Automated or algorithmic trading is the process of automatically executing trades based on predefined rules by traders. Traders decide the entry and exit points as well as the strategy to be followed by the algo trading system into the system, which automatically executes trades based on this information.
Automated trading comprises 70% of the total trading volumes in the US and other developed markets currently. In India, nearly 46% of the total trades on NSE and 30% of those on BSE are algorithmically performed.
This number is growing even further as algorithmic trading gains more popularity. While algorithmic trading has several benefits in terms of convenience and efficiency to traders, the one that stands out is the ability to automate one’s trading strategy using the algo trading platform.
With algorithmic trading, you can also fully automate the signal generation and execution of a trading strategy. You no longer need to monitor stock prices or put in orders manually.
Let us look at some benefits of automating your strategy in detail:
1. Create and execute multiple strategies simultaneously
While regular trading involves spotting opportunities manually, it leads to a loss of time and opportunities as the trader can only focus on a few things at once.
With algorithmic trading, a trader has the ability to spot multiple trade opportunities without the need for staying on the screen constantly. Even multiple strategies can be executed at the same time.
All the trader has to do is input the strategy codes and punch in conditions related to trade entry and exit points, stop loss condition, etc.
The strategies will then be deployed by the software, enabling the trader make the most of tradeable opportunities.
2. Backtest and Bulktest under many conditions
Automated trading enables backtesting of your trading strategies using historical data. This enables you to gauge the effectiveness of your strategy under various market conditions, thereby reducing your risk during actual trading.
Few software such as PHI 1 even offer bulk backtesting, which aids in identifying scenarios where your strategy may underperform. Additionally, PHI 1 has a scenario grading feature wherein your strategy is graded or scored in multiple market conditions, further minimizing risk.
3. Save time by saving your strategies in one place
Traders can save a tremendous amount of time by entering strategy codes as well as instructions such as stop loss, take profit, exit point, entry point, and saving these onto the algo trading software.
This allows the trader to focus on monitoring trades and markets more conveniently. Since algo trading software acts super quick compared to humans, execution is also quick, minus the intervention of human emotions.
Thus, you can make the most of quickly moving/highly volatile market scenarios.
4. Get trade diversification
Automated strategies help take care of multiple types of trades as algo software can monitor many markets compared to humans. This enables trade diversification, further cutting down risk.
With multiple automated strategies amid multiple markets, the software can spot opportunities across all markets that it has been instructed to monitor. This protects traders from the concentration risk of trading in a single or very few markets.
5. Eliminate any room for error in execution
When you automate your strategy, there is no room for error in your trades. The algo trading platform will work exactly as it has been instructed. This frees the trader to do more important research-oriented tasks rather than sitting in front of the screen all day trying to spot opportunities.
Automated trading strategies also keep at bay any biases traders may have, as it goes exactly as it should in a predefined manner, whatever the market situation.
Further, it enables the trader to simplify strategies as the trader has to break them down so as to program them. This helps traders get a detailed glimpse into their strategies. Many a time, this also makes traders simplify otherwise complicated strategies.
Want to automate your trading strategy? Try PHI 1
PHI 1’s advanced strategy creator allows traders to create, test, and analyze any automated strategy limitlessly. In addition, its Multi-Symbol Strategy Creator aids in creating over 125 types of strategies.
PHI 1 provides all the benefits of algorithmic trading and more–the biggest advantage being that it sets the trader free from the daily, time-consuming tasks by providing all trading tools from screening to execution–at one place. PHI 1 is, therefore, your one-stop solution to automated trading.