Awareness is increasing for investing in the stock market in India, it is a reality, but as more people are joining the stock market, are they getting the right information about the stock market? Is he joining the stock market under the influence of wrong information? We should see many such questions.
Here we have used a type of technique for trading in the stock market, which is called algo trading, about which many investors are not well-versed. Most of the investors in India do investment under someone’s influence or with the help of information that you say that trading, why investment is for a long period.
We should not invest our money in stock market for short duration without knowing algo trading as it can be quite risky decision. For this, we will try to know about how the algorithm works and what precautions should be taken by a small investor like us.
To write on this subject, we need to have software knowledge, it is necessary to have knowledge of finance, programming, technical and data science and mathematics, then only you will be able to write well. Therefore, under this expert knowledge, we will try to give information on this subject for you.
What is Algorithm ? –
Algorithm It is a set of rules, which is coding information through a computer i.e. in a programming language, to prepare a system for trading in the stock market. Which we can also call Artificial Intelligence or Automation, which does not have any emotions like humans, there is no fear, there is no excitement, which in humans, this quality affects the decisions of human beings.
Information provided in automation It is a set of information that is fed through computer code and the more logical it is, the more effective it will be. Facebook and Google’s systems run on this algorithm, through which they use information for people and their profit model.
In automation, there is no need to sit in front of the computer system all day, just by putting a set of rules in the computer system, we have to trade through automation. It is very difficult to do this at the personal level in the stock market because for this it is necessary to have computer programming skills and it is necessary to be expert in the knowledge of the stock market.
It is quite impossible for an ordinary investor to do this, so such algo trading is done by big financial institutions and funds. For which a lot of money has to be invested which is not possible for a normal investor.
Know History of Algo Trading –
This process of automation we get to see in many areas in business industries which is known as the technology of the future. Through artificial intelligence or robots, work is done in many fields and new technology is used by modifying many technologies. Digital Platforms in India After 1990 we get to see, Algo Trading This digital technology is considered to be the next level in the stock market.
According to the 2013 survey in the stock market, 70% of trading automation is done in the US, which means that it is done through algo trading. In 2022, this percentage will increase significantly and in India, this process is not well known to the common investor. One of the secrets of earning profit in trading is that the more people who come to the stock market to trade, the more these trading experts will get the benefit.
In 1983, Mitchell Bloomberg created a computer system for which Salomon Brothers paid US$10 million to trade for it, and Merrill Lynch invested $30 million in their innovative market system, with the aim of creating an automation system that would be effective. Make a machine.
After 1990, the trend of algo trading in the computer-less stock market increased significantly. Talking about India, this system has been used by big financial institution since last ten years.
Technical Analysis –
Based on the basic information in the stock market, investing in the stock of any company for a long time would have required some technical analysis. For technical analysis, investment is necessary for a short period, winning will be investment for a short time, so much has to be depended on technical analysis.
For technical analysis, the price of the stock is seen on the basis of its trend, and patterns data and by analyzing it a possibility is decided, according to which when to buy the stock and when to sell it is decided. This technique is based on probability, for this a lot of data is used from which a conclusion is drawn.
Requirement of Technical Analysis It is effective for short term investment and with this we can trade through automation with the support of algo trading but it requires a lot of money and experts. Technical Analysis This is mainly the past analysis of the price of any stock. For technical analysis, a probability is determined by analyzing trends and patterns through price data.
How Algo Trading Works –
- Computer Programming
- Data Science
- Mathematics Skills
- Financial Knowledge
- Trading Skills
Algorithm It is a set of rules for which a code is prepared from a logical setup through a computer programming language and through stock market information. The automation system that has been prepared for the stock market in today’s date, which is very successful, has been made in this programming language Python. By the way, these languages Java and C are also used to make software.
In the stock market mainly big financial institutions spend crores of rupees on such algo trading which is made effective system. By the way, any software engineer can make this system, but for this, the accurate information about the stock market is required, if it is not kept in the computer program properly, then that system will not be successful in reality.
For this, an automation system can be made by making effective programming, many organizations are making a lot of money by making effective systems in America. In India, for this, big investor organizations and funds invest through algo trading, but it is not possible for everyone to do this trading on a small scale.
