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What is algorithmic trading and why should you consider it?

Exchanging the securities exchange with the assistance of algo trading strategies has picked up fame in India in the previous not many years, since the time algorithmic exchanging was legitimized by SEBI. In algorithmic exchanging, the purchasing and selling choices with respect to stocks are made with the assistance of program that are taken care of with the exchange calculations. These calculations are made by specialists who have a differing information on the financial exchange and the exchange procedures are tried and retested to guarantee that they would act in the live business sectors. The intraday exchanging methodologies consider various variables before giving the purchasing or selling signals. These variables may incorporate value developments and unpredictability levels among numerous others. In the event that the common economic situations coordinate with the predefined models, the exchange calculations can execute a purchasing or selling choice in your place. This spares you gigantic measure of time that you would somehow or another need to spend exploring the business sectors and you're likewise ready to exchange at a higher volume.

At first, SEBI just permitted foundations to exchange with the assistance of robotized exchanging however now, retail merchants can likewise enjoy computerized exchanging through outsider API suppliers, Alphabot is one of these. Over a limited capacity to focus time, algo exchanging procedures have gotten so well known in India that almost 40% of all exchanging that occurs on the financial exchange occurs with the assistance of algo exchanging systems.

For what reason would it be advisable for you to think about algorithmic exchanging?

There are various reasons that ought to convince you to enjoy algorithmic exchanging. Let us investigate a portion of those reasons.

It eliminates the odds of human mistake

People are consistently inclined to committing a wide range of errors. Those slip-ups could either be regarding our physical restrictions, for example, exhaustion or pass in fixation or they can be identified with our passionate driving forces –, for example, dread and avarice. Luckily, the PCs experience the ill effects of none of these issues. They neither get drained nor get exhausted, and they unquestionably aren't fit for feeling feelings, which regularly cloud our judgment and power us to settle on wrong choices that end up in misfortunes.

You can capitalize on uncommon or unique occasions

With the assistance of exchange calculations, you can make then the greater part of occasions that happen seldom however can possibly convey critical benefits. Dow shutting 500 beneath its 20-day moving normal is one such model where you can use exchanging techniques to create benefits.

Reinforce your current procedure

With the assistance of calculations, you can expand your previously existing exchanging methodology. For example, you can fundamentally diminish hazard by presenting stop misfortune.

No requirement for steady observing

Manual stock exchanging could end up being extremely difficult work. You need to remain continually mindful of the market to exploit each open door that comes your direction. Nonetheless, with the assistance of mechanized exchanging, you can leave that assignment to a PC and make an amazing most lighthearted.

Backtesting

In computerized exchanging, you can backtest and refine your calculations against authentic information, to ensure that they would act in the market where a lot is on the line.

Become a methodology designer

On the off chance that you have the skill for it, you can configuration exchanging systems that others would utilize and by putting that methodology on a site that offers API, you can win cash when individuals utilize your procedure. It's really one of the most danger free methods of procuring cash from the securities exchange.

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7 intraday trading secrets every beginner trader should know about

So, you’ve just entered the stock market for automated trading and you’re feeling a little overwhelmed by the sheer amount of data being bombarded onto your brain? Are you finding it difficult to chart out a way that would help you navigate the murky waters of the ever-changing stock market? Fear not, because we’re about to share some of the best tips that would help ease your transition into the stock market.

Soak knowledge like a sponge

Besides learning about different algo trading strategies, you also need to constantly update yourself with the market conditions. Your buying and selling decisions would only be as accurate as your understanding of the market.

Don’t go all in

Make a calculation about how much of your capital should you be willing to risk per trade. Many traders who’ve achieved success in the stock market tend to risk only 1% to 2% of their account per trade. The more you’re willing to risk, the more you should be ready to lose. Even the most experienced traders can never predict the market with complete certainty and therefore, you should invest carefully.

Climb the ladder carefully

You may be tempted to jump at every opportunity that you see as a beginner, but Alphabot remember to keep your focus on only one or two stocks during a particular session. When you’re dealing with a limited number of stocks, it is much easier to track and discover opportunities.

Don’t trade during the opening and closing hours

The stock markets are pretty volatile during the opening hours because the orders that were placed by traders and investors on the previous day begin to execute as soon as the markets open. It might be possible for an experienced stock trader to cherry-pick stocks that might deliver profit but amateurs must avoid trading during the first 15 to 20 minutes. Instead, you should observe the patterns and study the market during that time.

