Advantages of Algo Trading

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Automatic Trading has several advantages over Manual Trading, that are expressed thanks to its ability to handle the following obstacles in the capital markets:

  • Unexpected price movements;
  • Failure in accurate analysis and correct reading of data;
  • Large number of indicators that need to be taken into consideration;
  • The need for speed of response;
  • The psychological obstacle and mental stress.

 

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Unexpected price movements

As mentioned, the movement of currencies in the foreign exchange market usually has a certain format. Most investors are unsuccessful in identifying this format, or look for a rising or descending trend and trade accordingly. The problem is that on many occasions the market changes direction very fast, or a sharp and surprising movement occurs, leaving the traders of the transaction at a loss. The various colleges teach each beginner trader to place a limit to cut the loss: STOP LOSS. Whenever the fast graph crosses this line, the sell or buy orders are carried out. Since there are different players in this market, and some of them have better information and greater influence than others do, they are likely to cause the same fast and surprising movements that cause transaction of other traders to close at a loss by crossing the STOP LOSS line. In this way, most of them quit the transaction too early at a small or large loss. These traders interpret the fast movement as unexpected and as almost impossible to predict. They try different methods which fail, one after the other.

In contrast, Algocode's robots are programmed on the basis of different mathematical assumptions, sometimes the complete opposite of trivial, accepted thinking. The robots know how to consistently calculate standard deviations and to build from the data a template image, through which they close the transactions at a profit. This analysis is made every second, 24 hours a day, and no human brain is capable of so doing.

 

failedanalysisFailure in accurate analysis and correct reading of data

Reaching a successful decision with regards to the buying and selling of a currency pair is dependent upon much preparatory work for an accurate analysis of the movements of the pair and waiting for the opportunity that will sometimes come in the fraction of a second. When trading is manual and dependent upon human discretion, there is likely to be a problem in every step of this process: at the stage of reading the data, at the stage of analyzing the market movement or price tendency, or at the decision taking stage, i.e. at the timing of the execution of the transaction. Algocode's robots are fed with mathematical premises and the movement of prices on the graph is examined every second in view of this movement and in the light of its standard deviation at different intervals of minutes and hours. The robots perform complicated calculations in a split second and on the basis of the assumptions in which they were programmed, they perform a purchase or sale transaction. As stated previously, regrettably, no human brain is capable of so doing.

 

 

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Large number of indicators that need to be taken into consideration

As is known, in order to create a profit from transactions in the capital market, the trader must consider a number of macro-economic and technical data. Each dealer has a number of indicators and data which guide him to a trading decision. Each one chooses for himself what he learned or what seems to him the best way of identifying the price movement. The trader mostly chooses 2-4 indicators on which he bases his decisions. Nevertheless, as more indicators are used and more consideration is given to macro-economic data simultaneously, it is more likely that the decisions taken will be more founded. The computer is not limited in the number of indicators that it is capable of entering into its formulae; the human brain is limited.

 

 

 

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The need for speed of response

As said, the movement of prices in the foreign exchange market is sharp and swift. The human eye and brain will usually find it difficult to follow the movement, to analyze it and to reach quick and good decisions. In the case of complicated mathematical calculations, on which our robots' assumptions are based, this becomes impossible for the human trader.

The robots are capable of collecting and considering a limitless amount of mathematical data, analyzing these data, making decisions, and passing buying and selling instructions to the trading company - and all this, in a split second.

 

 

 


The psychological obstacle and mental stresstraders

There are those who claim that the largest obstacle in the way of the beginner trader and also the experienced trader is the heavy stress in which they are placed. The investor frequently makes a decision of buying or selling and, a short time later, he views the graph which changes direction so that the transaction accumulates losses. The more the graph "goes against" the investor, the greater the stress and he is more inclined to quit the deal on the assumption that it is better to lose a little than to collapse completely and lose all his money. Since the direction of price movement is never straight or linear, the investor will always be in the situation of reversal of the price graph. The weaker the nerves of the investor, the faster he will tend to leave the deal. In this way, he prevents himself from reaching the point of profit.

 

The robots are sophisticated computer software, operating without any human intervention and, as such, are devoid of fear or greed. The robots operate under the assumptions embedded in them and they perform what is expected of them accurately, efficiently, consistently, and calmly…