Types of Algorithmic Trading Strategies

Now that you have an idea of what algorithmic trading is and what all is required to become an algorithmic trader It’s time to learn different types of trading strategies involved in this field Let’s dive in there are mainly five different types of trading strategies when it comes to automated or algorithmic trading they are one momentum two mean reversion three market-making four statistical arbitrage five sentiment based quantitative methods or technical indicators one of the simplest strategies is Simply to follow market trends with buy or sell orders generated based on a set of conditions fulfilled by technical indicators Basically you have to base your algorithmic trading strategy on the market trends Which you determined by using statistics this strategy can also compare historical and current data in predicting Where the trends are likely to continue or reverse? Another basic kind of algorithmic trading strategy is the mean reversion system Which operates under the assumption that markets are ranging 80% of the time? people who employ this strategy typically calculate an average asset price using historical data and takes trades in anticipation of the current price returning to the average price a market maker or liquidity provider is a company or an individual that quotes both a buy and a sell price in a financial Instrument or commodity held in inventory hoping to make a profit on the bid-offer spread Market making provides liquidity to securities which are not frequently traded on the stock exchange the market maker can enhance the demand supply equation of securities Statistical arbitrage or stat arb is related to the statistical Mispricing of one or more assets based on the expected value of these assets stat arb is also a subset of mean reversion Strategies as a trading strategy Statistical arbitrage is a heavily quantitative and computational approach to equity trading one of the most common stat arb strategy is pairs trading where a pair of cointegrated assets is considered the underperforming asset is expected to rise and is bought while the Outperforming asset is expected to decline in value and is sold Statistical arbitrage has become a major force at both Hedge funds and investment banks many bank proprietary operations now center to varying degrees around statistical arbitrage trading Sentiment based ever try trading based on sentiment Well this strategy can do it for you a news based algorithmic trading system is usually hooked to news wires automatically generating trade signals depending on how actual data turns out in comparison to the market consensus or the previous data as you’ve probably guessed it takes a solid background in financial market analysis and Computer programming to be able to design sophisticated trading algorithms Quantitative analysts or quants are typically trained in Python C or Java programming before they are able to come up with Algorithmic trading systems the good news is that we’ve got you covered Quantra offers online self-paced and interactive courses on each aspect of algorithmic trading So head on over to the link in the description and enroll now

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