Use limit orders

Make a decision regarding the type of orders you’ll use for entering and exiting trades. You basically have two options; either you use the market orders or the limit orders. If you place a market order, it will be executed at the best price available at that time, which means that there is no price guarantee. On the other hand, if you use the limit order, you get the price guarantee but not the execution guarantee. Thus, limit order helps you trade with much more precision. You can set your own price for buying and selling.

Think about generating realistic profits

Don’t fall victim to the stock market stories of doubling or tripling your money within a month or two. First lesson that you need to learn is that you don’t necessarily have to win every trade to accrue profit, and truth be told, it is impossible to win every trade. Good traders only win 50% to 605 of their trades. The trick however, is that they earn more on their wins than they lose on their defeats. Always make sure that you are only risking a small percentage of your account towards a particular trade and that you have well-defined entry and exit points in place.

Don’t panic

The stock market is a pretty volatile place and things take shape and get ruined within a matter of seconds. The best way to make profit in such a situation is to keep your emotions – fear, greed, anger, hope – at bay. Your decisions should solely be made based on logic and reasoning and not an emotional impulse.

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Advantages of automated trading strategies

Automated trading has been a revolution for the traders. It has not only helped in reducing the risks associated with the trading process, has also been instrumental in catching the attention of a number of people who otherwise wouldn’t even have considered going into the trading market at all. Today, nearly 40% of all the trades that happen at the National Stock Exchange (NSE) happen via intraday trading strategies or automated trading. This new mode of trading has been able to garner so much success in so little time because of a plethora of advantages that it brings to the table.

Advantages of Automated Trading

There are a number of advantages of using computers to monitor the fluctuating markets. Let us take a look at some of the major ones:

Removing emotional bias

Two of the worst enemies of a trader that deals in algo trading strategies are fear and greed. Humans are often governed by emotions and against our emotional impulses, our logics often fail. This can cause us to suffer losses at the stock market. A computer, on the other hand, is incapable of feeling these emotions and works solely on logic. Therefore, automated trading helps us control our impulses and make sound decisions.

Backtesting

Backtesting applies trading rules to historical market data to determine the viability of the idea. An algorithm can’t just be good on paper. The stakes are so high in the stock markets that we have to be absolutely sure that our algorithmic trading strategies work. Backtesting is done by running the algorithm on previously obtained data to see if it would function properly in a live market. This makes sure that the algorithm would deliver profit.

Improving Order Entry Speed

Since computers can respond immediately to the fluctuating market conditions, automated trading enables you to generate orders as soon as trade criteria are met. When it comes to getting in or out of a trade, every second matters, and computers provide that. As soon as a position is entered, all other orders are automatically generated, including protective stop losses and profit targets. The stock market moves at a very fast pace, and it could be disheartening to see a trade reach the profit target or blow past a stop-loss level – before the orders can even be entered. This issue is not a concern when it comes to automated trading.

Diversifying Trading

While doing automated trading, a trader can operate multiple accounts and make the use of different trading strategies at the same time. By doing this, the trader can effectively spread risk over various over various instruments while creating a hedge against losing positions. Something that would be nigh impossible for a human to accomplish is done with the help of a computer within a fraction of a second.

With all these benefits, the automated trading has revolutionized the trading landscape by a great deal, and now, more and more traders are migrating towards this new and effective way of trading.

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What is the Nifty Option Chain Analysis

If you have had the pleasure of visiting the NSE website and going to the Nifty screen, you must have seen a link that suggested something like “option chain” at the top. Now you must know that you can also access the option chain on your own terminal, but the one that is available on Nifty website is made available for everyone in real time. Now to address the elephant in the room: What does Option Chain mean?

The meaning of option chain

An option chain is the representation of all the option strikes of the Nifty in one frame. Keep in mind that just like you have an option chain for Nifty, you also have different option chains for all the different key indices traded in F&O. Also, for the stocks where option trading is permitted, you’ll find the option chains for them as well. But in order for the option chain to be relevant the stock has to be relatively liquid.

How do the traders perform the option chain analysis?

The Option chain data that is made available on the Nifty website has great utility, given the fact that it’s among the most liquid contracts, and weekly options are also available on the same.

Nifty option chain is so useful because it gives a broad idea of in-the-money and out-of-the money options. On the chart, the strikes which are marked by yellow are in-the-money or ITM options and those that are unmarked, are out-of-money of OTM options. This marking however is not constant and keeps changing with the fluctuations in Nifty.

The trader can utilize the option chain while doing intraday trading to evaluate the liquidity as well as the depth of each strike. Nifty option chain is believed to be the most successful advance warning system of sharp moves or break outs in the index. If you want to see for yourself then you can test this claim empirically. You’ll notice that all the major moves in the Nifty are always preceded by the predictive trends in OI and volume shifts. This is extremely beneficial for the traders as they can use these shifts in price with proper support of volumes as a pointer to help themselves position their trades.

