Algorithmic trading, commonly referred to as algo trading, is one strategy used by veteran and novice traders alike to purchase or sell financial securities or instruments utilizing computer algorithms that leverage complex mathematical models. A type of this algo trading, specifically scalping, is enabled by a process that rapidly buys and sells instruments in order to capitalize on small price movements and fleeting trends. In this article, we discuss scalping using algo trading and how novice traders can use this strategy to improve overall performance. Additionally, we compare relevant strategies for the purpose of context.
Algorithmic trading makes efficient use of automated, pre-programmed trading instructions to send orders to a marketplace. These orders are based on certain variables and even market conditions, and can generate high-frequency trading opportunities. By using scalping via algo trading, individual traders can benefit from greater order execution and profitability, reducing the need for discretionary trading decisions.
Benefits of Scalping Using Algo Trading
Algo trading offers a number of benefits, with the scalping strategy enabling traders to capitalize on smaller gains over short time horizons. Additionally, the use of algo trading protocols are well-suited to take advantage of high-frequency opportunities by relying less on human discretion. As a result, the ability to rapidly make decisions on new market data is greatly improved and can lead to greater profitability over time.
In addition to the speed offered by scalping via algo trading, individual traders can benefit from a greater depth of liquidity, which refers to the sizing of orders. The scalping tradings approach targeting small price movements minimizes trade exposure, allowing for greater liquidity in the marketplace. This decreases risk and may potentially increase trading gains.
Using Scalping via Algo Trading as a Novice Trader
As a novice trader, scalping may be one of the best approaches to take in the markets. However, it is important to understand the scalping process through algo trading and set realistic expectations of the financial viability of this system. It is important to recognize the high-level of risk and research necessary before capitalizing on short-term, intraday movements.
The most important requirement to start scalping is to have the right platform and tools. One of the most popular platforms for algo scalping is Interactive Brokers’ TradersWorkstation (TWS). This platform for professional traders includes a suite of helpful tools, such as advanced order management, charting packages, and even automated strategys to assist in scalping. Furthermore, this service offers access to almost all trading markets, with the ability to deploy a variety of orders, including trailing stop orders, basket trading and algorithmic strategies for binary options.
Strategy Comparison: Scalping vs. Day Trading
In comparison to day trading, scalping via algo trading can reduce exposure, limit risk and increase profitability in shorter time horizons. Similarly, scalping looks to capitalize on smaller intraday movements, while day trading looks to profit by increasing positions over a matter of days or weeks. Additionally, scalping relies heavily on algo trading protocols that require a great technical capabilities, whereas day trading can also be done manually and with less technical know-how.
Scalping via algo trading can offer numerous advantages to novice and veteran traders alike, including higher frequency trading, improved order execution and liquidity, and decreased risk. It is important, however, to understand the technical setup and the tools required in order to most beneficially use this method. Although there is much research and understanding of algo scalping trading needed before deploying it, there is a potential for a high return on investment and improved overall trading performance upon successful implementation.