The Forex and stock trading market is one that evolves at a breakneck speed keeping itself toe to toe with the latest developments in the tech industry. In fact, the last couple of decades has seen a transformation of the Wall Street from busy trading floors filled with traders shouting in orders to day traders and brokers sitting comfortably in their home and conducting their businesses through high speed Internet.
All of this has been made possible due to the advancements of computers and the Internet. Now we have online portals and trading platforms that brings the power of HFT trading into the hands of day traders everywhere. While speed and reliability are certainly two things that HFT systems rely on, their main advantage lies in the fact that with the aid of modern computing technology, banks and other financial institutions can make use of Machine Learning in order to better predict the stock market.
Words like Machine Learning and Neural Networks might seem fancy and far fetched to mainstream media and the layman but for someone who knows how to code, the advent of Algorithm based Trading on Retail Trading platform is an absolute boon. But before we delve deeper and understand why trading via algos are so heavily skewed towards people with coding and mathematical skills, let us first understand the core principles on which ATS are based on.
How Can You Master Algorithmic Trading?
Every major stock market follows an overarching pattern of seasonal and asset based trends. While these trends are too wide spread-over months sometimes even years for a day trader to figure out, when analysed statistically, they are quite apparent. In mathematical concepts this is known as curve fitting and is an integral part of any statistical analysis.
In all of this where does Algorithmic Trading come in? Well for a human data scientist to cover and understand these trends, it needs years of studying as well as comprehensive experience in the field. However, since a computer has immensely more number crunching power than even the best human mathematician, all these trends and variances in the market become easily more apparent to the machine than to any individual day trader. This is what Algorithmic Trading is all about and in essence are just a set of rules and guidelines which tells the automated Forex platform which stocks to buy and sell and at what price point.
In fact, while all of this may sound complicated, the skill-set required for making one of these algorithms from scratch isn’t something that is out of reach of the average tech geek or programmer.
- Coding Skills:
- Statistical Skills:
While a rudimentary understanding of trends, curve fitting, seasonal analysis and basic distributions is always helpful, most of the modern automated trading platforms also have tons of tools which provide accurate and actionable historical data so that even the most bare bones of algorithms can be trained into effective trading machines within a few thousand training cycles. Even then, a certain mathematical frame of mind is always helpful in getting those human tweaks and touches that converts safe trades into immensely profitable ones.
How to Earn Revenue From Algorithmic Trades?
This, of course, is the most important part as there must be substantial rewards to putting in so much time and effort into making effective algorithms that can rule the trading markets. Well, there are a few key ways of earning that we have highlighted below
The most obvious way is to let your algorithm loose on the live market and watch it earn you dividends as it sifts through stocks and shares and gets you the best deals.
- Selling the Algorithm:
Most programmers as well as data scientists have a day job that requires their attention and no matter how intelligent the algorithm is, it’s always better to keep a watchful eye on it. So selling it off to someone who doesn’t possess the technical know how can obviously be another solution.
- Selling Trading Signals or Strategies:
Some of the best algorithm makers are also day traders themselves who have combined their immense experience along with technical know how to create trading rules that can successfully predict the market. In such cases one of the most profitable ways of earning sustained revenue is letting the algorithm run in untapped stock markets and then provide strategic trading guides for copy trading or offer trading signals as a mentor to other newer traders.
So what are you waiting for, if you have the coding skills and you think you can see patterns better than most others can, it’s time to give the world of algorithmic trading a try!