Algorithmic Trading and it's Pros and ConsAlgorithmic Trading is the activity of bots to perform buy and sell actions on an exchange. These bots are scripts created by traders to eliminate manual trading.
It's all rule-based trading. A trader codes the indicators, moving averages, and various other conditions for the buy's and sell's to happen. Stop losses and take profits are coded and so are dynamic buys and sell conditions which makes algorithmic trading even more versatile.
Pros
Speedy executions make it easy to capture quick price movements as soon as they occur.
There is no risk of any human error during trading.
Execution of large volumes of trade in a short period of time.
Ability to backtest historical data to train the algorithm accordingly.
Investment can be diversified using multiple trading scripts.
Cons
Technology Dependency which means if the algorithmic trading platform is not reliable, there could be a possible loss of capital in the event of disruptions.
Need to know how to code or understand the concepts of trading, indicators, etc.
Need of high-end resources to create, backtest and run trading scripts.
How many of us make use of Algorithms to trade and what are your favourite trading strategies? Share in the comment box below
For more Educational content follow us.
Happy Trading