Option chain is especially beneficial with regards to deep OTM options, where the action is usually quite subdued. A sudden spike in the action in deep OTM calls and puts indicatives a probable break out in that direction.

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What is algo trading and what are its advantages

If you are into investing and stock market, you must have came across the term algo trading strategies or intraday trading strategies. Let us try to understand what these terms precisely means

What does algo trading mean?

Trading on the stock market isn’t a hit and trial process. It is something that can be programmed for – something that can be mechanized. When it comes to algo trading India is still a new country for it. It was introduced here just a decade ago in 2009, but it has seen quick adoption on the stock market and more and more people, especially those who are just entering the trade market, are getting into algo trading. With the help of pre-written, back-tested algorithms that are run with the help of computers, you can generate profits that are otherwise unable to be generated manually. Free from emotional biases and logical flaws like humans, algo trading or automated trading is the future of intraday trading.

Advantages

1)     Since automated trading does rely on humans, it is free from human errors like emotional biases (greed and fear) and other mistakes like inaccuracy of calculations, logical errors etc.

2)     When it comes to algo trading, a number of autonomous market checks are performed to execute trades in a way that generates the most profit.

3)     With the help of automated trading, you can perform high frequency trades (HFT).  With the help of HFT, you can perform quite a large number of trades in a relatively small amount of time. This means that even if you generate small profits on individual trades, the sheer volume of trades generates a huge amount of profit for you.

What are the technical requirements for doing algo trading?

1)     First and foremost, you either need to be proficient in programming or you’ll have to employ a programmer to program the intraday trading strategies that will help you make trades. Note that the strategies you write or get written would have to pass back-testing before they can be used in the market.

2)     You would also be required to have access to trading platforms as well as the internet, in so that you can place orders.

3)     You will also need real-time access to market data feeds which would be monitored by the trade algorithm.

With the help of automated trading, the experienced traders can make trade execution more efficient and they can also spot fleeting trading opportunities. If you are into stock market and investing, algo trading is something you ought to try. It has the potential to transform your life and reap you serious profits from the market.

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What are the components of a good trading strategy

The biggest difference between investing in stocks and trading stocks is that while investing is a long term process where you buy the shares of the company and wait for that company to grow, in intraday trading, you buy and sell stocks within the same day to generate profits. Compared to mutual funds, trading with the help of intraday trading strategies is much less risky, which is the reason why it has been gaining such momentum in the past few years.

According to statistics, nearly 40% of all trades that happen on the National Stock Exchange (NSE) are a result of automated trading. The reason why this phenomenon has grown so quickly within such a short span of time is that automated trading removes human error and bias from the picture – which are two of the biggest factors responsible for the losses incurred in the trading market.

Unlike humans, computers do not get tired, do not miss even the minutest of details and do not succumb to emotional impulses like fear and greed. They give you buying and selling indicators based on trade algorithms that have been designed keeping in mind the previous data and have been backtested rigorously to ensure that they perform in the real world scenarios. Now that we know the importance of algo trading strategies, let us discuss their components.

Components of algo trading strategies

It doesn’t matter whether you’re an advanced trader or an amateur, there are certain components that you would need to include in your strategies to make sure that you derive hefty profits from the market while avoiding losses. Basically, there are three main components that every trading strategy needs:

Liquidity – This is essential for you to quickly enter and exit trades at an attractive and stable price. For example, liquid commodity strategies will focus on gold, crude oil and natural gas.

Volatility – Volatility determines the range of profit or loss that you can make – higher the volatility, higher the chances of profit or loss. This means that if you have a risk-bearing capability, you could consider trading in highly volatile markets, for example, crypto-currency market.

Volume

– The volume of a stock or asset is the number of times that stock or asset has been traded within a given time period. In intraday trading, this is also sometimes referred to as the ‘average daily trading volume.’ If an asset has a high volume, it means a number of people have shown interest in that asset. Any increase in the volume is an indicator of an oncoming rise or fall in the value of the asset.

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Top 5 intraday trading strategies to book profits on the share market

Intraday trading is all about buying stocks and selling them on the same day, and if you want to book profits, you need to make sure that you have good intraday trading strategies. It doesn’t matter whether you’re doing manual trading or automated trading; having good intraday trading strategies is a must. Let’s take a look at some of the best strategies that have proven themselves time and again.

