Algorithmic trading is used for trading assets automatically using computer code. This is also known as automatic trading strategies or trading bots. There are several benefits of algo trading over human trading. First, algo trading run for 24/7 unless stopped. Secondly, algorithmic trading is faster than normal trading. More importantly, there is no impulsive trading, it processes according to the program.
All of the above benefits make algorithmic trading profitable, so how to use these strategies? Here we will focus on the top automatic trading strategies for the crypto market.
Algo Trading Strategies for Crypto Market
There are different automatic trading strategies that can give you profitable trades. Now you will learn the top 4 algo trading strategies that are used for bitcoin storm.
Trend Following Algo System
If you have ever used technical analysis for any types of assets, then probably you are familiar with the trend following system. This is a simple strategy where a trader follows the trend to make profit from the market. This strategy works well for every type of asset class such as equities, commodities, forex trading and even for digital currencies.
One of the trends following algo systems uses an automatic strategy called the Moving Average Crossovers. In this strategy, a faster moving average crosses over a slower moving average which is a signal for a bullish market. If it crosses below then then it’s a bearish market.
Mean Reversion
Trend following system works well for every asset class. However, there is another strategy which can be used for determining the reversal of a trend for exiting the position or for entry by checking the mean average of past data.
After a long movement of the market in any direction, the price always tries to come back to its normal level. So, a mean average strategy can help you to meet your needs and expectations.
Standard Deviation Reversion Strategy
This strategy came from the mathematical subject statistics. The most important and useful standard deviation reversion strategy is the Bollinger Bands. This strategy shows two deviation lines from the mean position.
When the price reaches any of the two lines then it is an indication of over trade. If the price reaches the upper band then it is an indication of overbought. On the other hand, if the price reaches the lower band then it is known as oversold. So, both of the upper and lower bands are the indication of a reversal signal.
Arbitrage Trades
This is one of the most successful algorithmic strategies if you can use it properly. In this strategy, you can use the mispricing across different exchanges to book profits without any risk.
As many exchanges are available, there is a fair chance that the price of a same asset has different value at different exchanges. So, if you want to take advantage of this, buy the asset in one exchange at a lower price and sell it on the exchange where the price is higher. The price difference at exchanges is available for a limited time only. So, make sure you are using this strategy very quickly. As algo trading executes faster, so it is wise to use algo trading for this strategy.
Conclusion
Although the algorithmic trading system is quite difficult for many traders who are just starting out, it can be extremely profitable for frequent traders or scalpers. If you are a frequent trader then convert your strategy into algorithms that can work automatically to book profit from the market. However, it is important to monitor the algorithmic strategy even though they are automatic. Hopefully, the information in this article helped you to deliver the top automatic trading strategies for you.