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HomeFinance and AccountingMarket TradingCan Algo Trading Really Beat the Market?

Can Algo Trading Really Beat the Market?

Algo trading is a new type of trading that utilizes mathematical algorithms to automate trading decisions. It’s a method that’s taking the market by storm. Algo trading offers several highly beneficial abilities that humans can’t compete with.

However, algorithmic trading doesn’t fully automate the process and it still requires the trader to interact with the algo software frequently to optimize trading strategies for the market situation.

This article covers the pros and cons of algorithmic trading and gives the reader a better idea of whether this new method of trading is right for you.   

Algo Trading Is A Tool With Massive Potential

As mentioned previously, Algo doesn’t do all the work for you. It’s a tool for savvy traders to use and upgrade their abilities. A lot of really useful features are offered by automated trading offers that can take the dirty work out of trading. Algorithmic software watches the market so you don’t have to. It does the math and knows when to buy and sell. It can even make trades many times in an instant in a way that is humanly impossible.

Yet, there is still no fully automated software that can take trading entirely out of your hands. It’s just too complicated. Algorithmic software still needs a lot of input from the trader. This input is in the form of strategy and values. Traders still need to tell it what to do. The trader sets up the software and must still monitor it. As the market changes, the instructions should also change so that your robot trading tool can make the right decisions using your overall strategy. 

In other words, trading software gives the trader the time they need to research the market, develop strategic principles, and maintain their trading program. Algorithmic trading isn’t effortless trading. Instead, it elevates the trader from a keyboard monkey into a mastermind that just observes and tweaks. 

Algo Does The Dirty Work 

Algorithmic trading has a lot of really helpful automated features. The software is always running and watching your account. If the market starts to move at any time and an opportunity arises, algorithmic software will make the trade. Instead of waking up to an alarm and scrambling out of bed, algo will simply make the trade for you. This is particularly useful for people who trade in foreign markets where the timezones may vary. 

As much as we try to eliminate our feelings, trading is an emotional affair. That emotion often clouds our judgments and can lead us to make split-second decisions that we regret later. With trading software, that is no longer an issue. It takes the human emotional element out of the equation. And speaking of math, trading is all about mathematical trends, equations, and results. Much like playing blackjack, there is always a move that has the best statistical chance to benefit you. Much of the algorithm work that goes into the software is based on making the best trading decisions with the highest chance of paying off. 

Software-based trading can also make trades and decisions in fractions of a second. This is beneficial for a couple of reasons. First, cutting down on human-derived lag will result in less financial loss due to delay. This may not mean a lot for a single trade, but always making your trades in a perfectly timed fashion will save you a bundle in the long-term. 

The other major benefit of algorithmic trading is that it can make several trades in an instant. This allows it to take advantage of many different micro phenomena that occur on the market each day. Tiny fluctuations in the price of a stock can now be utilized to make lots of tiny gains exploiting features of the market that aren’t even apparent to humans. 

Algorithms Regularly Outperform Humans

Whether or not AI-assisted training is outperforming people now is irrelevant. Because it’s only a matter of time until algo trading consistently outperforms even the best stockbrokers and hedge funds. 

After years of research and development, AI was finally able to demonstrate the ability to beat even the best international chess champions. How long until algorithmic trading does the same?

As it is today, computer-assisted trading is able to make split-second decisions based on dozens of variables without any of the timing errors, general mistakes, and emotional stressors that come with conventional trading methods.

The Way Of The Future

Algo trading is an innovative application of computing technology that’s likely to become more and more popular in the upcoming years. Computer-assisted trading is one of those new technological developments that will be massive in just a short time. This is your opportunity to get in on the ground floor to make the most of this new money-making opportunity.

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