Opening Range Breakout (ORB)

This is a strategy that is utilized by both amateurs and professional, experienced traders. If you combine this strategy with the proper use of market indicators, accurate assessment of market sentiment and unyielding rules, you’ll be able to gain maximum profit out of this strategy. Opening Range Breakout (ORB) has numerous variations and it depends upon the traders, how they want to utilize their strategy.

Mapping Resistance and Support

Opening range refers to the fluctuation of the stock price that happens for every stock for the starting 30 minutes of the trading session. The highest price during this period is referred to as the resistance level and the lowest price is referred to as the support level. The best time to buy is when the stock price goes beyond the opening range high and the best time to sell is when the stock price drops below the opening range low.

Demand-Supply Imbalances

One of the most important algo trading strategies for amateur traders is to look for stocks where drastic demand-supply imbalances exist and mark them as entry points. The financial markets out there abide by the usual demand-supply rules. This means that the prices of the stocks fall when the demand is low and rises when the demand is high. As an intraday trader, you must learn to recognize such points.

1:3 Risk-Reward Ratio

As an intraday trader, you can’t hope to make profits by turning the other way on seeing risks. A successful trader is one who knows when to take risks and in what percentage. This is why, as an amateur, you must learn about the risk to reward ratio. As a rule of thumb, stocks that provide a potential risk to reward ration of 1:3 are good for booking profits on the stock exchange. If you follow this strategy, you’ll be able to book huge profits at the expense of small losses and it will allow you to make overall profit even if you have suffered losses on most trades.

Relative Strength Index (RSI) and Average Directional Index (ADX)

By working with these two algo trading strategies in tandem, you can create great buying and selling opportunities and book huge profits. While the RSI help you determine over purchased and oversold stocks, the ADX is used to determine when the prices are showing strong trends. For most of the cases, if the RSI crosses the upper limit, it is an indication to sell the trade and vice versa in the opposite case.

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How can retail investors take advantage of automated trading in India

While in the western markets, automated trading has captured more than 80% of the stock market, it is slowly growing in India as well. Ever since algo trading strategies were legalized in India by SEBI in 2008, automated trading has started making its mark. Today, it accounts for nearly 40% of all trades that occur on the National Stock Exchange (NSE).

While the retail investors can now indulge in automated trading, they have to go through a rigorous process in order to get their intraday trading strategies automated as the as exchanges in India do not allow retail individuals to automate strategies.

Following are the steps one must take in order to use algo trading strategies as a retail investor.

·        You are required to register as an Authorized Person on the exchanges. To fulfill the process, you are required to pay a one-time fee of Rs 3000 per segment per exchange.

·        Once you have been registered successfully, you’d require a dealer terminal from your broker. The person who is going to be operating the terminal must have clearance for NISM Series VIII Certification.

·        After these steps, you will have to get the algorithm approved and then backtested. The exchange does this to ensure that the algorithm that you want to use wouldn’t have a major breakdown impact on the market.

How can you get the algorithm approved?

·        Your algorithm would need an approval from a certified Chartered Accountant.

·        Then your strategy would have to prove its effectiveness during the mock test that is conducted by the exchange on the UAT (User Acceptance Testing) website.

·        Once you successfully pass the test, your strategy would be approved by the exchange. Usually, this process takes up to a month.

In addition to the expenses that you would incur during the process, you would also have to pay brokerage for trading with the help of your strategy. If you are going to be dealing with 3rd party software and data feeds, you’ll need to setup your infrastructure as well. Following are the steps that you can follow.

You can either build your custom front end or buy one from those that are available.

Then you would also have to buy the data feed from a data vendor to feed the live data into the front end software which would then generate algorithm signals.

A much more easier process however for retail investors is to get in touch with Interactive Brokers, who have an API that they can link to your DMAT account and send trades. It is much easier to setup and manage.

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Algorithmic Trading in India and the scope for retail investors

After making a lot of money for investors in the Western countries, automated trading came to India on April 3rd 2008, when the Securities & Exchange Board of India (SEBI), introduced algorithmic trading by allowing Direct Market Access facility to institutional clients. To put in simple terms, Digital Market Access (or DMA as it is usually referred to as) allows the brokers to provide their infrastructure to clients without them having to interrupt them in any way. At the time when algo trading strategies were introduced in the country, they were only allowed for institutional clients and not retail traders.

According to a report by Economic Times, the automated trading business is pegged to grow from $11.1 billion in 2019 to $18.8 billion in 2024 at a robust CAGR of 11.1%. The advent of automated trading in India that makes use of intraday trading strategies has marked the beginning of an era of growth and expansion for a lot of businesses. This is why there is a lot of incentive for retail traders to get into intraday trading strategies.

Why Should Retail Traders Do Algorithmic Trading?

