Introduction to Stock Market Algorithms
If you would know the practical use of Machine Learning Algorithms, then you could mint millions in the stock market through algorithmic trading. Sounds Interesting, Right?!. Yup! Whatever we got to have the zeal of coding, at the end of the day, we would end up barely seeking ways to monetize our coding skills! Isn’t it?.
If that sounds more of you, dive into this article till the end to amass umpteen knowledge on stock market algorithms and how they help in monetizing our programming skills. First, let’s have a lively discussion on the basics of the stock market, and it’s technical concepts.
What is the Stock Market?
Stock Market or Share Market or Financial Market is the place where the financial demands and supplies meet. It is the economic pool of investors, brokerage agency and the mighty corporates who offer public shares for trading. Trading is nothing but buying of shares and selling them when you find profit. Buying low and selling high is the core concept in building wealth in the stock market.
But there lies the numerous tricks and tactics to formulate this risky trading activity. In this epoch of digital transformation, Artificial Intelligence and Machine Learning Algorithms come in place to simplify the trading activity and make it less complex. Now we will look deep into the algorithmic trading activity.
How do Algorithms Help in Trading Activities?
- Algorithmic trading is mostly deployed in high-frequency trading (HFT). The concept of trading is buying a potential share at a low price and selling it while it touches the peak growth in the market. This involves a lot of statistical verification and stock analyzation process to find out the potentiality of the stock.
- It depends on variables like time, price, volume, and technical indicators to implement this trading activity. Over the process, the trading decision should also combat the human parallax error.
- In the case of algorithmic trading, these activities are curatively programmed to attain the highest profit in each trading activity with no error.
- As the algorithm could process in the timely cycle, it could do more number of trades in a given time that results in the accumulation of huge profits. This is referred to as high-frequency trading, which allows more liquidity in the market.
- This algorithmic trading reduces the error and processes more trading activities to attain maximum gain in the market.
What are the Probabilities of Developing Your Algorithm to Trade in the Stock Market?
So how you would develop an algorithm that helps you in trading. To create an algorithm for trading, you should be knowing about the basic algorithmic trading strategies based the market behavior. You should be following the recent trends in the market and the arbitrage alternatives to succeed in understanding the nature and functions of the market.
You could create trading algorithms on any programming language but API integration for direct market access could be easily achieved when you code on MQL4. Then you should use should be installing MQL4 (Meta Quotes Language 4). MQL4 is the fast, intelligent and effective programming language for creating trading robots. It runs on Meta Trader 4 forex platform. It is a high-level object-oriented program that is more similar to C++ Programming. After configuring MT4 and establishing an account with a brokerage agency you could create your trading bot now. But these need ultimate understating of the trading concepts to design practical trading not.
Basic Technical Trading Signals @ Tools for Effective Trading
There are critical technical tools of the trade to gauge the market activity which helps us to determine and predict future market behavior.
- Moving Average Convergence Divergence(MACD): These indicators signals after the trading conditions appear. Also called a lagging signal.
- Aroon Indicator: This technical indicator measure the new highs and lows in the price movement of the market trend.
- Average Directional Index(ADI): It determines the strength and momentum of the price moving trend. The ADX value is above 40 the directional strength is trending high. If it falls below 20 the strength is none trending.
- Accumulation or Distribution Line(A/D): This measures the volume of a security over a range of trade. Accumulation and distribution over near range or halfway through or far range.
- On Balance Volume(OBV): This measures the volume of security over time with positive and negative flows.
- Relative Strength Index(RSI): These are leading signals that indicate before the trading conditions appear.
- Directional Movement Indicator(DMI): This is a price indicator that compares the current share price with the previous range of prices. The positive value indicates the upward movement and the negative value describes the fall of prices.
- Implementing and Analysing Trendlines Movement: Trendline depicts the upward and downward movements of prices in trade over some time.
With these crucial technical indicators, one could develop a trading algorithm that would implement the trading activity in real-time markets.
How Algorithmic Trading Helps You to Hunt Bounties on the Capital Markets?
With the logistics of trading develop a set of procedures to buy and sell stocks in the market. Then implore for API integration for direct market access with your stock broker to place your bidding. Though it may sound simple but it needs a lot of time and effort to create a trading bot that would mint millions in the form of high-frequency trading which humans cannot possibly achieve.