Robot and Algorithmic Trading

Robot and Algorithmic Trading

Trading in the financial markets should first begin with a clear understanding of how everything functions. Ideally, you’ll need to know the reasons as to why the markets are moving, how to recognise them and what elements are involved in these motions, before you can even begin to strategise effectively. However, it isn’t necessary for you to be an analytical genius in order to advance into the trading world successfully. Merely, you need to be aware of the options and tools available to you throughout the process.

Decades ago robots were following human input when it came to trading. Today it is the reverse. Traders are led by automated systems such as HFT (High Frequency Trading), or algorithmic trading, which is now dominating the market.

The HFT industry is enormous; represented by supercomputers that take thousands of trades per second. This is mind-boggling speed. For instance, consider that retail traders use accounts with five digits and a classical EURUSD quotation, which looks like this: 1.10199. This means that if the market moves to 1.10399 and a long trade has been issued, the profit represents 30 pips. The HFT industry is capable of trades that change in the 9th or even the 10th decimal – small, fractional movements that are enough for a lightening quick trade.

Speed is the primary reason for violent market movements. At the precise moment that key news is released, there are algorithms that are programmed to trade the news in a specific manner.

Before an important event, such as the United States NFP (Non-Farm Payrolls), algorithms are programmed to buy or sell, based on the data results of the actual release, compared with the forecasted number. If the forecast numbers are known in advance and the NFP comes in better than this figure, algorithms buy the US dollar. If forecast numbers are lower than expected, they sell. With these transactions made by the thousands per second, markets move in the blink of an eye. Only after these algorithms are trading, do humans begin to participate in the classical trading way.

Retailers can even program their own robots or EAs (Expert Advisors). Every trading platform currently offers this possibility, and using one or multiple technical indicators, a strategy can be coded using coding programs. Not only can a strategy can be coded, but it can be automatically back-tested in order to see if it was profitable during a specified period of time, prior to launching it in any live environment.

If you feel ready to give this a shot then my only advice is that you should keep in mind the limitations of any automated assistance. Such a tool is only capable of doing its job if the pathway is clear for it to do so. Once attached to a chart, a robot or EA will stop trading the moment you close your trading platform. To avoid this issue, a VPS (Virtual Private Server) is required.

It is expected that the period ahead will feature new algorithms and robots to influence the markets, making the environment even more complicated. Trading techniques will undoubtedly continue to follow suit, evolving in partnership with these technological developments. It’s a trader’s responsibility to move with the times if they want to stay on top of their game.