Retail traders have been prohibited by the SEBI for a long time from entering into the business of automated trading but now that the opportunity has finally come knocking at the door, many have shown some serious interest towards it.

However, there are certain pre-requisites to entering the algo trading world, as retailers cannot think about becoming successful without having some prior knowledge about investment and algo trading. Since automated trading is done with the help of algorithms that are fed into software that studies the market, and gives trading indicators regarding buying and selling stocks. This way, the person does not have to do any thinking and thus, human errors like miscalculation and emotional bias are removed from the picture, which makes the process more efficient and makes trading more profitable.

There are a plethora of benefits that algorithmic trading brings to the retailers. Given below are some of the most significant ones.

·        Since the computer is handling the trades, the speed of execution of trade is very high.

·        The trading decisions are well informed and not based on gut feeling or hunches. Thus, the likelihood of you suffering any losses is minimized as well.

·        Your market reach is increased quite significantly.

·        Trading becomes more systematic.

·        You can kick back and relax instead of having to monitor then market constantly.

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5 intraday trading tips that can maximize your profits

Intraday trading strategies are used by investors to conduct trades on a day to day basis. As a consequence, itraday traders are prone to a higher volatility as compared to the long-term investors. But if you have the correct knowledge, you can reap serious profits whilst doing automated trading. .

If you are starting off into this new domain of trading, it's natural that you would want to learn tricks of the trade. However, you should keep in mind that merely tricks and tips wouldn't do the job as you need good intraday trading strategies as well to maek the most of your experience at the intraday trading market. Let's take a look at some of the guidelines that you should follow in order to maximimze your profits and minimize your losses.

Go for liquid stocks

You must be well aware of the fact that intraday trading encapsulates the idea of buying and selling stocks on the same day. But you must also keep in mind that for the exchange to execute these orders, there needs to be a certain level of liquidity in the market. Therefore, you must avoid small-cap and mid-cap stocks as they're not very liquid. If you do not pay attention to this, your squaring off order might not get executed, and you could be forced to take the delivery in its place.

Diversify your stocks

Ask any investor who has existed in this market long enough and he'll tell you that it's a mistake to invest all your capital in a single stock. A better option is to diversify your investments across a number of different stocks. This will minimize your risk as you wouldn't stand to lose everything if one of your stocks fall.

Define and set entry and exit price

There's a widespread phenomenon in the market known as the buyer's fallacy. What it basically means is that the stock investors sudddenly end up having a quick change of mind once they've bought a stock. People are emotional and they may regret their decision for undue reasons. You can avoid falling into this trap by setting up entry and exit price before you take up a position. This will ensure that you maintain an objective outlook and do not fall victim of emotional mood swings.

Set a stop loss level

This is, perhaps, the most important intraday trading tip that you could ask for. Setting a stop loss level is a simple but very efficient way of minimizing your losses. This is how it works: imagine that the stock that you've bought keeps falling instead of rising on the day of the trade. Stop-loss allows you to set a benchmark after which you'd square off your position on that particular stock. This acts as a safety net and protects you from having to suffer serious losses.

 If you are just starting out as an intraday trader, it could be beneficial for you to adopt the 3:1 Risk to Reward Strategy. Under this strategy, the stop loss price that you should set should be 3 times lower than the price at which you'd be willing to book profit.

Booking profit after reaching the target

Fear and greed - both are your enemies in the stock market. Just like you shouldn't be too scared of taking risks to earn rewards, you also shouldn't become too greedy! While leverage and margins can help you maximize profits, they can maximize losses as well. Therefore, you need to be careful and not get greedy. Do not fall into the trap of assuming that the price would keep on rising (or falling, in case you're short-selling). But if all the signals indicate that the price would definitely rise, then it is up to you to decide what you shouldn do.

Remember to close your open positions

There are a number of intraday traders, who prefer to take the delivery of the shares if they do not meet the stock price target that they'd set for the day. This isn't really the best strategy in

automated trading

, as the stocks that you had bought were bought for intraday trading and they may not work well for you if you go for long-term investment.  

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4 treasured intraday trading tips

If you are one of those people who want to make money from money and rather quickly, then intrading trading strategies can help you achieve your dream. But automated trading isn't a piece of cake. Given how high the stakes are, you need to keep in mind some tips that can help you get success on the stock exchange.

Volume of trading

As an intraday trader, you buy and sell stocks on the same day, without taking deliveries. Hence, one of the most influential factors in determining your success as a trader are the trading volumes. Since people are trying to buy low and sell high, most of the traders are solely focused on stock prices. But trade volumes play just as important a role in increasing your profit. You can sell not very high, but if you sell enough, you'd be able to reap that profit. Oftentimes, it is easier to sell in large volume than at high stock price.

