What is algorithmic trading?
Algo trading is trading by means of an algorithm that opens, maintains, monitors and closes trades for you. In some cases algo trading is also called bot trading or trading with a robot, this is the same principle. A trading bot is also just an algorithm that trades for you.
How Algorithmic Trading Works
By putting a script on your charts you can completely automate your trading. This script consists of all kinds of algorithms which are made in such a way that, for example, when a certain movement is made, when an indicator reaches a certain level, when several indicators together reach a certain value, when a certain trend is broken etc. etc., a trade is opened or closed.
You can buy, rent or find free algo trading bots of all shapes and sizes. However, it is quite difficult to find a good algorithm that also works in reality and not only in backtesting.
Advantages
There are many advantages of algo trading. For example, if you trade manually you cannot continuously monitor all markets and spot all opportunities in the process. If you use a trading bot this is no problem at all. By simply running your algortime on a VPS server your algo trading system is running 24-7.
Making emotional decisions in trading is a very big trap. If you have made a loss you want to make up for it as quickly as possible. Or when you make a profit you feel if you can handle the world and you might make decisions that do not fit within your trading plan. With algorithmic trading this will not happen. The trading bot only takes trades at the times for which it is programmed.
What for me personally is a big advantage of algo trading is that I do not experience stress and am not busy trading full time. Personally, I am worse at trading from 9 to 4 and then leaving things behind me. If there are still trades open I can't leave them behind, I need to know what is happening with the prices. This way my other work is at a standstill and I can put less time into my businesses that also need to be run. This is why I chose algo trading to outsource the trading and trust my trading bot with me money.
Disadvantages
Many trading bots are set up so that the losses made, yes every trading bot also makes losses, are not very big. This also means that the risk your algo trading bot takes is small and so are any profits. Depending on the system and the risk you take on your account you will manually be able to make potentially bigger profits.
Example of an Algo Trading system: WS907
