Algo trading or Algorithmic trading is an automated program that uses a set of defined instructions to execute a trade. Simply put, algorithmic trading is a set of directions for placing a trade.
Computerized algorithms process data faster, cheaper, and more accurately than humans. Algorithmic trading helps make robust trading decisions by efficiently processing data―precisely why it is becoming increasingly popular in India.
There are numerous advantages of algorithmic trading over manual trading. For instance, it saves the time needed for supervision and execution in manual trading. Algorithmic trading also helps traders benefit in measures of speed and accuracy.
Let us look at each of the advantages of algo trading in detail.
1. It is incredibly fast
In algorithmic trading, algorithms are written beforehand so the instructions are executed automatically. The speed is so fast that it’d be nearly impossible for a human eye to spot it.
Multiple indicators can be scanned and executed in a jiffy! Thus, trades get analyzed and executed faster. Automated programs generate orders with profit targets and protective loss stops, all at once. This implies that traders and investors can swiftly book profits off small changes in price.
2. It allows you to place accurate trades
Unmatched accuracy is a key advantage offered by algorithmic trading. Manual trading has lots of space for committing errors in many aspects. However, with algo trading, the probability of mistakes is reduced drastically.
Accuracy is the decisive factor between a good trade and a bad one. In a computer algorithm, the trades get double-checked and any chances of error are eliminated, preventing things from going downhill and enhancing your probability of profiting from trades.
3. It minimizes emotions to reduce risks to your trades
As is well-known, human emotions play an important role while trading. The human mind is vulnerable to getting carried away by emotions while making a trade, thus affecting the ability to make decisions based on logic.
Emotions like fear, hesitation, greed, indecision, and others can hinder one’s potential stick to one’s trading plans. However, algo trading takes out the emotion from trading. With automated trading, it is impossible to trade impulsively. Thus, algo trading makes trade more decisive for traders and implements orders without ‘second thoughts’.
4. It allows you to identify and prevent bad trades
It is manually impossible for a trader to know which strategy will work in a given situation. Backtesting allows traders to assess the viability of a trading strategy by showing how it would have worked on a set of historical data. If the backtesting works, traders may develop the confidence to deploy the same strategy in the future.
Thus, backtesting reduces the number of loss-making strategies, making way for the most productive strategies to be implemented.
5. It saves time and is cost-effective
Last but not least, algo trading is a cost-effective way to trade. Manual trading involves spending a lot of time behind the screen and investing a lot of energy constantly to identify trading opportunities. Continuous supervision is tiresome and causes the trader to miss out on opportunities.
Algo trading reduces this time investment and works just fine without hectic supervision. By being relieved of the mundane chores like data integration, traders can focus on exploring opportunities in the market and how to exploit them to their advantage.
Further to cutting down costs in terms of the time invested, algorithmic trading is particularly useful for large order sizes in terms of cost saving.
In addition to these benefits, trade rules get established in algo trading and are performed automatically; hence, one’s discipline stays intact even in volatile markets.
Algo trading solidifies discipline because the pre-defined instructions will be followed as they are. Moreover, algorithmic trading systems allow trading with multiple accounts or implementing various strategies simultaneously across a wide range of markets within seconds, thus diversifying your trades.
Algo trading makes trading convenient and unlocks your true potential as a trader. Algorithmic trading can be a great blessing if done using the right platform.
This is where PHI 1 comes in.
With its easy-to-use intuitive interface and advanced features, PHI 1 provides an end-to-end solution for traders, helping them focus on trading, rather than on daily, mundane tasks associated with it.
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No download, no installation, and no data integration required, saving your time! A lifetime free plan to paid plans with even more features, saving your money!
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