Don't be impulsive

This is why you should always set your entry and exit prices. People are often swindled by market volatility and tend to change their decision, either because of fear or greed - neither of which is a good trait in a trader. As a player in the stock market, you have to be resolute and pragmatic. This you can also achieve by opting for automated trading instead of manual trading. With the help of algo trading strategies, the computer software does the trading for you. This type of trading is fast, effective, and risk-free, as unlike humans, computers are not prone to emotional swings.

Effeciently manage the risks

Here's the thing about intraday trading: there is always going to be a risk factor. Withotu that risk, there would be no reward. So, you can't really avoid risk, but if you want to become successful, you'll have to learn to manage the risks. Techniques like stop-loss are excellent at minizing risks while ensuring that you book optimum profits.

As an intraday trader, you are often juggling with factors that are beyond your control, and you need to keep in mind that the market may not perform according to your expectations and you need to have a strategy to fall back on, in such cases.

Avoid trading in the opening hour

As soon as the market opens, traders arrive in droves to buy early in order to take early postions. However, the research has shown that the stock markets are most volatile during the opening and closing hour of the day as the people are often reacting to the market performance of the previous day. This can cause the price to get skewed in either direction. Therefore, buy early only if you have done airtight research. According to statistics, the most favourable time for trading is to buy after 11:30 am and to sell before 1 pm.

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All you need to know about Indian stock markets and automated trading

Although it may seem pretty small in the world market as of now, but the Indian stock market is on am exponential growth curve. With the emergence of startups and other small and large businesses in the country, there has been a growth in the number of investors. In the present scenario, even the people belonging to the middle class are getting interested in the investment business, and this growth has been further augmented by the introduction of automated trading in the Indian stock markets. The growth has been so quick, in fact, that within a short span of time, 40% of all trades that happen on the National Stock Exchange (NSE) are being done with the help of automated trading by employing algo trading strategies. But before we delve deep into studying the Indian stock market, let us first understand what a stock is.

A stock is a kind of security that represents an ownership share in the company. When the companies are looking forward to accomplishing feats that require substantial capital, they go public and issue stock, and when they start making profits, the investors are rewarded with dividends. As an investor, however, your interest cannot be in just one company. Your sole purpose is to make money from money – this involves buying and selling stocks at the right time. While the experienced traders are pretty good at this, yet, as humans they’re prone to making mistakes – sometimes because of the greed of extra profit and sometimes because of the fear of incurring the loss. A computer program, however, doesn’t feel these emotions. It assesses the market conditions objectively and offers you the least risky path. This is why automated trading has become such a phenomenon in the Indian trade markets.

Talking about trading, if you want to start from scratch, you’d be required to open a trading-cum-demat account with a registered broker of BSE or NSE, and you’d also be required to link that account to your PAN CARD, Bank Account Number, a mobile number and email ID. Once you are done with these formalities, you’ll be eligible to trade on the stock market. This is when you should know about NSE and BSE.

NSE (National Stock Exchange) and BSE (Bombay Stock Exchange) are the two most important stock markets in the country. They facilitate a safe and controlled environment where you can conduct trades with minimal risks. They’re both regulated by SEBI (Securities and Exchange Board of India) which is an independent authority.

Roles and Responsibilities of NSE and BSE

1. To ensure that the exchanges have a level of transparency.

2. To increase the reach of the trading network.

3. To evaluate the stock prices.

4. To conduct transactions at high speeds.

5. To act as a barometer for the economy of the country.

6. To keep the investors safe and secure.

If you are new to the trading business, you shouldn’t plunge headfirst into uncharted waters, gives the stakes. Therefore, it is prudent to hire a broker, but when you do, you need to ensure that he isn’t charging you excess commission, he isn’t breaking the rules and most importantly, that he is a professional and not a self-proclaimed expert.  

Signing up with a company that helps out investors with

automated trading

could also be a great idea. This way, you’ll get to learn about trading in a safe environment and since the intraday trading strategies are totally governed by computers, you wouldn’t have to worry excessively about your money.

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What is the difference between investment and trading?

Investment and trading are not the same, even though a lot of people are under the impression that they are. To a layman, both these terms sound similar but to experienced traders, who have been into investment and automated trading as well as manual trading for years, they are completely different things.  

A key difference between these two relatively similar words is the time horizon. Investment, usually, is for a longer period, whereas, trading can be done on a monthly, weekly or even daily basis (with the help of intraday trading strategies). If you happen to venture into a stock market, you wouldn’t hear too many people calling themselves an intraday investor or a long-term trader.

