Clicky

What You Need to Avoid When It Comes to Algorithmic Trading

There are quite a few advantages to algorithmic trading. Algorithmic trading helps traders to refine their strategy. Algorithm trading removes emotions from the trading world. The percentage a trader can make a good choice based on the backtesting increases, but that does not mean it is full proof.

Here is why.

This kind of trading is like anything else in life. Traders have to pay attention to what they are doing. There are just as many mistakes being made in algorithmic trading as there is with any other type of trading. Below are 6 pitfalls that every trader needs to take note of and avoid.

1) Some traders overfit. This is when the use a theory that has been backtested and apply it in real life. The only difference is the outcome is less than enjoyable. Not every strategy being backtested will perform well live. Traders need to set up some parameters or indicators to make sure the strategy will do well in both places. This will reduce the chances of overfitting. This will increase a trader’s chance at a profit.

2) Some traders tend to get a little overeager when they do this. They place all their strategies on a “sure thing”. Traders need to be skeptical of any results they see unless they are proven wrong in the live platform. In other words, do not place any bets on any kind of strategy unless the outcome is very good. This happens to all traders, even the seasoned pros go through this from time to time.

Do not rely on any assumptions. They will be misleading 90% of the time.

3) Systematic traders tend to override their research and guesswork. Traders need to stay away from doing this. Some start to second-guess their work and let their emotions, hunger, or fatigue take over. This is bad all the way around.

4) Anytime a trader back tests a short duration strategy for one minute, there is going to be a problem. Backtests which use ticks are going to require a longer period of time to configure the results. Traders need to adjust their timing accordingly.

5) Traders who fail to take something like a commission into account, they run the risk of choosing performance indicators that are poor. Traders should take into consideration all costs when choosing a trade. Poor performance indicators will result in losing money.

6) Traders should not pick a market based on backtested assumption and winning strategies in the past. This is called “cherry picking”. Cherry pickers rarely make out big in algorithmic trading. Traders need to treat algorithmic trading like all other forms of trading. Think about diversifying when possible. Do not settle on one field and one field only. Do some research. Take a broader approach with this.

There is no such thing as easy money. There never will be. Traders who wrap their heads around this, they will have more success.

Trading

Copyright © 2021. All Rights Reserved. keybinaryoptions.com