Features of Algo Trading –
- There is no fear or excitement for algo trading that affects trading like there is a lot of selling in the market by humans in an environment of fear, it works on the basis of logic.
- Algo trading does not require sitting in front of a computer screen all day long, it buys and sells on a set program.
- In the buying and selling of any shares in algo trading, this system does this process in a small fraction of seconds, which is many times longer than normal trading.
- This process evolved after the stock market went completely digital and is mainly used by large financial institutions and funds.
- For general traders, algo trading is done by many stockbroker organizations, for which approval of SEBI is necessary.
- For algo trading, it is necessary to have expert knowledge which normal investors do not have and they cannot bear to spend more for this, so this trading is mostly seen by big institutions.
- The more effective and rational the data is fed to the system, the more effective the algo system will be, hence its success is based solely on how effective the data is used.
- System Trading & Discretion Trading / System Trading & Discretion Trading –
Trading skills in the stock market is completely based on technical analysis and experience, in which the law of probability has to be followed. To invest on the basis of basic information, knowing the veracity of that information and knowing the risk, we can invest, but in trading we can predict what can happen in the future through the movement of the price of the past share.
According to what kind of environment is there in the stock market, what is the news trend, the stock market keeps on stirring. The more trading the winning is, the more it is suitable for share trading. Trading in the shares in which this process is not much is of no use or you cannot withdraw much profit in it.
Discretion trading is based on similar market information and own stock market information. Same System Trading It comes to a result after a lot of modification and that knowledge is used in the stock market. For which a lot of experts and money is spent which ordinary investors cannot do.
Facts about Fundamental Investment & Trading –
Fundamental investment It is very less risky which takes some time and patience to earn profit. The secret of Warren Buffet and Charlie Munger’s success by investing in the stock market is that they have never invested in any stocks except with basic knowledge. The shares of the technology company did not sit under the rule of this basic information, so both of them did not invest in these companies for a long time.
But in view of the success of the tech company in today’s technology era, it has started investing in companies like Apple. According to him, investment cannot be done on the basis of guesswork, he considers it only speculative, which is like a lottery. After the development in the technical field, very developed systems were created for trading in the stock market, which have been successful in giving very accurate results.
Investing in trading can be very risky for the injury investor as with the advent of technology and algo trading, it is quite impossible to compete with such advanced systems to make a profit. Therefore, it would be right for a small investor to invest for a long period, but in the market we see that trading is encouraged more than investment.
Due to which we should be careful and in fact you have a lot of knowledge about the stock market, only then move towards trading otherwise long term investment is a good option.
Jim Simon & Algo Trading –
Jim Simon This is a math specialist and worked as a professor for several days and worked for America’s intelligence organization to open the enemy’s secret message. With a friend of his, he started working on the stock market, and after much revision, he developed an algorithm that was based on his mathematical probabilities.
After the establishment of Ransons Hedge Fund, he had a lot of success in it and after 10 consecutive years of 66 percent profit to his investor, he stopped taking new investors in it. Today all the investors who have invested in their hedge funds are making good money. We have written a separate article on Jim Simon, in which you will be able to know his success in detail.
For the algo trading system he designed, he did not appoint any stock market expert for his fund, but appointed highly educated scientist and computer expert. He also did not know much about the stock market before this, but he was an expert in using mathematical probabilities.
In this way we have seen what is algo trading and how it works in the stock market. For this, very developed rules will be required by SEBI in future because it can cause a lot of loss to the small investor. Algo trading cannot be used by normal traders, for this it is necessary to have technical knowledge.
That’s why we have seen that it is always a good option for the small investor to invest mostly for the long term. Talking about algo trading in India, we are seeing this for the last twenty years and like America, in the next ten years, we will see it in the stock market in a very high percentage.
Algo trading has started through many brokers, but we also see some negative consequences with which we accept the technology. SEBI has to see that there is no loss to the small investor due to algo trading. We see that trading is promoted a lot by the media instead of investing, so that small investors can trade in the market, but we believe that investing long term is the best option for small investors.