Which is the process to develop algorithmic trading Strategies?
Summary
1 - Choose the platform
2 - The data
3 - Start simple
4 - Stay up to date with market conditions
1 - Choose the platform
Start
by identifying the platform that you want to use for the development and the backtest of your algorithmic strategies.
Choosing the platform involves choosing the programming language.
TradingView, ProRealTime, MultiCharts, and TradeStation, are good choices for newbies.
You can also create your own trading platform, for example using Python, but you must be an expert programmer.
2 - The data
Gather
and analyze data. Algorithmic trading strategies rely on data to make
decisions.
You'll need to gather and analyze a variety of data sources,
including market data and economic indicators.
Before
you deploy your strategy live, you must test it thoroughly to ensure it is
working as intended. This can be done only through backtesting, which involves
simulating the execution of the strategy on historical data to see how it would
have performed.
Remember the proverb: "Garbage in, garbage out (GIGO)". Nonsense (garbage) input data produces nonsense output. If you develop an automated trading strategy using poor data you will obtain a bad backtest.
3 - Start simple
I
suggest to you start with simple strategies like implementing basic
indicators with their corresponding entry and exit signals like Moving Averages, RSI, etc., and seeing how they play out, in which
scenarios/timeframe they work well, and in which they don’t. A simple strategy could be profitable, too!
And identify your trading objective! What are you trying to achieve with your trading
strategy? Do you want to maximize profits, minimize risk, or do something else? Your objective should guide the development of your
strategy.
Consider
implementing risk management techniques to
protect against potential losses. This can include setting stop-loss orders and diversifying your portfolio.
4 - Stay up to date with market conditions
Markets constantly change. They change their trend and sometimes also their nature (trend following vs mean reverting); gold is an example of this.
For this reason, you must stay
up to date with market news and perform tests about the nature of the markets you are trading.
Never leave your automated trading system alone! Control its performance ever and, if necessary, turn it off.
A sincere wish of good work to all!
Written by F. GRAMOLA (*).
(*) Member of S.I.A.T., the Italian Society of Technical Analysis (member society of I.F.T.A. – International Federation of Technical Analysts).
Warning
We merely cite our personal opinions for educational purposes only.
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Investing and trading are risky. Don't invest or trade money that you cannot afford to lose
Initial photo by Sam Dan Truong on Unsplash.
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