Intraday trading strategies are algorithms that are written in order to generate maximum profits on trades with minimum risk in a given stock market. Those algorithms, however, can’t be haphazardly written and implemented in the market as a lot is at stake. First, they have to be passed by a Chartered Accountant and only then they are implemented in trading software. After that, backtesting is done to ensure that the algorithms are working properly. All these steps, combined, make automated trading a safer, more efficient option.

It is only natural now that you should be wondering as to how a trading strategy is devised? Well, there are a number of ways in which you can develop a trading strategy. Different people have different ways of conducting an analysis but there are a lot of factors like market news, fundamental analysis, technical analysis etc. that have to be kept in mind before creating algo trading strategies.

How to write algo trading strategies!

·         There are plenty of websites where you can go and select your trading strategies by using a simple form.

·         Next thing you need to do is to test the strategies you’ve chosen in different market circumstances to check how they work in real life situations.

·         If you get promising results, it would mean that the strategy that you’ve chosen is effective.

But before we conclude, we must emphasize that even though backtesting confirms the efficiency of your algorithms to a degree, it isn’t a hundred percent effective. Many a times in the past, it has happened that an algorithm that has done tremendously well in the backtesting phase hasn’t worked wonders in the real life situations. This is something that you need to get used to; as great as automated trading is, there’s a certain risk factor attached to it. But then again, risk is a part of the entire stock market. What matters is whether the reward is worth the risk or not.

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What are the requisites of a trade platform?

Not long ago, most of the trading in India used to be done manually. But ever since automated trading entered the arena, more and more people have gravitated towards it and now, nearly 40% of all the trades that occur that the National Stock Exchange (NSE) are done via algo trading strategies. The reason why algo trading has become so popular in such a short span of time is that it provides unparalleled speed, accuracy and efficiency that just isn’t possible with manual trading.

Since automated trading is done with the help of complex algorithms, the speed and accuracy is maximized while the risk factor of human biasness is minimized at the same time. Not to mention that algo trading strategies help generate massive amounts of profits for the trader because the number of trades that can be executed within a given span of time are enormous.

Algo trading utilizes complex algorithms that have been backtested on previous data to generate great liquidity for the trader. The trading algorithm also has to undergo severe scrutiny before it can be used in the market – given the high stakes. The entire point of algo trading is to make the process of intraday trading strategies, faster and efficient while minimizing the level of risk associated with trading. The customers invest their hard earned money in the trades and they are taking a big leap of faith by trusting their future to a few lines of code that they themselves often do not understand. This is why it is absolutely necessary for algo trading platforms to perform seamlessly. The desired features of an algo trading platform are as follows:

·         Quick trade execution.

·         Having the option to connect with different exchanges.

·         Both the market data and the company data should be available in real time.

·         Both the latency as well as the time lag should be as low as possible.

·         There should be an option for customization, as different traders have different needs.

·         The platform must have the ability and the infrastructure for backtesting.

·         There should be a provision to conduct trades directly with the broker’s network.

·         The platform must have trained professionals who have expertise in writing trade algorithms that are according to the needs of the specific trader.

·         A programming language that is independent of the platform is a must have to avoid confusion.

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Importance of backtesting in automated trading

Those who look at the past with a careful eye are the ones who are best prepared for the future, and this applies as much in automated trading as any other aspect of life. Are you wondering how? Let us explain.

Whenever an algorithm is written from intraday trading strategies, it cannot be simply implemented in a real life situation. The reason is that the stakes are so high in the trading business, mistakes cannot be afforded. Therefore, once the algorithm is passed and implemented in trading software, it is backtested. The process of backtesting involves using a new algorithm to make trade decisions on past data. Since the results are already known, it works as a litmus test for the efficiency of the algorithm. If the algorithm helps make the correct buying and selling decisions on the past data, it is likely that it would work on the future data as well.

Previously, backtesting was an ardous and lengthy process as it was done manually. But nowadays, three are many softwares that are ready made for testing algo trading strategies. Utilizing these software is a great way of saving time and resources. In case, you are planning about getting into automated trading, you need to keep a few things in mind.

Net Profit and loss An experienced trader would know that there is only one goal in trading – to generate maximum profit with minimum risk. Therefore, it is always best to backtest your algo trading strategies on a broader time frame. For example, a trading strategy that gives the desired results in a time frame of 2000-2020 is much better than one that gives similar results for a time frame of 2000-2005.

Market Volatility This term is used to refer to the inevitable fluctuations in the trade market. As a smart trader, your goal should always be to work with low volatility in order to reduce your risk while maximizing your profits.

