Algo trading programs are gaining more significance now than ever before. This is due to the trading convenience and opportunities that they offer. Algorithmic trading platforms use a pre-defined set of rules to identify profit-making trading opportunities and execute orders accordingly. With the evolution of these platforms, trading has become much more efficient for individuals. 

However, in order to make the most out of these auto algo trading platforms, one needs to build a well-defined trading strategy based on their individual goals and needs. If you are a beginner in algorithmic trading, this guide will help you build your first algo trading program:

1. Clearly Set Your Goals

Before you start building a trading strategy, you should first have a clear understanding of your objectives. Clearly define the goals that you intend to achieve with an algo trading platform and work accordingly. 

Your goal may be to invest for the long term or to gain short-term gains. It may also depend on whether you are interested in a specific class of assets or want to invest in a mix of them. Unless you have a clear idea of what you want to achieve, you cannot build a proper strategy that works 

2. Collect Data

The next step in the process is to collect relevant data from traditional as well as alternative sources. Data is the basic need for creating a trading strategy. You can get the data from financial data providers, through broker research notes, or via APIs. 

The data should include every essential information about the assets, including high and low prices, open and close prices, and volumes. Trading algorithms are trained on this data, i.e. the algorithms learn from this past data to streamline future strategies. Hence, the accuracy of this market data matters a lot.

3. Choose a Trading Platform That Suits Your Needs

There are plenty of algo trading platforms that allow users to build their own strategies and automate their orders. You can look for the top auto algo trading software apps and choose the programming language of your choice to build your strategy. 

Python, Java, and R are some common programming languages used for building trading strategies. But you don’t necessarily need coding language to build your own trading strategy. There are numerous algo trading apps that allow you to build strategies with very little to no coding knowledge. We will be discussing some of them in the next step.

4. Finalize Your Strategy

This is the main step where you need to code to build your trading strategy. In order to ensure that your strategy is well-defined, you have to keep a set of rules in mind. Some common types of strategies include:

• A simple moving average crossover strategy
• A mean-reversion strategy
• A complex machine learning model-based strategy

Today, various algo trading platforms allow users to build trading strategies without any coding knowledge. Users get access to vast libraries of pre-built strategies that they can use to tailor their own strategy. Apart from these, top algo trading program apps like Bhavv.ai are fully automated. Users do not even need to build strategies. They can just sign up for the platform, set it according to their requirements, and automate their trading orders. 

5. Backtest Before Risking Real Money

Backtesting becomes extremely important when you are building your own strategies with algorithmic trading platforms. Most of the algo trading platforms allow users to backtest their strategies using virtual money before they put real money at risk. 

Your trading strategy may have underfitting or overfitting issues, which you won’t be able to identify with historical data. By backtesting these strategies for real-time market data, you can identify any potential weaknesses in your strategy and improve accordingly. 

6. Implement Risk Management

When building your algorithm trading strategy, it is essential to consider the associated risks and implement risk management techniques. There are different types of risks associated with algorithmic trading, which include market risks, technical risks, behavioral risks, and operational risks. In order to minimize risks, you can implement the following risk management strategies:

• Set stop-loss orders to ensure that your sell orders are automatically executed before the price drops beyond a certain limit.
• Leverage position sizing to ensure that a single asset’s price drops do not have a very major impact on your portfolio.
• Diversify your portfolio by including multiple types of assets in it.
• Choose AI bot trading platforms like Bhavv that allow you to set your risk appetite.

7. Monitor The Performance and Optimize The Strategy

Even when you have started using a particular trading strategy, don’t just stop looking at its performance. The market conditions fluctuate every minute. Therefore, it becomes important to monitor the performance of your trading strategies and keep adjusting them as per the changing market conditions. If the strategy is underperforming, you may have to fine-tune its parameters or maybe even redesign the entire strategy.

Using AI-Powered Automated Algo Trading Platforms

While building your trading strategy on your own is a great idea to make things work in your favor, it requires you to have a good knowledge of programming languages. Even if you do not have any prior coding knowledge, you can find auto algo trading software apps that allow users to choose from a library of pre-built strategies. But you still need to be careful about the strategies you choose.

What sets Bhavv apart from all the other algorithmic trading platforms is that you don’t need to build or choose any strategy. You can register yourself on the platform, connect it to your broker account, choose your plan, set your risk appetite, and start trading. Based on your budget and your risk percentage, Bhavv identifies the most suitable trading opportunities and automatically executes trade orders on your behalf. 

FAQs

1. What are some common challenges in algorithmic trading?

Ans. Some common challenges faced in algorithmic trading include overfitting or underfitting of algorithms, operational risks, technical risks, market volatility, regulatory compliance, lack of transparency, etc. 

2. Can algorithmic trading be profitable?

Ans. Yes, algorithmic trading can benefit you if you have chosen your strategy wisely and set your goals clearly. Setting goals also involves implementing risk management strategies. 

3. What are some popular algorithmic trading platforms and tools?

Ans. Bhavv is one of the top AI algorithmic trading platforms in India. It not only automates order execution for traders but also considers their risk percentage when identifying market opportunities.