Tradetron : Algo Trading Strategies

Algo trading uses computer-based programs to execute trade orders by following a specified set of instructions or algorithms. As everything is automated, algo trading is speedier than manual trading. A set of rules can be defined for various parameters such as quantity, time, price, or any technical indicator. Algo trading gives no room for human errors. Let’s take an example to understand how algorithmic trading works.

Let’s say your trade is based on some simple criteria or technical indicators, such as:

• Buy 100 shares of a stock, when its 50-days moving average goes above the 200-days moving average (indication of an upward trend)
• Buy 100 shares of a stock, when its 50 days moving average goes below the 200-days moving average (indication of a downward trend)

Now, a computer program can easily execute the buy and sell orders when the specified conditions are fulfilled, which requires no manual monitoring of prices and trends.

Yes. Algorithmic trading is legal in India. Regulatory body, Securities and Exchange Board of India (SEBI) has allowed algo trading in India in 2008. Since then, many stockbrokers and online brokers have allowed algo trading for retail traders on their platform. Nearly 50% of trades in India are algorithmic. Nearly 70% of the total trade in developed markets is algorithmic.

No trading method is completely safe, there is a certain degree of risk. However, like manual trading, algo trading is also regulated by the Securities and Exchange Board of India (SEBI) which has laid down strict guidelines for algo trading in India. Specifically, after the National Stock Exchange (NSE) gave unfair and preferential access to few brokers for algo trading, SEBI has tightened the guidelines for algo trading in India. Due to the speed, high volume and real-time reactions, algorithmic-driven trading can make the market more liquid and volatile. Algo trading poses systemic risk. As it is algorithm-based, there are possibilities of faulty execution, programming-related risks, etc can hamper the trade. However, the backtesting feature can be a simple solution to this problem. System errors can result in a loss in trading within a very short timeframe. However, SEBI has taken many measures to strengthen algorithmic trading. One such measure is SEBI’s advice for stock exchanges to put in place economic disincentives for a high daily order-to-trade ratio of algo trading.

Margin trading gives you the power of leverage. You can initiate trade by paying the margin (marginal amount of actual trade value). You are allowed to create positions under the margin trading with cash or by furnishing shares as security with broker to trade margin in algo trading.. You will have an option to pledge your shares with the broker and then un-pledge after the trade gets squared off.

Algo trading platform offers you the flexibility to manage any type of trade order in any market with a wide range of algorithms available. The limit order option allows you to buy or sell a stock at a price set by you or at a better price. In Tradetron, you have ‘advanced settings’ to set the limit order trading rules under the ‘price execution’ tab while creating an algo trading strategy. You can also use the ‘repair once’ condition to place large limit orders.

A trailing stop-loss order is a type of day trading order that allows you to adjust the stop price by a certain fixed percentage with the change of security price. This strategy helps you to lock in profits while guarding you against day trading losses. To create a trailing stop loss strategy in an algo trading on the Tradetron platform, you can use ‘advanced settings ’ to set the strategy rules. You can use the ‘trailing stop loss’ feature in ‘advanced settings ’ to set the conditions. In this after a certain amount of profit you can activate trailing stop loss.