Algorithmic trading: how to get started in minutes
Hi there! In this blog I will help you get started with algorithmic trading.
Hi there! In this blog I will help you get started with algorithmic trading.
TRADING ALGORITHMS: A BRIEF INTRODUCTION
Algorithms are basically a set of steps put in place for a computer to follow. When it comes to trading, trading algorithms are rules and guidelines put in place to direct a computer on what signals to search for and what to do in the event that a signal is spotted.
Trading algorithms can be based on fundamentals (such as company metrics) or they could be based on quantitative signals (such as momentum) or technical factors (such as average price over a period). And the algorithm could also be based off all three.
Algorithms could also take different shapes, depending on what they are being designed to do. An Algorithm canrequire thousands of lines of code if it is meant to execute a complex trading strategy. Or it could take a much simpler instance if a straight forward strategy is being employed, as is the case with high-speed trading which eschews complexity in order to maximize trading speed.
There are three major types of trading applications:
Expert Advisors (EA)
Expert Advisors, as the name connotes, is basically a system designed to tell you when to make trades. Expert Advisors also enable the automation of analytical and trading activities to maximize your efficiency in the financial markets. In other words, you can program them to carry out your trades for you, rather than merely advising you.
Expert advisors are mostly used on the Metatrader 4 or 5 trading platforms. You can choose to use an existing EA, or you can create one customized to fit your trading goals. Custom is always the way to go.
Custom Indicators are technical indicators designed for the sole purpose of analyzing price dynamics. They cannot trade and do not have access to charts. They are created using algorithms with existing variables. A trading platform user can have any number of custom indicators made to fit their needs.
A script is an application written in MQL 5 designed for a single execution of an action. A script can execute analyticaland trading functions alike. Unlike Advisors, however, scripts are executed onrequest. In other words, if an Expert Advisor works almost continuously, a script executes its function and quits.
ALGORITHMIC TRADING SOFTWARE: PROMINENT USERS
The major users of algorithmic trading are large trading firms, such as hedge funds, investment banks, and proprietary trading firms. These institutions trade with such huge sums of money that they need software to assist with automating the parts of the task that they do not need humans to handle.
Typically, these firms build proprietary software to match their specific trading needs and goals. Their proprietary systems are usually supported by dedicated data centers and support staff.
However, algorithmic trading is not the preserve of large firms, retail traders also use them. Some traders use software that is purchased as "ready-made" software from brokers or third-party providers, while others who are skilled at coding prefer to develop software to meet their needs.
I do not believe that off-the-shelf EAs are worthwhile because while they are usually not on the professional level required to be successful in the long term. Many sellers of EAs system promise extreme high returns but tend to come with many loopholes, which eventually result in massive losses for the user.
On the other hand, building your own software allows for flexibility and specificity. It will save you from needless problems in the future and it can be modified to match your strategy if you were to adopt a new approach to investing.
So in this section, we will focus on two ways to develop your own automated trading system.
One way is through No Code services, which give you full agency to decide what you want your Algorithm to do and what strategies you want it to pursue, and the other method is through custom-designed Algorithms made by a qualified programmer.
THE NO-CODE APPROACH
While engaging the services of a programmer can seem alluring, it could create a myriad of problems if you choose an unqualified programmer. If the programmer does not have a deep enough understanding of financial trading, he/she may not fully understand what you want or how to translate it to code.
If you encounter such a programmer, making the algorithm modestly usable may require multiple rounds of testing and making changes, with no guarantee of the problem even being detected quickly enough to make it worthwhile to solve. If this happens, you not only lose your money and your time, you also end up disappointed and with nothing to show for it.
Make no mistake, there are a lot of qualified and competent programmers out there, but as with all industries, there are always a number of people peddling snake oil.
Some companies have sprung up to solve this problem. We will discuss two of those companies that have gotten great reviews from users.
StrategyQuant avails you with the tools of professional quants and hedge funds to help you build your own portfolio oftrading strategies in a quantified way.
As with all algorithm trading, StrategyQuant seeks to save you time, separate emotions from your trades, and relieve you from stress resulting from having to make so many trading decisions.
EA Builder prides itself in being easy to use. According to the company, "the work is pretty much done in a few clicks. Turn your trading idea into an automated system within minutes, without hiring a programmer and without knowing anything about programming."
THOUGHTS ON NO-CODE
However, you must consider whether, in reality, a few clicks can replace software designed specifically to meet your needs. You must also consider the future. As your trading strategy becomes more robust and advanced, will the No-Code systems be able to support the growth and complexity of your strategy as it evolves?
Despite the promise of No-Code apps, the reality is that by subscribing to their service, you are tying your fate to theirs. What happens if the company faces an existential threat after you have invested years into mastering their service? Where do you go from there? And beyond the features they tout on their promotional documents, the reality is that you are still restricted to what the platform will allow you do. So the capability of the algorithm they will let you develop on their service is still bounded by their Terms of Service.
This is where a qualified programmer comes in. No-Code apps make a very attractive value proposition, but nothing beats proprietary software. Proprietary software is built for you. Built to meet your specific needs. And modifiable to suit you changing needs over time. That's why huge institutional investors prefer them. If you are interested in trading at the level of institutional investors, then what you need is a qualified programmer, not a $29 a month subscription.
CUSTOM CODE: WHY SHOULD YOU CHOOSE IT?
Specialization and Specificity
Compared to the other options available, by choosing to work with a qualified programmer you will not only be getting code developed specifically for you, you will also be accessing a repository of knowledge. A qualified programmer is someone who has worked on multiple projects in the past, and so they will be able to draw from their vast experience to guide you towards the algorithm makeup that will best serve your needs.
You will also be gaining access to a long-term advisor who can make suggestions on how to modify your code to adapt to new technological developments.
Another advantage is the quality of the algorithm and the boundless possibilities of what you can achieve with it as compared to off-the-shelf trading robots which are generic and designed to be a"jack of all trades" or No-Code software which has a lot of potential but is still limited in terms of you can create.
Engaging the services of a qualified programmer also saves you the years of effort it will require to develop the coding skills you need to build a solid and quality algorithm.
Ultimately, the choice is yours to make between choosing off-the-shelf software, No-Code tools, or a custom algorithm specifically designed to enable you achieve your goals in an efficient and effective manner.
Whatever your choice is, we are here to support you to the best of our abilities and bring your trading to the next level.