It’s true that most day traders, around 85%, lose money. However, new strategies are coming to light that lead to better returns.
The problem with day traders is that they are prone to human error. When you take on an algorithmic trading strategy, you remove the margin of error and rely on computer programs instead.
What is algorithmic trading or algo trading? It’s a mathematical model of trading that can generate profits at a level that is impossible for a human to do alone.
If this strategy interests you, read on to learn about the benefits.
Removes Human Emotion
When human emotion is combined with trading activities, things don’t always go well. An algorithmic trading strategy removes human emotions as it is based on a set of instructions.
There are no irrational decisions made under this strategy. These computerized trades do not include human interference.
Another one of the benefits of algorithmic trading is that it depends on accuracy and timing. The room for error for humans is much more significant without the use of an algorithmic trading strategy.
The best algorithmic trading strategies work when they are planned out ahead of time. From there, the computer can make the correct trading decisions to enhance accuracy.
KJ Trading Systems can help you build a winning algo trading strategy.
Placing Multiple Trades at Once
Placing multiple trades at once can increase the probability that the trader makes a bigger profit. With the adoption of technology, algo trading can make multiple trades at a higher speed and accuracy than a human.
Back Test Ability
Because traders need to learn where they can grow in their trading system, algo trading offers the ability to back test. A trader can use past data to find parts of the system that have faults.
Although algorithm trading is mostly computerized, you might have to adjust your strategy to fit the market.
Reduction in Transaction Costs
Algorithmic trading gives a trader more free time so that they don’t have to keep looking at their devices to monitor transactions. Not only that, but the technology reduces transaction costs.
The system will monitor trading activities for you so that you don’t have to constantly supervise which saves money and time.
High Frequency Trading (HFT)
High frequency trading (HFT) is a part of algo trading that incorporates high speed to conduct trades on powerful computers. This method of trading uses complex algorithms.
Those who opt for this type of trading strategy tend to receive a higher turnover rate.
Should You Use an Algorithmic Trading Strategy?
If you’re a day trader looking to find success, implementing an algorithmic trading strategy can help. Although this method of trading is computerized, you’ll have to plan out your strategy beforehand.
The algorithm follows a specific set of instructions to make multiple trades at high speeds. If you want to reap all of the benefits above, start creating your algorithmic trading strategy now.
For additional tips on personal finance and making money as a day trader, check out the posts on our blog.