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Getting Started with Algorithmic Trading

Algorithmic or automated trading means the automation of the whole trading process, from decision-making to market execution, based on a combination of computer software and hardware. An algo-trading system mist be able to execute and alter trades 24/7 without any human intervention. 


Algo Trading Basics

Major Assumptions

  • Historical results have at least some predictive ability {Sharpe 1994}
  • Financial Markets are not perfectly efficient (at least in the short term)
  • Financial Markets have a finite depth
  • Regularities in financial data do exist, but only for short periods, a window of opportunity may open, and then at some future time it will close
  • The financial data (price and quantity) are driven by human psychology and societal decisions and therefore are random and unstable


Basic Components of an Algorithmic Machine

An algorithmic system incorporates two basic components:

  1. The Forecasting Module
  2. The Action Module


The General Categories of Algorithmic Trading

We can identify 5 main categories of algorithmic trading according to Mitra, di Bartolomeo, and Banerjee (2011):

(i) Algorithmic Executions (Executing speculative positions in the market based on mathematical algorithms. A simple application would be the creation of an Expert Advisor that runs on a trading platform and implements an automated trade strategy)

(ii) Statistical Arbitrage (Automated trading based on historical market data and distinct cyclical patterns)

(iii) Crossing Transactions (Seeking a counterparty to the other side of the trade, without exposing the details of the transaction to other market participants)

(iv) Electronic Liquidity Provision (Willing to buy or sell any asset upon a counterparty’s request)

(v) Predatory Trading (Placing thousands of simultaneous orders into a market while expecting to execute only a tiny fraction of all orders)


Expert Advisors (EAs) -Simplified Algo Trading for Retail Traders

Expert Advisors or else EAs are software applications that run on a trading platform and are designed to fully automate the trading process. EAs use algorithms to analyze the market and then execute automated trading orders based on certain rules and conditions.

» Review Expert Advisors at FxPros.net


Creating Custom Expert Advisors

The EA Builder is a web-based application that helps traders transform their trading ideas into fully automated systems. There is no need for programming skills and even beginners can create complex Expert Advisors. The EA Builder can also create simple indicators and that service is 100% free. You can create an automated strategy to trade any financial asset (Forex, Equities, Commodities) and use it on three trading platforms (MT4, MT5, and TradeStation).

EA Builder Basic Features

Free for creating indicators for MT4, MT5, and TradeStation, paid only for creating EAs..

(1) Free for creating indicators for MT4, MT5, and TradeStation, paid only for creating EAs

(2) 100% Web-Based App, No need for Programming Skills

(3) EA Builder EAs can trade any financial market (Forex, Equities, and Commodities)

(4) EA Builder EAs can trade any asset in any timeframe. Binary Options Trading is also included.

(5) High-Customizable EA building (tens of functions). Alert Service via email, audio, and on-screen

(6) Full money management control (spread and slippage control, sensitive orders).

(7) EA Builder offers also Binary Options Trading directly on MetaTrader 4.

(8) Can be used in unlimited real/demo accounts

» EABuilder Website | » Learn more on how to Create Expert Advisors with EA Builder


Algorithmic Platforms and StrategyQuant

StrategyQuant is an innovative algorithmic platform that allows the creation of automated trading strategies for any market without any programming skills. The software can help traders optimize and backtest their auto-trading strategies by using a wide variety of built-in tools.


StrategyQuant Basic Features

Traders can use thousands of already-made automated trade strategies or start building their trading strategies, completely from scratch. One of the greatest advantages when using the StrategyQuant platform is the ability for sophisticated backtesting and step-by-step optimization:

  • Developing automated trading strategies without programming skills

  • Trading any financial market (Forex, Equities, Cryptocurrencies, Bonds, etc.)

  • Selecting from a wide library of thousands of random existing automated strategies

  • Four available modes (developing, re-testing, improvement, and optimization)

  • The end product can be an Expert Advisor (EA) for MetaTrader4, MetaTrader5, NinjaTrader, or TradeStation

  • There is a 14-day trial (a fully-functional trial)

  • Customer support and an active community of thousands of members

» Learn more about StrategyQuant Platform |  » StrategyQuant's free 14-day trial


Tools for Algorithmic Trading Systems

These are some tools for building and optimizing an algorithmic signaling machine:

  • Pattern Recognition (machine learning)

  • Order/Volume Breakout Analysis

  • Time Series Analysis

  • Intermarket Correlations Analysis

  • Market Sentiment Measures (data mining metrics of positivity/negativity of the language used in particular entities or events)

  • Historical Backtesting

  • Monte-Carlo Simulation (using random sampling to solve deterministic problems)

  • Hamilton–Jacobi–Bellman (HJB) Equation (central to optimal control theory)

  • Queuing Theory (mathematical study based on predicting the time and length of waiting for lines or queues)

  • Sharpe/Sortino Ratios (differentiate harmful volatility from overall volatility by using the downside deviation or else the asset's standard deviation of negative asset returns)


Algorithmic Trading

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