While a human trader may be able to trade for a few hours everyday, a computerized trading program will be able to do it for the entire 24 hours without a break or a mistake.
This is the advantage of algo trading – also known as algorithmic trading and automated trading.
You may have read all about algorithmic trading in our concept guide on algo trading. Let us now move on to the steps you need to follow for algo trading.
For the sake of illustration, we use PHI 1 as our algo trading software.
What is PHI 1?
Many algorithmic trading software is available in the market with few features, which may or may not be required by all traders.
The key challenge that traders face is the need to use multiple tools and additional plug-ins to complete the trading process. There are no tools that offer a comprehensive solution to algorithmic trading.
A good algorithmic trading software is one that allows easy access to the market and broker data, supports multiple instruments as well as markets, allows creation and testing of any trading strategies, has a user-friendly interface, provides readily available reports, has a reliable architecture as well as efficient order management and execution capabilities.
Well, we just defined PHI 1—a unified algo trading platform that takes care of mundane tasks so traders can focus on trading only!
Steps to follow for algorithmic trading:
Step 1 – Screening
The first step to begin algo trading is to screen the markets to identify instruments like stocks or index instruments to trade-in.
PHI 1 makes this process easier by allowing you to scan and screen symbols on a customized basis.
Traders can do screening based on any arbitrary criteria, with parameters based on price/volume action, volume ranks, and more. Traders can also create custom screeners by providing any mathematical expression with PHI 1.
Step 2 – Charting
The next step after screening is charting.
Charting refers to the plotting of graphs or patterns of a symbol based on customized parameters/indicators.
Charting also makes it easy for the trader to compare two or more symbols or parameters and their performance over time.
PHI 1 comes with advanced charting features and offers more than 120 indicators for free. Intraday traders can also access real-time and historical charts with PHI 1.
Moreover, one can plot many indicators for live updates.
This allows for seamless analysis of multiple facets of a stock. PHI 1 also provides pre-integrated data for all symbols including equity, indices, futures, and options.
Step 3 – Strategy Creation
The next step is creating a trading strategy.
The trader needs to decide on the strategy for the selected symbol.
PHI 1 allows traders to automate their trading strategy easily. Traders can create any type of trading strategy with PHI 1, even if it is just an arbitrary idea. Unlike most other platforms, PHI 1 allows the creation of customized strategies even outside of templates.
With the Advanced Strategy Creator feature, the trader can create any strategy they can imagine—no restrictions apply. Further, PHI 1’s Multi-symbol Strategy Creator, the built-in data allows traders to monitor multiple symbols/time intervals/asset classes in a strategy to make trading decisions on one or more of them.
If you don’t know coding, PHI 1 has a form-based strategy creator as well. This can allow you to do algorithmic trading without coding!
PHI 1 also offers coding services which you can use to develop your strategy.
Step 4 – Testing
Backtesting and Scenario Grading
Once the strategy is created, it is imperative to test the strategy before implementing it.
PHI 1 enables bulk backtesting, an essential assessment to identify whether your strategy could perform in past scenarios, using historical data.
PHI 1 also offers a unique feature called scenario grading wherein you can get a score on your strategies in multiple market scenarios such as market crash and volatility, further adding to your confidence.
Now that you’re done with back-testing and optimizing your strategy, it is recommended that you test your strategy in a simulated (virtual trading) environment.
This can give you a crystal clear picture of how your strategy will perform in the live market. You can identify any bugs or edge conditions that might be present in the strategy code and refine your code accordingly. It’s like trading in the real markets without using real money.
PHI 1 allows you to simulate trades or perform forward-testing so you can gain the confidence of trading with your strategies in the live market.
Step 5 – Execution/Deployment
This is where your strategy is finally put to work.
Automated trading allows easy execution when all your criteria are met. PHI 1 helps you seamlessly deploy and closely monitor your trades.
Moreover, with PHI 1’s multi-broker integration, you don’t have to be limited to a specific broker. The choice is yours. Even if one broker is having a downtime, you won’t miss a trade. Multiple brokers also help you get the best rates.
Step 6 – Monitoring
Once live, you need to monitor your trades, which can be quite cumbersome.
PHI 1provides traders a single dashboard to monitor trades by date interval, strategy, and time-frequency across markets, scrips, and brokers.
We hope we’ve taken away the hesitation you’ve always had for trying out algorithmic trading.
In fact, PHI 1 offers the algorithmic trading software for a free trial so you can experience the prowess of automated trading in full! You can also enjoy lifetime free features like charting and screening. Try PHI 1 today!
And if you’re still wary of algo trading, we can schedule a demo for you. Click to schedule a session.