Ratios As is obvious from the name, some parameters are divided together to understand the nature of the stock and company. It comes in handy for managing money and in optimal position sizing. Two of the ratios that you should always be concerned with as a trader, are profit to loss ratio (P/L) and profit to equity ratio (P/E)

Average Return

The only scoreboard you’re going to have as a trader is the average return. Even though it cannot and should not be treated as a benchmark of success, it is an effective way of evaluating the success of a strategy. The more return you get from a strategy, the more successful you are as a trader.

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What are the advantages of automated trading?

Automated trading, also referred to as algo trading, utilizes computer algorithms to make trades. Since the computers are much faster, precise and emotionally unbiased, they can really help increase the efficiency of trades. In fact, algo trading strategies have become so popular that almost 40% of all trades conducted on the National Stock Exchange (NSE) are done by using automated trading. Let us take a look at some of the advantages of algo trading that makes this method of conducting trades so popular.

 Advantages of Algo Trading:

To answer the question of whether or not algo trading is right for you and whether or not you should conduct intraday trading with the help of computers, we need to assess the pros and cons of the method in question. There are undeniably some cons related to algo trading but they are massively over weighed by the pros, which include:

 Speed

One of the best advantages of automated trading is that since the algorithms are already decided, the trades can conducted automatically and with great speed. Naturally, when the speed of trade execution is high, you’ll be exposed to more opportunities for generating profit. Since computers operate in a speed parameter known as MIPS (Million Instruction Per Second), the difference between the computational capacity of humans and computers is so significant, it would be ludicrous to even compare the two.

 Accuracy

But we all know that speed means nothing unless accuracy is there. It is after all, the cornerstone of success in so many businesses. For computers, the question of accuracy is a moot one. If the algorithm written is good, then the accuracy of successful trades will also be good and vice versa. Humans, on the other hand are unpredictable; they make an incredibly intelligent trade decision in one moment and be swayed by emotions and external factors to make an absolutely asinine decision in the next moment. This is why algo trading is more predictable and hence, more accurate. In any business, you want to eliminate randomness as much as possible and algo trading strategies help achieve that target.

 If you want to test the accuracy of your algorithm, you can backtest it. In backtesting, you subject your algorithm to previously available data to see how it’s functioning against it. By studying algorithm’s performance against old data, you can confirm the level of efficiency and accuracy of the algorithm.

 Free time

By employing a trading algorithm, you can get rid of a lot of stress that comes from having to monitor the stock market day and night. The algorithm will take care of your sales, generate more revenue and reduce losses. As a result, you get time to enjoy your life.

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3 Efficient Intraday Trading Strategies Used in Algorithmic Trading

Intraday trading, as the name suggests, refers to the process of buying and selling financial instruments on the same trading days – which, in effect, means that all the positions are closed before the market shuts down for the day. By making use of the intraday trading strategies, the investors or speculators, as they are called, are able to generate great profits. Algo trading strategies, on the other hand, make the process incredibly fast and much more result-oriented. Using algo trading strategies in tandem with intraday trading strategies, you can generate great profits with minimal risk.

Given below are some of the most popularly used, foolproof intraday trading strategies that are used to optimize the algo trading process.

Momentum and Trend Based Strategy:

This is, perhaps, one of the simplest and most straightforward ways of conducting trades in the market. You are not required to make any complex predictions. All you have to do is to follow the market trends and your algorithm will execute the trades accordingly. The decision to conduct trades will be made according to a number of technical indicators - the moving averages, the price level movements, channel breakouts, etc. Once a given set of conditions is satisfied automated trading happens.

 Arbitrage Strategy:

Arbitrage strategy can come in handy if there is a difference in the costs of the securities between two different stock exchanges. The algorithm you are using will collect the information from different exchanges and quickly identify the two stock exchanges with the greatest difference between the prices of their securities. It’ll then buy the securities from the cheaper exchange and sell it to the costlier one to generate maximum profit. This is known as arbitrage profit. Although the profit gained per trade isn’t too high, but when you consider the speed at which automated trading works, you can make a substantial number of trades to generate quite a lot of profit.

 Weighted Average Price Strategy:

This is one of the most popular as well as one of the most effective trading strategies. In this strategy, you are supposed to quick-execute the order to the volume-weighted average price or the time-weighted average price. It is to be noted that the orders are executed in small parts. The order is based at either volume-weighted average price or the time-weighted average price in specific opening price in defined time slots.

The benefit of using algorithms is that they are able to release the different orders in small portions, efficiently and accurately within a matter of nanoseconds. Needless to say, it is an impossible feat for human traders.