systems
One of the main advantages of Algo Trading Systems is the absence of emotion. Removing emotions
from trading helps the trader not make irrational decisions and stay true to their trading system.
Traders also won't second guess themselves. It enforces discipline at all times, which is especially a key in times of volatility.
Algo Trading is widely used by investment banks, pension funds, mutual funds, and hedge funds.
However, it is also available to private traders using computers and retail trading systems.