Exploring Different Types of Algorithmic Trading Strategies
Algorithmic trading or algo trading, utilises software to rapidly execute trades in financial markets. It can perform trades at high speeds based on a large set of parameters that are impossible for a human trader to achieve.
Here are some of the strategies used in algorithmic trading software to achieve better return on investment.
1. Trend Following Strategy: This strategy is based on technical analysis by observing the moving averages, channel breakouts, and price movements. Trend or momentum trading strategies are easy to implement. It may follow the moving day averages. For example, if the 50-day moving average falls below the 200-day moving average, it is an indication of a sell. Trend following strategy tries to capitalise on the momentum in the market. It helps in identifying potential breakouts in asset prices. It helps in the automation of trade, allowing quicker and more efficient trading.
2. Arbitrage: Some financial assets may be priced differently in different markets. The arbitrage strategy makes use of this anomaly to make profitable trades. Statistical arbitrage takes advantage of price differential in a group of stocks by buying the undervalued stock and selling the overvalued ones.
3. Mean Reversion Strategy: This strategy is based on the assumption that high and low prices are temporary phenomena and asset prices will revert to their mean value in due course. Buy and sell decisions are based on the breakout of the range.
4. Market Making Strategy: A market maker provides liquidity in the market by placing buy and sell bids. It helps to provide liquidity to assets that have low trading volume. This algorithm creates buyers and sellers for an asset, which ensures smooth trading.
5. Volume-Weighted Average Price: Volume-Weighted Average Price takes into account the high, low, and closing prices in a time period and the total volume of trading in the asset. The buy or sell order is undertaken close to the volume-weighted average price.
6. Time Weighted Average Price: Here the average price between an end time is calculated and trade executed close to the average price during the cycle.
7. Index Fund Rebalancing: This strategy follows the benchmark indices of the asset and tries to attain results close to the benchmark indices. To attain this, the holdings are sold or bought at the best possible time and at the best prices.
Smartscope Capital, offers algorithmic software for forex and derivatives trading in Dubai. Take advantage of time-tested strategies and make profitable trades that yield a better return on investment.
Disclaimer:
SmartScope Capital does not provide financial advice and does not represent itself as a financial advisor. This disclosure is not intended to be a substitute for professional financial advice. It is essential to seek independent financial advice before making any investment decisions.
By using the services of SmartScope Capital, you acknowledge and understand the risks involved and agree to be solely responsible for the investment decisions you make.
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