Man Vs Machine - The world of algorithmic trading

May 5, 2012

I still remember the days when i was in the trading ring shouting to buy and sell shares. It was a wonderful experience and you deal with real human beings. Though some unsrcuplous brokers make money by exploiting the clients trades by giving them the highest price of the day when they buy and the lowest when they sell. With NSE came into play the entire trading methodology changed to screen based trading, you dont know who is the buyer or seller but still the other side of the trades were done by humans hence the trades were not done faster and you have opportunity to make money.

Now in the the world of alorithmic trading you deal with computers i.e you deal with pre programmed logic which is based on complex financial algorithms. Go to this link to understand what is algorithmic trading.

There are plus and minuses with this type of electronic trading, usually big pension funds and hedge funds use this. So it is difficult to make money especially when you are a day trader since every punch of the order results in a new program being run on the system and it is always difficult to beat the system, hence 90% of the day traders end up losing money causing more frustration. If you are a day trader and if you observe the terminal a sudden flow of buy and sell orders will be flashed on the screen that will make you think that there is some activity and people will jump into it.

If the price rises and if you buy you will get caught and the vice versa once the required quantity is executed the program will stop and at the end of the trading you will be forced to square up at loss. There are 10% of day traders who are momentum traders who enter and exit very fast and make little bit of money. But if you are new to the market it is impossible to make money with these robo traders which execute trades in micro seconds. If you still want to trade, trade after the flicking stops dont get attracted to the sudden flash. You will also notice that a news will be flashed in TV channels to support the trades thereby traping you. It is better to observe the news and the impact on the price after the trade and then enter. You might have missed a couple of rupees but you will always get a chance to buy at the right price.


Editor: Satish(Name Changed)

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