Did you know that algorithmic trading can help transform you into a winning trader? A winning trader means many things. First, it means brining consistency to your trading. Taking each trade when a setup occurs. Managing the trade without emotion. Following your trading plan 100%. It also means, finding and exploiting market edges that generate income.
Well, with algorithmic trading, you can become a winning trader. There are several reasons why you should consider becoming an algorithmic trader. This blog post will explore some of these reasons and look at how you can get started as an algorithmic trader. First, what is an algorithmic trader?
What is an algorithmic trader?
An algorithmic trader is a person who uses a computer to trade stocks, options, futures, or other financial instruments. This trading computer is programmed with a set of instructions on when to place trades in the market. But it can do even more. It will manage those open position exactly to your specification. In short, an algorithmic trader will program a computer with his custom trading plan and the computer will execute that plan.
Algorithmic trading has become increasingly popular recently. TradeStation and other platforms have made it easier for traders to develop and deploy their algorithms from their home computers. It's allowing for the retail trader, to take advantage of all the benefits of algorithmic trading.
Let's look at those benefits now.
Remove emotion from your trading.
Humans are not logical creatures. They make poor financial choices when money is on the line. I'm sure you're aware of this pheonoma. How many costly mistakes do you make trading on a weekly or monthly basis? I know I've made my fair share.
It's been shown that people are more likely to sell stocks after a market crash and buy after a rally. Often this is the complete opposite of what you should do. Using emotion often leads to impulsive decisions that can be costly.
When you trade using algorithms, a computer follows your trading rules based on logic and data rather than emotions. Algorithmic traders have the computer to decide when to buy and sell. When the computer makes all the decisions, algorithmic traders can remove much of the emotion from their trading decisions, leading to more successful trades.
When you take emotion out of trading, you can make better financial decisions. You're not worried about the next trade. You're not worried about making money. You're not worried about losing money. You're following a plan that you've backtested and you have confidence in.
Do more! Faster!
Algorithmic trading can allow you to scale your trading operations. If you manually trade stocks, options, or other financial instruments, there is only so much you can do in a day. However, if you use algorithms to place trades, you can increase the number of trades you make in a day without increasing the amount of time you spend doing so. You can trade 10, 20 or more markets at the same time. Try doing that without the help of a computer.
I may have 10 active trades open at one time and will feel comfortable stepping away to use the bathroom or have lunch. I'm not saying I walk away from my trading computer for hours. But when I step away for a bit, I have confidence that everything is being managed fine.
Algorithmic traders also have the edge over traditional traders because they can make trades faster and more efficiently. When you manually place a trade, it can take time to enter all the necessary information into the system. However, the trade can be executed automatically and with greater speed when you use an algorithm.
Discover what works and what does not work
For algorithmic traders, backtesting is an essential tool that can help to determine the profitability of a trading system. Backtesting is the process of simulating how a system would have performed in the past, using historical price data. This allows traders to see how the system would have fared under different market conditions. By backtesting a system, traders can identify its strengths and weaknesses, and make refinements as needed.
Additionally, you can backtest indicators, price patterns and other market observations to see if they hold any market edge. Discovered a new indicator on a blog post? You can quickly backtest that indicator on your favorite market and see if it's worth keeping. Ultimately, backtesting can be a valuable tool in helping traders to become more profitable.
How do I become an algorithmic trader?
I enjoy the process of building my trading systems. It's not for everyone. You have to like working with computers, testing ideas, and performing experiments on the market. In short, you must put a lot of time into the endeavor.
Algorithmic traders are a special breed of traders. They require a unique set of skills and knowledge in order to be successful. Here are some of the skills you'll need to become an algorithmic trader:
- Comfortable with computer coding. Algorithmic traders need to be able to understand and develop trading system using a computer language. You should know how to program a computer, be comfortable with computers and have a willingness to learn.
- An understanding of basic statistics would help.
- The ability to think creatively. Algorithmic traders need to be able to see the market from different angles and come up with new ideas for how to trade. Must have a willingness to try new idea.
If you're interested in becoming an algorithmic trader, the first thing you should do is start learning about programming. I recommend downloading the TradeStation platform and learning to code using their coding language, EasyLanguage. TradeStation is one of the most popular platforms for algorithmic trading for retail traders like you and me. TradeStation comes with EasyLanguage, which allows traders to create algorithmic trading systems. Here is an article on why EasyLanguage is excellent for beginner algo traders.
TradeStation also provides backtesting capabilities so that traders can test their strategies before putting them into live trading. Many online resources can help you learn more about TradeStation and EasyLanguage. That's actually why my website, EasyLanguage Mastery, exists. To help you learn EasyLanguage so you can become a successful algorithmic trader.
- EasyLanguage Quick Start Guide
- EasyLanguage Resources
- Learn EasyLanguage In my System Development Master Class Course
Conclusion
Algorithmic trading is a process whereby traders use computers to place trades faster and more efficiently than if they were to do so manually. Backtesting is an essential tool for algorithmic traders, which allows them to simulate how a system would have performed in the past using historical price data. By backtesting a system, traders can identify its strengths and weaknesses and make refinements as needed. Ultimately, backtesting can be a valuable tool in helping traders to become more profitable.
If you are interested in becoming an algorithmic trader, your first task is to learn how to code. TradeStation is one of the most popular platforms for algorithmic trading and provides backtesting capabilities so that traders can test their strategies before putting them into live trading. EasyLanguage is the coding language used by TradeStation and is excellent for beginner algo traders. You can learn more about TradeStation and EasyLanguage through online resources like my website, EasyLanguage Mastery.
FAQ
What is an algorithmic trader?
An algorithmic trader is a trader who uses computer algorithms to place trades automatically.
What is backtesting?
Backtesting is the process of simulating how a system would have performed in the past, using historical price data. This allows traders to see how the system would have fared under different market conditions.
How do I become an algorithmic trader?
If you are interested in becoming an algorithmic trader, your first task is to learn how to code. TradeStation is one of the most popular platforms for algorithmic trading and comes with the EasyLanguage programming language.
What skills do I need to be an algorithmic trader?
You will need to be good with computers and have an aptitude for working with code. In addition, you must be comfortable with performing experiments and testing ideas on the market. Your first step is to learn a computer language. I recommend, EasyLanguage.