Automated trading or algorithm-based trading uses special computer programs that are used to place a trade. Such programs use specific algorithms to analyze the various alternatives available and then make the best decision for your benefits. This mode is extremely easy and simple for both new and experienced investors.
Notable strategies for algorithmic trading India
Any strategy for algorithmic trading India requires specific opportunities that are profitable to boost earnings and to reduce costs. Therefore, some of the notable strategies for this are –
- Trend following strategies
Some of the common strategies used for algorithmic trading India are based on the analysis of the past trends. For this – moving averages, channel breakout, price movements and other technical indicators are used.
These strategies are easy and simple to implement. Often these are based on historical data which is easy to obtain. Hence, 50 to 200 day moving average is a good idea for making investments.
- Arbitrage opportunity
Another alternative for algorithmic trading India is to buy dual listed stocks. This means picking up the cheap stock from one market and immediately selling it in another one at a higher margin. Such an investment is largely risk free and ideal for beginners.
Also, the same idea can be used for stock and futures market as price differentials occur from time to time. Using the right algorithm trading options, such differentials can be identified, and effective orders be placed to gain huge profits.
- Index fund rebalancing
Index funds have a well-defined period of rebalancing to bring the holdings at par with the benchmark indices. This means that there are profitable opportunities for traders who can capitalize on expected trades that offer around 20 to 80 basis points of profits. Initiating such trades using algorithmic trading India can bring timely execution at lower purchase prices.
Other models for algorithmic trading India
Apart from the above, mathematical models are used for algorithmic trading India to gain profits and boost security of trade. Some of the common strategies used here include –
- Delta neutral trading – This is a portfolio strategy that uses multiple positions with offset values for positive and negative values.
- Mean Reversion or trading range – This is based on the concept of high and low prices that are temporary in nature. Such assets jump back to original value after some time. Thus, the algorithm can be programmed to spot the same and make an immediate trade.
- Volume weighted average price – This breaks up a larger order and releases the same in smaller chunks using historical data.
