A prevalent form of trading that is increasingly becoming popular and yields high results is algorithm trading is also known as automated trading, black-box trading. To put it simply it involves the usage of a computer program that follows an algorithm and places a trade. The many reasons why algorithm trading is being used is because there are great chances of yielding maximum profits moreover it is more systematic as compared to trading done by humans as it involves emotions. Because the algorithm that the computer program follows is based on timing, quantity is basically a mathematical model thus it eliminates any emotion and is totally based on logic and that’s why is mostly error-free. Thus, trades are executed at the best prices and are accurate.

There are almost 4 algorithmic trading strategies that are the best and are used widely.

  1. The easiest to follow strategy is Trend following strategies as it does not make any price predictions and follow trends in price level movements, channel breakouts etc. Basically, it is based on the market trends and therefore is one of the most followed strategies as it is simple and does not involve complex predictions.
  2. Another popular strategy is mean reversion in which the high and low prices of an asset is considered temporary that will go back to their average value sooner or later. It is also very aptly called reversal strategy or counter-trend. In this strategy, the algorithm calculates the average prices based on history and place a trade at a price knowing that the price will come back to the average price. Simply put, if prices are down it will go up and if prices are up, it will go down. So, it is extremely useful when the prices are at extreme ends.
  3. Statistical arbitrage strategy is considered a short-term strategy. Basically, when the price of an asset is misquoted, it gets corrected within a short time but it still gives a trading opportunity to the traders where the misquotation of price is detected and the trade is placed before the price gets corrected. This mostly occurs when the securities are related to each other and thus the misquoting occurs. Of course, this will be unable to track by a human but the algorithm immediately catches it and thus give you a chance to make a profit.
  4. Arbitrage strategy is a good one and is quite easy as well. This strategy is used when different stock exchange shows a different price of the same security. In this case, the algorithm quickly buys from a low-priced exchange and then sell it on a high-priced exchange. The process is too quick and therefore the algorithm acts speedily. Since the price difference is not much, therefore, huge volumes of security is bought at less and sold at a high price.

These are some of the proven strategies which a trader can choose according to his desire. So, get started with algorithm trading and make use of these incredible strategies.