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Introduction to Algorithmic Trading and Tips to Get Started

Algorithmic trading relies on specific computer-based programs. They operate on traders’ behalf making it possible for the algo trading software to open and close automated trades. To get started with algorithmic trading strategies, you are supposed to be familiar with specific computer technologies and technical approaches.

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If you are new to these techniques, you should be ready to master them. In this article, we will explain the main principles of using automated trading software as well as everything you might need to use in your daily investment routine.

Getting Started with Algorithmic Trading

To get started with algo trading software, you need to have a well-established strategy. What’s more, you will need to apply specific technical and financial skills to make your trading approach as efficient as possible depending on the market conditions.

When the strategy has been worked out, one needs to consider the following parameters:

  • Algo Trading Software. A user will need several baseline technical options. They involve reliable and efficient hardware. Make sure you have an up-to-date laptop or PC with expanded capability. Secondly, you will need remote server hosting, a stable Internet connection, and cloud storage to keep your data safe and easy to recover, if needed.
  • A Trading Platform. The best option is to select a trusted broker with an already built-in trading platform. Additionally, you might need some niche-specific data, such as market insights, technical analysis, and news. Algorithmic trading strategies heavily rely on data a platform can generate in real-time.
  • Capital. Trading capital always matters despite the approach you use. The size of your capital depends on your trading goals, plan, and money management strategies you use to keep the balance safe.

Skills. Automated trading requires specific technical skills and computer-based knowledge to configure the strategy accordingly.

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Choosing the Algorithmic Trading Software

Generally, the strategy considers using specific trading bots. To get the best-matching one, investors have 3 baseline options:

  1. Develop a robot yourself. Many trading robots are available as APIs, which means anyone with coding skills can change and customize them to meet the strategic needs. The main benefit here is that users gain complete control over the robot’s functionality. The key challenge is that this option considers you are an experienced programmer.
  2. Use ready-made automated bots. The second option provides more freedom for non-technicians and beginner traders. They do not have to code or learn specific technical things. Advanced trading platforms like MT4 provide enough functionality to develop, test, and run different strategies on autopilot.

The main benefit about using ready-built bots is the ability to apply them instantly, as no coding is required.

Key Features every Algorithmic Trading Software Should Have

To make the most of your automated trading strategies, you need to keep an eye on the following features.

Software Customization

Initially, all bots provide the same functionality. It relies on a 50day moving average. However, some traders can experiment with algorithms to benefit from satisfying results even if the average crosses the 200-day point.

Some may want to adjust different parameters, for example, a 20-day moving average with a 100-day average. Make sure a chosen software delivers enough room for customization. Otherwise, you will be limited with trading options. The lack of flexibility appears to be the main problem of some automated trading software.

Plugins and Add-ons

If you are familiar with C++, Python, or other programming languages, you can easily build and integrate your own technical add-ons to improve the approach.

Backtesting Features

Backtesting is a crucial feature that helps you test and run your strategy under real market conditions before actually entering the market. The method uses historical-based data to show how your approach will work out in the end. It will help you make necessary changes and add configurations if needed.

Series of Inputs

When the testing phase is over, you can conduct the list of baseline inputs and criteria that will define how the bot will act when specific market conditions are triggered. The key to success here is to understand how to make your strategy as effective as possible.

Preparation is also very important. Apart from a good understanding of how the market works and moves, one needs to do research as the only option for successful trading strategy modeling.

If that sounds too complicated, beginners may start with some simpler and more intuitive trading approaches. For example, copy trading provides automated tools to develop your strategies on the go but still trade following a professional investor with a good track record of successful deals. It will prevent you from failures and losses when getting started. What’s more, you will have a better understanding of the underlying financial market.

The Bottom Line

Algorithmic trading is a good way to automate your approach and benefit from hassle-free order execution. The approach requires some computer knowledge unless you use ready-built trading robots. The main benefit of algo trading is the ability to configure and set a chosen strategy in accordance with your financial goals and preferred techniques.

This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.