What is algo trading ?
Algo Trading is a method of trading in the stock market where computer programs automatically place buy and sell orders based on pre-defined rules. These rules are created using mathematical models, technical indicators, or market conditions.
Two major aspects of algo trading .
1. Clear Strategy
- pre programmed rules/algo trading
- learning algorithms
2. Automated trading
- trade executed by computer not human
- high frequency trading .
- complex strategies .
How Does Algo Trading Work?
- Strategy Development:
- Traders define a strategy .
- Coding the Strategy:
- The strategy is converted into code using programming languages like Python, C++, or Java.
- Automation:
- The algorithm automatically monitors the market and places trades when conditions are met.
- Execution:
- The system executes trades at high speed, often faster than humans can.
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Advantages of Algo Trading
- Faster execution
- Removes emotional trading decisions
- Ability to analyze multiple stocks at once
- Reduces human error
Risks of Algo Trading
- Requires proper back testing to avoid losses
- Technical glitches can lead to unexpected outcomes
- Over-optimization may cause issues in live markets
Note:- To effectively implement algorithmic trading strategies, a foundational understanding of Python programming is essential .
What is Python?
Python is a high-level, interpreted, and general-purpose programming language known for its simplicity and readability. Python is widely used in web development, data science, machine learning, automation, and more.
Key Features of Python
- Easy to Learn & Readable: Python’s syntax is clean and similar to natural language.
- Cross-Platform: Works on Windows, macOS, and Linux.
- Extensive Libraries & Modules: Python has a vast collection of built-in and third-party modules.
- Strong Community Support: Active development and extensive documentation.
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