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Binary Options


What to think of and what to Avoid with Algorithmic Trading

For those people who are short on time, or trading is a hobby, algorithmic trading can be wonderful. It can take the guesswork out of trading and do all the thinking for you. But, just like with any program, there are things to think of and things to avoid.
There are some mistakes that you need to avoid. While it may seem like common sense, they are made more often than one would think, so it is best to make a note of what not to do.
First, never overtrade. You can easily over-leverage your account by making this mistake. You may think that opening a lot of trades at once is a good idea, however, you will negatively affect your performance through slippage and excessive commissions. Concentrate on fewer trades with higher time frames.
Using an algorithmic trading system without the use of stop loss is a huge mistake. This is the fastest way to lose capital! While systems like this boast good annual returns, they don’t come without a huge drawdown. Make sure your stop loss is in place.
Another big mistake is system interference. You have an algo system to make trades for you, so let it do that! Interfering is going to cost you money in the long run, since most likely, it means you are too emotionally attached to the trading and don’t trust the system. You’ll find yourself chasing losses, and trading just for the sake of trading. Walk away from the computer and let the system do its work.
Don’t have over-eagerness with your algo trading system. If possible, try it on a demo account first. Good backtesting results are wonderful, but that isn’t to say you should automatically put your money at risk. Test out the strategy first to see how it works.
Just because there are things to avoid doesn’t mean that algorithmic trading doesn’t have an upside! There are things to think of when algo trading as well. Not all algorithmic systems are going to be profitable, so remember to do your homework first! Read reviews of the system, and study it. Make sure you understand what it going on.
Study the latency of the system. This is extremely important. Latency, or the time delay in the movement of data points from one application to the other, can have a huge impact on the outcome of your trading. Be realistic in your expectations of the system.
Remember that algorithmic trading can be profitable if done carefully. Remember, its not going to make the average trader millions of dollars overnight, but a good algo system can execute trades faster than any human, and you can see profits. Pick the right system, and be on your way to a growing account.
Good Luck Trading!

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