Algorithmic Trading Strategies

Algorithmic Trading Strategies

Did you know 80% of the moves in the US stock market and Forex market are done by machine-based, algorithmic trading robots? With advanced technology, algorithmic trading strategies are now accessible for all types of traders.

Any strategy for algorithmic trading requires an identified opportunity that is profitable in terms of improved earnings or cost reduction. The following are common algorithmic trading strategies used in algo-trading:

Trend-following Strategies

When it comes to algorithmic trading systems, trend following is one of the oldest strategies used by investors. These are the easiest and simplest strategies to implement through algorithmic trading because these strategies do not involve making any predictions or price forecasts. The goal of this strategy is to buy assets when prices break noteworthy resistance levels and sell short assets that fall below significant support. 

Trading Range (Mean Reversion)

Mean reversion is the effect of a market’s price trading back to its historical average price. This type of strategy is usually based on a mathematical model that assumes an asset’s high or low price is temporary and will move back to its average price over a period of time.

Machine Learning Strategies

Machine learning and artificial intelligence stand to push algorithmic trading to new levels. Not only can more advanced strategies be employed and adapted in real-time but new techniques like Natural Language Processing of news articles can offer even more avenues for getting special insight into market movements.

Martingale Trading

The theory behind a Martingale strategy is pretty simple. It is a negative progression system that involves increasing your position size following a loss. Specifically, it involves doubling up your trading size when you lose. The classic scenario for a Martingale progression is trying to trade an outcome where there is a 50% probability of it occurring. Such a scenario has zero expectations.

If you’re new to trading, you might not have tried any algorithmic trading strategies. Many algorithmic trading strategies, like the ones above, are great for investors and advisors who are looking to optimize long-term portfolio returns while eliminating risk.

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