7 Examples of the Best Algorithmic Trading Strategies

When it comes to trading, you want to make sure you use the best strategies that bring you generous results. One of the best intraday trading methods is algorithmic trading. This form of trading is very popular nowadays, especially with technology getting more advanced and working based on complex algorithms. Now, you need to be a more experienced trader and use special instructions and strategies to make algorithmic trading work properly for you. 

In this post, we will present a few algorithmic trading strategies tested online that will completely change your world, so let’s get started!

• Black Swan Catchers

The Black Swan Catchers strategy is quite an interesting one. It involves taking advantage of key moments in the market. One example would be an event like the Global Financial Crisis that caused financial difficulties. 

With this strategy, you will make a smarter investment where you follow the ups and downs in the market following such moments. You will do this with the help of Options Contracts. During such tense scenarios, they rise significantly. 

• Trend Following

As you already know, there are trends that come and go even in the trading field. This strategy also focuses on following specific situations – more specifically, market trends. To do this, the algorithms will look at a significant amount of historical data and market movements, which will help locate current trends and make trades based on them. When trading, you will make a decision based on the trend’s direction. When there is a downtrend, you will sell, and when there is an uptrend, you will buy. It’s not hard to get used to this strategy.

• Arbitrage

Arbitrage is another interesting strategy. It involves an investor who buys and sells the same assets in various markets at the same time. Now, you may be wondering, “What does this strategy achieve?” It’s easy – the strategy will help you make a profit from little differences in an asset’s listed price. But you will have to plan this carefully. Arbitrage takes advantage of price variations that exist for a short time in identical assets or the same one. Algorithms do a great job of monitoring essential markets for this type of trade. 

• Momentum

One strategy many traders use when it comes to algorithmic trading is the momentum. This technique has been around for decades and is quite popular. 

Momentum trades involve taking a look at past events, and then predicting future values. For example, let’s imagine that the price of a certain stock rises. With momentum trading, you will buy the stock when this happens, thus causing the price to increase even more until it gets to a specific cost. Afterward, the tactic will ask for the assets to be sold. 

• Risk-On/Risk-Off 

It is not a secret that trading comes with a lot of risk. Sometimes, you don’t know whether a trade will be profitable or not, and things can change even when you plan the trades carefully. In this case, risk-on/risk-off trading is a strategy where trading positions are personalized to suit your oscillating risk tolerance. This means that your preferences will go from risky to safe assets and back. When a risk-off scenario occurs, you will go towards safer investment options, whereas where risk-on scenarios occur, you can go for riskier stocks. 

• Market Timing

Market timing basically allows you to play it safe when it comes to dealing with assets. So, you will not rush to purchase a stock – you will wait for the ideal moment to buy or sell. Algorithmic trading helps in this scenario because it takes a look at the current trends and historical data, comparing them and helping you find the right timing. Without algorithmic trading, the strategy may not always be effective. 

• Inverse Volatility

Inverse volatility trading lets you decide your trades based on the market’s volatility. What you do is reduce your financial market exposure during high-volatility moments and increase it during low-volatility moments. It is much easier to do this with algorithmic trading as it can look at market data to figure out when the volatility levels shift. 

The Bottom Line

Algorithmic trading comes in handy in many situations and for various strategies. With its ability to analyze so much data at once, it will help you with inverse volatility, market timing, arbitrage, trend following, black swan catchers, and more. Make sure you understand how it works so you can use it to your advantage and see positive results.