If you’re someone interested in trading, you have probably learned that there are five main types of trades out there: scalping, day trading, momentum trading, swing trading, and position trading.
Each trading method requires different skills. A day trader’s activity is going to look different from a momentum trader, and so on.
There are a few types of tradings that don’t fall in that category, and one of them, Algo trading, is what we’re going to talk about today. Algo trading may not sound familiar to you, which is why professionals like KJ Trading Systems works hard to help you learn all the ins and outs.
So, what is Algo trading?
“Algo” by itself is not a word, but a shortened version of the word Algorithm (bet your math teachers didn’t teach you that).
By now, you can probably guess that Algo trading is using Algorithms to trade. These Algorithms can be set up to trade based on several variables such as time, price, and volume. If you have ever listened to the highly popular podcast, Planet Money, you may remember their Algo trading bot, BOTUS, which would make trades based on President Trump’s tweets, in all the instances he noticed about any company.
The bot itself was not successful, losing $1.56 on $1,000 that was initially put in.
Anyway, Algo traders develop their own Algorithms to trade. As stated above, those could be based on many varying factors. They are not trading themselves but having a computer to do the actual trading for them.
What are the pros?
Like any type of trading, there are a few pros and cons when it comes to Algo trading, as well. The first one is obvious, in that the processes are instant and automatic. As soon as X instance happens (a stock drops in price), a trade is made without factoring in any human error or distractions. The Algorithm has no need for earthly things.
Algo trading also has reduced transaction costs, removes the emotional factor, and can check multiple markets at once. Are the robots really taking over?
No, they’re not taking over.
Critics are quick to point out that Algo trading is dependent on technology. So if the power goes out or you need to reset your router, you could lose out on an important trade or action.
Not all strategies and ideas can be optimized and laid out, so while Algo trading may look like the future, there are still some limitations to its work.
Plus, it has a steep learning curve. You can’t just sit back after creating an Algorithm and watch it go to work. It requires continuous monitoring.
But despite the drawbacks (as there are with everything), Algo trading is still incredibly beneficial and an excellent form of trading.
How do I learn more?
While you could try and go the solo route, we recommend taking instruction from professionals like those at KJ Trading Systems. That way, you can learn the basics and have the tools to become an Algo trader.
You have to be a bit handy with a computer and have a solid grasp on mathematics, but there is no reason you can’t get started on Algo trading today.
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