Top Algorithmic Trading Strategies and Models

Algorithmic trading is an advanced system of trading prevalent in the modern age. It can simplify the whole process of trading and make it more result-oriented. Through this system, trading can be done via a computer setup with a predefined set of instructions called an algorithm. The computers conduct the trade as per the set algorithm. The entire process is made much faster, accurate, and error-free with the help of this technology.

Quant Terminal is a platform that quants (quantitative analysts) can use to research and execute algorithmic trading. Here, you will know about the top algorithmic trading strategies and models. But before that, it’s crucial to understand how beneficial algo trading is.

Benefits of Algorithmic Trading

• Exact execution according to the specific volume and price
• Minimal time is taken for trade processing
• Real-time trading
• Reasonable fees and expenses for trading
• No time lag between placement and execution of the order
• A practical approach without the involvement of any human emotions
• Simultaneous checking of multiple parameters

Top Strategies and Models in Algorithmic Trading

The primary aim of using an algorithmic trading strategy is to increase profit or to reduce expenses. Here are some top strategies you may try:

Reversing to the Median Value

Low and high share prices are temporary, and in some time, the price returns to its median value. The quant identifies and defines this range in this strategy and enables automatic trade placement using algorithmic trading systems like Quant Terminal whenever the stock price goes beyond the defined range.

Going with the Trend

One effective strategy is to follow the trends, such as movements in the price levels, breakout of channels, and moving averages. When you follow these trends, you don’t need to make any analysis and predictions. Just execute the trade at the time of trend.

The Strategy of VWAP

Volume Weighted Average Price or VWAP is a strategy in which historical data of a particular stock volume is used to break a big order into several smaller orders. Afterward, you can release them to execute. The primary aim of the VWAP strategy is to execute an order close to its volume-weighted average price collectively.

Institutional and mutual fund buyers commonly use this strategy to sell or purchase stocks without impacting the market. If the average price is high, you may start a long position, but you may initiate short positions if the price is low.

The Strategy of TWAP

This strategy aims to reduce impact and achieve a price closest to the average for the larger order. With the strategy of Time Weighted Average Price or TWAP, you break a big order into the trading of smaller orders. You have to distribute the slots evenly between the beginning and the ending times.

Using the TWAP strategy, distribute oversized orders, and execute as a single trade. Doing this will increase its price and maximize your profits. Consider the trading hours of smaller quantities and define the period during that time. For instance, if you want to buy 10,000 shares of a company, break it into several smaller orders and execute them during different trading hours.

Volume Percentage Strategy

The bots involved in algorithmic trading keep sending parts of the order until the entire order’s executed. The part orders released are dependent on the pre-set ratio of participation as per the market volume. In this strategy, you send an order as per the defined percentage of the market volume, decreasing or increasing with the participation ratio.

When it comes to algorithmic trading, use any of these strategies carefully. Although automated algo trading is straightforward and profitable, risks are still involved, and you can use platforms like Quant Terminal to maximize your benefits.