Algorithmic trading is the most innovative and advanced form of trading in the present world. In this system, trading is done through computers that are assigned a predefined set of instructions, which is called the algorithm, and this algorithm executes the trades for you. This algorithm-based technology makes the trading very fast and accurate without the involvement of any human errors.
When it comes to stable coins there are many algorithmic trading strategies and some are as under.
Trend and Momentum Based Strategy:
This algorithm trading strategy is the simplest and most commonly used for stable coins. They basically track the momentum and trends of the market and then trade is done accordingly. Technical indicators, mostly like price level movements or moving averages, are observed and studied and the algorithm will then buy or sell orders automatically when the conditions of these technical indicators are fulfilled.
There may be a price difference in the securities on different stock exchanges which leads to arbitrage opportunities. Arbitrage strategy is the algorithm trading strategy in which we use arbitrage opportunities using algorithms to recognize the opportunity quickly and then using it for our own benefit.
Mean Reversion Strategy:
This strategy is based on the basic principle that the prices of coins and security may fluctuate, but they do always come back to a mean or average value at some point in time. It is most commonly known as a reversal strategy or a counter-trend.
Weighted Average Price Strategy:
This strategy can be based on time weighted average price or volume weighted average price. This is the most efficient strategy but in this strategy the orders are generally large but they are released in small parts using historical volume profiles or defined time slots somewhere between a start and end time.