Algorithmic (or auto) trading began in the United States in the 1980s with the computerization of the financial markets. The democratization of the foreign exchange market since the 2000s and the advent of new technologies has given new impetus to the sector.
Thanks to programmable platforms such as MT4, which serve as a market reference, investors can semi-automate or even completely automate their trading systems.
What Is An Algorithm Used for?
Considered the trader’s technological extension, the trading algorithm partially eliminates cognitive biases. Psychology and emotion have no place in binary language. The program also makes it possible to go well beyond human capacities.
Trading algorithms can fill the gaps in manual trading or even avoid operational risks. Intuition, emotion, and psychology can hinder decision-making. Generally speaking, the markets are a certain representation of human emotion, the “feeling.”
This phenomenon is completely ignored in an automated system.
The “intuition” of a computer lies in its ability to translate the information sent by technical indicators into its own language.
Algo trading has a scientific approach compared to manual trading: instinctive reaction does not exist. The trader must follow his system and trust his algorithm. This data is fundamental since it also involves certain psychology.
Automating transactions is only made possible by rigorously following your trading rules (when to position yourself, what size, when to sell, management of your risk, etc.)
These parameters may be subject to simulations of historical data. It’s a crucial step that allows you to evaluate your model’s performance, refine it, and make changes.
While past performance is not indicative of future performance, it does provide valuable information for testing your system.
High-Frequency Trading VS. Auto Trading
You need to distinguish auto trading from high-frequency trading. Far too often associated and used by misuse of language, the HFT makes it possible to perform many operations per millisecond.
Some institutions even manage to place orders in 0.8 microseconds using high technology. Far from these considerations, auto trading makes it possible to carry out a maximum of twenty operations per second, allowing private investors today to have optimal responsiveness.
The main advantage of algorithmic trading, which also makes it complex, is that it leaves no room for improvisation. It involves method and rigor to achieve fixed performances. Decision-making is optimized, signals clearly identified, and trading opportunities multiplied.
This type of trading can also restore confidence, and confidence is a defining element of your trading.
How To Safely Venture Into Automated Trading
If you are inclined to start automated trading, you will obviously need to opt for good automated trading software. It could be a harsh decision-making process.
The market is full of different offers, but the question is how to distinguish the reliable one from the untrustworthy trading tool. Supposing you already know which asset you want to trade, that would be the first criterion.
If you are looking for a crypto trading automated platform, take a look at the Biticodes review since it overviews the recently launched, top-performing crypto trading tool, Biticode. Secondly, look for those offering demo trading and excellent customer support. And, of course, pay attention to depositing/withdrawing fees and other charges that may occur.