When trading, you want to understand how to find, evaluate, and select an algorithmic system. Choosing a system which will be significantly determined by your personality because it will be assessed by performance, quality of historical data, and the strategy implementation. Before you select a method, you must know what to look out for.
Here is an in-depth look
1. Your personality plays a significant role
Trading provides an opportunity to make money quickly at an alarming rate because it offers the opportunity to earn. Having good algorithmic training is the key to your success as a trader because this training equips you with all the necessary skills. Algorithmic training requires someone with a high level of personal discipline, patience, and emotional detachment. This is essential because you will need to let the algorithm work for you. You need training and patience to allow the strategy to be executed appropriately.
How much time you can dedicate dictates the strategy you should choose. You need to be available in your plan to trade frequently, which is hard to do when you have other engagements such as a full-time job. To maintain a profitable portfolio, you need to continually research your trading strategy, which will harness your research skills.
2. Sourcing algorithmic trading ideas
Trading ideas are readily available today than they were before. You can find algorithmic trading ideas from trading blogs, forums, magazines, financial-journals, and specialized text. You will also find tons of methods on how you can approach the source, evaluate, and implement strategies. Be careful not to use biases in your decision making, such as choosing gold because it’s perceived as more exotic.
If you are not familiar with trading strategies, first use established textbooks to help you get the hang of things. The advantage is that manuals provide clear and straightforward ideas that you can use to familiarize yourself with trading. Trading becomes more sophisticated as you work and master it.
3. Evaluate trade strategies
The first consideration is determining if you fully understand the approach. The best way to gauge is to check whether you can explain the plan concisely. Once you ascertain it, you know the strategies’ principles, determine if it fits with your personality because policies differ significantly in their performance. You must also consider the sharp ratio because it will qualify how much returns you make and the level of volatility in the equity curve. Consider also if the strategy requires leverage before you profit.
4. Obtain history data
To remain competitive in the buy-side and the sell-side (funds and investment banks) respectively, you have to invest heavily in technical infrastructure. Timeliness, accuracy, and storage requirements are imperative. Consider the fundamental data, news data, asset price data, financial instruments, benchmarks, frequency, and technology. You can use the historical data you analyze as a strategy. Then choose the elements that qualify or disqualify a plan. Some platforms will give you the factual information you require, but you will have to part with a fee to access the data.
What is your goal? Are you looking for a regular income or a long-term income?
Then, you consider your objectives when choosing a trading strategy to inform you of trade frequency because trading is not a get rich scheme.