Ultimate guide to algorithmic trading strategies

Where to start algorithmic trading

Algorithmic trading strategies

Algorithmic trading uses computer codes and chart analysis to enter and exit trades according to set parameters such as price movements or volatility levels. Once the current market conditions match any predetermined criteria, trading algorithms can execute a buy or sell order on your behalf. This can save you time scanning the markets, and it means that your trades are executed almost instantly. We also offer advanced technical analysis and charting tools to make algorithmic trading easy for you, whether you want to build and fully customise your own algorithms or use off-the-shelf solutions.

Why use algorithmic trading?

where to start algorithmic trading

ProRealTime is designed to make building algorithms easy, and it is recommended if you want to create, test and refine your own algorithms. This means your algorithms will operate according to your exact specifications while running on the ProRealTime platform.

Learn more about ProRealTime For pre-made algorithms MT4 is a tried-and-tested trading platform, with a large community of users who are actively creating and refining trading algorithms.

These are easily available to you on the MT4 marketplace, from which you can download pre-made algorithms.

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Because of this, MT4 is usually preferable if you are looking for off-the-shelf solutions. MT4 is known for its indicators and add-ons, 18 of which you get for free when you download MT4 from IG.

where to start algorithmic trading

These can help you with chart analysis, as well as enabling you to fully customise the MT4 platform to your own needs. Learn more about MT4 For building from scratch An application programming interface API enables you to automate trades, build integrations and create trading algorithms and apps using our market-leading CFD technology. Our web API offers you an easy way to get market data and historical prices, plus execute trades on any of your IG trading accounts.

Creating APIs is only recommended for those with a background in programming and coding, because it is the most complex of the options available here.

where to start algorithmic trading

However, APIs do offer the greatest amount of customisation, since you build them yourself from the ground up using coding language such as Java, Excel VBA.

Create live account What are the main algorithmic trading strategies? There are three main types of algo trading strategy available to you.

These are strategies that you can use when building and refining your algorithms, or they can be strategies that you want your off-the-shelf algorithms to be able to implement.

  • Although these free resources are a good starting point, one should note that some of these have their own shortcomings.
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Price action strategy Technical analysis strategy Combination strategy A price action algorithmic trading strategy will look at previous open and close or high and low points on a candlestick chart, and the algorithm would trigger a buy or sell order if similar levels were achieved in the future.

You could, for example, create an algorithm to enter buy or sell orders if the price moves above point X, or if the price falls below point Y. This is a popular algorithm with scalpers who want to make a series of quick but small profits throughout the day on highly volatile markets — a process known as high-frequency trading HFT.

That is what a good algorithmic trader is.

You can configure a price action trading algorithm according to the market, the time frame, the size of the trade and what time of day the algorithm should operate.

A technical analysis algo trading strategy is concerned with technical indicators such as Bollinger bands, stochastic oscillators, MACD, the relative strength index and many more. Aside from the ones mentioned here, where to start algorithmic trading can also build indicators yourself on platforms such as ProRealTime.

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For example, you can create algorithms based on Bollinger bands to open or close trades during highly volatile times. Whether you open or close depends on your attitude to risk, and whether you have a long or short position in a rising or falling market.

A combination algorithmic trading strategy uses both price action, and technical analysis, to confirm suspicions about price action by analysing charts with indicators.

Fortunately, with significant advances in technology, algorithmic trading strategies are now accessible for all types of traders across nearly all major markets and is just one reason this form of trading is becoming increasingly popular.

Algorithms can then enter buy or sell orders based on this information. You can configure a combination strategy according to the market, the time frame, the size of the trade and the different indicators that the algorithm is designed to use. FAQs The difference between automated trading and algorithmic trading is open to interpretation, because some people use the two terms interchangeably.

where to start algorithmic trading

However, automated trading usually refers to automation of manual trading through stops and limits, which will automatically close out your positions when they reach a certain level, regardless of whether you are at your trading platform or not. Algorithmic trading, on the other hand, usually refers to the process through which a trader will build and refine their own codes and formulas to scan the markets and enter or exit trades depending on current market conditions.

  • The Bottom Line Many traders aspire to become algorithmic tradersbut struggle to code their trading robots properly.
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There are several algorithmic trading strategies to choose from. Most traders will choose a price action strategy or a technical analysis strategy, but some combine the two.

What is algorithmic trading?

A technical analysis strategy relies on technical indicators to analyse charts and the algorithms will react to the markets depending on what the indicators show, such as high or low where to start algorithmic trading. Algorithmic trading has many benefits. Most notably, using algorithms removes your emotions from trading, because they react to predetermined levels and can do so when you are not even at your trading platform.

where to start algorithmic trading

Other benefits include the time they save you, the fact that they can react to price movements faster than manual trading — ensuring you get the best price — and the backtesting and redefining which helps to ensure that your algorithms are performing at their optimum levels.

Bear in mind however, that you are still responsible for the positions placed by your algorithmic trading.

Resources to Start Coding Trading Algorithms

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