Algo Trading is based on the principle of using automated programs to perform trading instructions according to some preset variables. These preset variables can be the time of executing orders, at which price the orders must be executed and the volume of financial instruments to be bought or sold. In comparison with humans, algo trading has the advantage of speed and is less prone to error, this is why they are so famous. Since the start of the 21st century, algo trading has been graining lots of grounds in retail trading and institutional trading. Investment banks and hedge funds make use of algo trading platforms to facilitate their financial trades that are too fast for human traders to react to.
A 2019 study proved that over 90% of trading carried out in the Forex market was performed by trading algorithms, not human traders. There are a variety of trading strategies employed by algo trading systems, using financial math formulas to analyze financial charts. Amateurs are said to depend more on algo trading than trading themselves because they are less experienced in trading in certain markets. While experts focus more on trading by themselves, they'll be solely responsible for their actions, which they believe earn them more than algo trading. For amateurs coming into the financial market to trade and make money, algo trading is the platform they choose to engage in while they learn the art of trading themselves.
Trading with algorithms deals with the trader tinkering with complex math systems, this kind of trading is believed to be more accessible than human trading. That belief is not true because before you excel at algo trading, tons of strategic instructions must be supplied to the system for it to follow. If you don't learn the dynamics of trading, what to do in certain market conditions, you can excel at algo trading. Algo trading can manage numerous trades at once, this is impossible for any human to carry out. Eliminate human emotions associated with staring cowardly at favorable trading opportunities or the greed of wanting more when it's enough.
How to Learn About Algorithmic Trading:
There are lots of books written about how to trade with algorithms and study more than 20 of them. Keep a trading journal about your thoughts on algo trading strategies, how each simulated trade is executed, and study it frequently. A way to start algorithmic trading is by developing a trading idea that will be quickly understood by the system, the concept must be simple. Define the logic of your trading idea for the computer to understand, stating the entry, exits, takes profits, and stops with clarity. Perform several backtests before engaging it in live markets to eliminate hidden errors that are not noticeable.