9 Elements to Master Algo-Trading

by | Aug 15, 2023

There are two types of trading.

Discretionary where you buy and sell based on variable factors.

Mechanical where you buy and sell on fixed factors.

If you want a strong edge with the markets, then you’ll need to consider the latter.

And hence we have algorithmic, or algo trading.

Algo trading, or algorithmic trading, is the use of computer programs to automate the process of trading financial assets.

These programs, or algorithms, execute trades based on predefined rules and criteria.

Now when you dissect algo trading to its core, you’ll realise there are important elements you’ll need to consider to master it.

Element #1. Database Management & Analysis

Algo trading simply begins with a whole bunch of comprehensive and organised data management.

You’ll use the financial markets to generate vast amounts of data, including historical price movements, trading volumes, and momentum indicators.

Basically, you’ll need this database to create a strong back tested analysis.

That way you’ll be able to get the accurate data to tell you how it’s performed, the expectations and the best and worst case scenarios.


Element #2: Statistical Analysis

Once you have the database of tested information.

You’ll be able to work on  your statistical analysis to see the inner workings of the system in action.

  • Win & loss rate

  • Best & average winners and losers

  • Drawdown averages

  • Average trade

  • Expectancy formula

  • Biggest and smallest winner & loser

  • Average week, month, quarter and year

Basically, all the stats you need that forms the bedrock of successful algo trading strategies.

When you have this data you’ll be able to spot trends, correlations, and anomalies within financial data.

Element #3. Pattern Recognition Skills

Pattern recognition is a core competency in algo trading. We aren’t fully there yet with AI, Machine Learning and Deep Learning. But we’re getting there.

With trading expertise combined with algorithmic precision – this will allow computers to find recurring chart patterns, candlestick formations, and technical indicators.

These patterns often help give trends, reversals, potential market movements, and opportunities to enter or exit a trade.


Element #4. Machine Learning

Machine learning, a subset of artificial intelligence.

By using historical data, machine learning algorithms can adapt and improve trading strategies over time.

So whether you have a moving average, chart patterns, Smart Money Concepts, Fibonacci or any other trading system.

With Machine Learning, it will input more data and will be able to change, add, remove and optimise elements in your strategy to make it MORE successful.

In just no time at all, these algorithms will learn from past successes and failures, fine-tuning trading parameters and strategies to optimise  your trading performance.

Element #5. Trading EA Strategies

Expert Advisors (EAs) are your everyday trading robots.

These are algorithmic programs that are developed for trading platforms like MetaTrader and soon TradingView.

These EAs help you to execute trades based on your pre-defined rules and criteria.

You’ll then be able to design and backtest these strategies to make sure they are viable and profitable in REAL market conditions.

And when it’s time to take trades, EAs do it for you.

They will be able to automate the execution process – with no emotions or hesitance.

This will allow you to capitalise on opportunities 24/7 without any human intervention.

And you no what that means. It’s going to do the job!

Element #6. Problem-Solving Skills

You are going to hit a bunch of obstacles in the way.

There are major challenges when it comes to algo-trading.

And you’ll need to have strong problem-solving skills to overcome them and succeed.

Just like programmers deal with bugs, glitches and problems with code.

You’ll also find problems with paramaters, markets, rules, criteria and risk management calculations.

If you have strong problem-solving skills you’ll be able to quickly identify and sort out the issues, diagnose causes, and find and implement solutions to maintain consistent performance.

Element #7. Attention to Detail

You need to have an eye for algo-trading.

When the smallest discrepancies or inaccuracy can have major consequences for your portfolios performance.

You’ll need to consistently review your strategies, parameters, and data inputs.

That way it’ll help to make sure your system is accurate, reliable and trustworthy.

Element #8. Risk Management

It’s not just about creating a solid trading strategy and system.

You’ll need to have effective risk management too.

With Algo trading, you’ll need to employ a couple of money management techniques like:

  • Position sizing

  • Stop-loss orders and criteria

  • Portfolio diversification

  • When to close based on over time

  • When to adjust your positions

  • When to risk a certain percentage based on different market environments

This will help you to protect, preserve and prosper with your portfolios.  

Element #9. Market adaptability

Markets are dynamic.

Markets trend.

Markets move sideways.

Markets jump in irrational circumstances.

As an algo trader, you’ll need to find a way to adapt your system into the programme to identify these market environments.

E.g. When the main market is above the 200MA only look for longs

When the main market is below the 200MA only look for shorts.

When the market is within a box range – Don’t look for any trades.

As you can see, there are many elements to being a successful algo-trader.

It also takes a ton of innovation.

But have this article with you, for when technology and developments improve – You’ll have certain ideas and steps to take to improve your algo trading.

Let’s sum up the important elements to algo-trading…

Element #1. Database Management & Analysis

Element #2: Statistical Analysis

Element #3. Pattern Recognition Skills

Element #4. Machine Learning

Element #5. Trading EA Strategies

Element #6. Problem-Solving Skills

Element #7. Attention to Detail

Element #8. Risk Management

Element #9. Market adaptability

Trade well, live free.

Timon Rossolimos
Founder, MATI Trader




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Timon Rossolimos

Founder, MATI Trader



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