14 of The Tested and Most Worked in Algo Trading Strategies

Algorithmic Trading Strategies

First of all, nobody can guarantee anything about the financial market and how it will react to a day's event, but with an optimistic mindset everyone is trying out a strategy to make profits and remain in the market. 

Whether a given strategy is successful depends solely on market conditions.

Here we list some potential strategies for Algorithmic Trading that are used or can be used to make profits:

Strategy 1: Trend Identification

As Algo Trading can process a large chunk of Data easily, it can help one by analysing the trends early and can help in identifying how short or long lived the trend will be. 

And since algo’s strategies are made based on pricing, volume and various similar concepts to which a trader is familiar, he can easily rely on the produced results. 

It is difficult for an individual to analyse this huge data in real time and not miss out on things. Algo does that for an individual. So that he can perform trade in real time.

Strategy 2: Arbitrage Strategies

Well, before going to discuss strategy, let’s get to what is Arbitrage trading. It is a trading where traders need to utilize the minimal price difference between stocks in different financial markets and buy & sell them at the same time to make money. 

Now, when you make algorithms keeping the same in mind and then place the trade in real time, it can prove to be profitable.

Strategy 3: Index Fund Rebalancing

Well, index fund rebalancing means checking the indices monthly or annually and inspecting if the basics of the primary stocks are still in the same place as they were before and then selling and buying stocks accordingly to execute the trade order.

Strategy 4: Mathematical Model-based Strategies

Implementation of established Mathematical Models, like the Delta-Neutral Trading strategy, provide for trading in a combination of options and the underlying security. 

Strategy 5: Stop Loss Modification

To survive in the stock market, to keep making profits and to manage a good profile, one can use the method of modifying stop losses. 

And as we already made the point earlier that algorithms help us manage huge amounts of data, analyse and interpret it in real time, they help us in managing risks. 

So, implementing algorithms that can stop loss on the movement of stocks based on various techniques, price movement, etc. can help in building a profitable portfolio.

Strategy 6: Implementation Shortfall

The aim of implementation shortfall strategy is to reduce the order’s execution cost by trading off the real-time market and benefiting from it. 

This strategy can help in increasing the targeted participation rate when the stock prices move positively.

Strategy 7: Trading Range (Mean Reversion)

The concept behind this mean reversion is touted upon the fact that low or high prices of any holdings are a temporary phenomenon. 

It ought to change some or the other time and they revert to their average value (mean value) regularly. Developing an algorithm based on this and by defining a price range to it one can place trades when an asset falls into the defined range. 

Strategy 8: Volume-weighted Average Price (VWAP)

This Strategy Volume-weighted average price breaks an important order into smaller parts and releases some important dynamical smaller parts to the market using historical data related to the said stocks.

Strategy 9: Percentage of Volume (POV)

Until the trade order is absolutely stuffed, this algorithm maintains sending partial orders in step with the defined participation ratio and according to the quantity traded in the markets. 

The related “step strategy” sends orders at a user-defined percent of marketplace volumes and increases or decreases this participation fee when the stock price reaches a user-defined tiers.

Strategy 10: Time Weighted Average Price (TWAP)

This Strategy Volume-weighted average price breaks an important order into smaller parts and releases some important dynamical smaller parts to the market in evenly decided time periods having a start and an end time fixed. 

And when one starts trading this can execute orders in the average price of the day and reduce the impact of the market.

Strategy 11: Position Sizing

This strategy decides who is a good trader and who is an ordinary one. A key difference between both of them is how well they can manage their positions under various market conditions.

And what better than algo trading to do that as it reduces emotional and greedy decision making by being pre-programmed and maintains good position.

Strategy 12: Delta Neutral Strategies

Delta refers to the change in the price of the derivative instrument versus the change in the price of the underlying asset. The term delta neutral means balancing the positive and the negative delta by operating on various positions. 

Delta Neutrals are manually impossible to conduct and tough to manage and that’s where developing and implementing a perfect algorithm can help in maintaining profits.

Strategy 13: Scalping

Scalping is a strategy used by traders, where he buys and sells between a particular fixed interval. There are two ways in which scalping happens: forward and reverse scalping. 

Strategy 14: Beyond the Usual Trading Algorithms

As the name suggests, these are beyond the usual types and consists of a special class of strategy and algorithms. This strategy works mainly to identify the “events” at the other end. 

These are some major algo trading strategies we knew of. You can choose these strategies to start or refresh your algo trading/trading and make wealth. 

We hope that you enjoyed reading this and find this worth your time. If you like it, do share this on your social media, tell your fellow algo traders about it.

-------------------------------------------------

→ Algo trading also lets you trade in accordance with your usual trading strategy.

→ Even if you're not sure - how to code and develop an algorithm, but you have an incredible trading strategy in your head, you can become an algo trader

→ We at Smart Algo provide you with the best algo for trading integrated with API Bridge, Auto Buy & Sell Signals and Strategy Development Tools. 

→ Contact Us today for any query or to get a demo of our products on: 

+91 9826140465  or  +91 8853615263  or  info@smartalgo.in.

(Or drop a message on WhatsApp)