What is Algo / Algorithmic Trading? – Can Computers Trade For You?

Algo Trading Meaning

Just like how Alexa answers all your questions, plays songs for you, sets reminders and alarms, Algo’s can follow your trading strategy and place buy/sell orders for you while you are working at your office or chilling on a trip.

Pretty interesting isn’t it? But How does it work?

This article has answers to all your questions!

Content:

Algo Trading Meaning

What is Algo Trading? It is nothing but a computer program that follows a particular trading strategy and places buy and sell orders. These orders are placed at a speed that cannot be matched by any human being.

A computer program is coded through various languages like Python, C++, Java, etc.

Now you might say, I am not a programmer, Algo Trading is not for me.

Well, that’s not true. Anybody and everybody can have a Stock Trading Algorithm. How?

There are companies that provide ready-made algo strategies or help you in coding your own strategies. We have listed the Top Companies that provide Algorithmic Services at the end of the article.

Real-world examples of Algo Trading

Now let’s Learn Algo Trading with a real-world example:

  • Assume you have a simple trading strategy based on RSI (Relative Strength Index) Indicator.
  • For those who don’t know what RSI is? Here’s how it works:
    • RSI shows you the overbought and oversold zones of a stock. As you can see in the below image, RSI has two lines, one is 80 and the other is 20.
    • When the RSI is above 80, the stock is said to be in the overbought zone, indicating to sell. And when the RSI is below 20, the stock is said to be in the oversold zone, indicating to buy.
relative-strenght-index
  • You can use this strategy and place orders in two ways:
  • Manually: By constantly monitoring the RSI to touch the overbought and oversold zone and place orders yourself.
  • Automatically: By programming an Algo to place buy and sell orders automatically.
Earn Profits in Stock Market


Is Algo Trading Profitable / Advantages of Algo Trading

Yes, algorithmic trading can definitely be profitable if done correctly. Here are some of the benefits:

  • Orders will be placed instantly at accurate prices.
  • Human errors during order placement will be completely eliminated.
  • You can test your trading strategy on the historical data to see how it works.
  • No room for emotional and psychological errors.

Best Algo Trading Strategies

Check out the Top 3 Algo Trading Strategies that are commonly used by Professional Traders:

  • Mean Reversion Strategy
  • Trend Following Strategy
  • Arbitrage Trading Strategy

Mean Reversion Strategy

This strategy suggests that if the price of the stock suddenly/unusually moves toward a direction (either high or low), it will revert back to the long-term average price levels. So in this strategy, the algorithm places a buy order when the stocks hit an unusually low price level and place a sell order when the stock hits an unusually high price assuming that the stock will revert back to the average price.

Trend Following Strategy

In this strategy, the algo finds out a potential trend in the stocks using various technical indicators like Moving Average, RSI, MACD, etc. Whenever these technical indicators give a buy or sell signal, the algo immediately places the orders and follows the potential trend. This is the most common and easiest strategy to do algorithmic trading.

Arbitrage Trading Strategy

Arbitrage is nothing but buying the same stock on NSE and selling on the BSE or vice versa. There is a slight difference in the prices of the same stocks that are listed on NSE and BSE. For example, If XYZ stock is trading at ₹ 50 on NSE, it may be trading at ₹ 49.5 on BSE.  The difference in prices may be higher depending on the illiquidity of the stocks.

Algos are created to buy a stock that is trading at a lower price in one exchange and sell it on another exchange that is trading at a higher price or vice versa.

Now that you have got a gist of What Algo Trading is and How it is beneficial to you, let’s learn how to create an Algo.

How to create an Algo? What are the things required to build an Algo?

Step 1: Get a trading strategy in computer code. For this you can either Buy a predefined algo trading strategy OR Code your own trading strategy. First let’s cover the steps to code your own trading strategy:

Step 2: You can code your strategy either via coding software like python, java, c++, etc. or use a charting software like Amibroker or Ninjatrader. These charting softwares have their own coding language.

Step 3: Get NSE & BSE data feed. Why? The strategy you created will work only when it’s supported with Live Data of stocks like price quotes / volume etc.

Step 4: Get an API of the broker’s trading platform. An API connects a coded algorithm (trading strategy) and brokers trading platform.

Step 5: Start automating your trades!

Here’s an approximate pricing structure to build an algo:

  • Trading Softwares like Amibroker or NinjaTrader might cost you up to ₹ 22,000 per year.
  • Data feed might cost you in the range of ₹ 2,000 to ₹ 5,000.
  • If you are an Aliceblue Client, API will be FREE of cost.


Now let’s find out how to buy predefined Algo trading strategies from top algorithmic trading companies:

Best Algorithmic Trading Companies in India

Here are some of the Best Algorithmic Trading Companies on Aliceblue Trade Store:

  • TradeTron
  • Square Off

TradeTron

Along with amazing predefined algo trading strategies, TradeTron also helps you create algo strategies with zero coding. You can sell your algo trading strategies to traders all over the world.

Check out the benefits of using TradeTron via Aliceblue Tradestore:

Actual PriceTradeStore Price
₹ 1000 per month₹ 1000 per month
Free API

If you use TradeTron via Aliceblue Tradestore, you will get free API Access. (The API Costs more than ₹ 2000 per month if you subscribe to TradeTron with any other brokers).

Square Off

Square Off provides excellent trading strategies built on mathematical and statistical models having better historical returns than popular benchmarks and mutual funds. It provides 10 predefined strategies and free API.

Check out the benefits of using Square Off via Aliceblue Tradestore:

Actual PriceTradeStore Price
₹ 29,500 per month (7-day free trial)₹ 29,500 per month (7-day free trial)
3 months free subscription

If you subscribe to Square Off via Tradestore, you will get an additional 3 months of free subscription.

Points to be Noted: 

  1. When you access these companies via Alice Blue Trade Store, you will get a special discount on your purchases.
  2. Aliceblue charges ZERO Commission on the API, whereas other brokers charge at least ₹ 2000 per month for the API alone.

Don’t miss out on the amazing discounts! 

Start your Algo Trading Journey by opening an account with Alice Blue Now!

Quick Summary

  • Just like how Alexa answers all your questions, plays songs for you, sets reminders and alarms, Algo’s can follow your trading strategy and place buy/sell orders for you while you are working at your office or chilling on a trip.
  • Algo Trading is nothing but a computer program that follows a particular trading strategy and places buy and sell orders. These orders are placed at a speed that cannot be matched by any human being.
  • Algo Trading can be really profitable if done correctly. The benefits of Algo trading are that orders will be placed instantly at accurate prices without having the chance of any human errors.
  • You can test your trading strategy on the historical data to see how it works, eliminating the risk of emotional and psychological errors.
  • Again to use them effectively to the fullest of your profits, there are certain strategies that you must know:
    • Mean Reversion Strategy
    • Trend Following Strategy
    • Arbitrage Trading Strategy
  • There are predefined Algo trading strategies from top algorithmic trading companies on Aliceblue Trade Store:
    • TradeTron
    • Square Off
  • When you access these companies via Alice Blue Trade Store, you will get a special discount on your purchases.
  • Aliceblue charges ZERO Commission on the API, whereas other brokers charge at least ₹ 2000 per month for the API alone.

Frequently Asked Questions (FAQs):

1. Do you need to know coding to do Algo Trading?

Ans. You don’t require hardcore programming expertise in programming languages like C++ or C.

2. Which algo trading is the best in India?

Ans. You can surely count on Alice Blue to enjoy the benefits of Algo Trading.

3. Is algorithmic trading actually profitable?

Ans. Yes, it is. Algorithmic trading is nothing more than using strategies to earn profits from market inefficiencies.

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About Author

Vinayak Hagargi

Vinayak is Impressively Enthusiastic about Financial Markets, Research & Curating Layman-Friendly Content. He has been Successfully Contributing to the Financial Markets for over 2 years & has written over 100+ articles. He aims to continue sharing his knowledge to empower newbies with Relatable, & Easy to Understand Content.

4 Comments

    Dear team, I have a trading strategy on which I want to create algo trading.
    please share with me all the necessary information regarding this matter.
    please contact me ASAP

      We will get back to you today

        I also want to aad my strategy to auto trading so i can earn because I have no time to sit on system

          We have sent you the details. Kindly check your email

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