Statistically, there’s a steady growth in the number of algo-traders annually. Nowadays, more than 70% of traders use trading robots or trading tools in their daily activities. Apart from the main trading terminal, most professional market players buy external modules, automated trading systems, or utilities, on the one hand; and on the other hand, those who can afford it hire teams of developers to create high-frequency trading algorithms. Be that as it may, process automation is now fully acclimated in the crypto industry.
Since the end of the last century, a lot of professionals have followed the example of Jim Simons and his algorithmic trading fund, Medallion. Their trading robots formed the most profitable hedge fund in history, making the founders dollar billionaires. As the years went by, professionals in the field grew in number. Large investment companies, like Citadel, began actively creating their own algorithmic trading departments, whose results allowed them to build skyscrapers in the largest cities of the world. The industry keeps evolving even now. In 2022, the U.K.’s largest taxpayer was Alex Gerko, Founder of XTX Markets, an algo-trading company specializing in crypto arbitrage.
Technologies evolved, and brokerage services became more accessible to ordinary traders around the world. Individual traders occupied a substantial share of the market and began to drive the demand for automated systems. Today, the supply volume of available indicators and trading robots is increasing yearly, along with the number of traders with a couple of thousands of dollars in their deposits. This article will consider available trading algorithms offered to private traders.
Semi-Automatic Trading Tools
They should stand out as the main direction of trading software in the first place. In terms of semi-automatic tools or utilities, the most relevant areas are:
- Algorithms for loading/unloading information. These include uploading data on the major economic news providers directly into the trader’s trading terminal or sending information on the current trading situation in the account to the management or investors. This category may also include uploading data for the market depth chart, market profiles, and any other types of information about trading volumes. For example, data deviations and trading volumes from several liquidity providers provide a deeper analysis of the situation and predict further price movements with higher confidence.
- Algorithms for trade position tracking. Multifunctional position tracking tools make life easier for tens of thousands of traders and are one of the most popular products for semi-automatic trading. These are big trading panels with fast and convenient settings of the expiration time of pending orders, partial and full take-profit and stop-loss, different types of trading stops, or built-in functions of averaging or hedging positions in the loss-making state. Such utilities available on a trader’s remote server allow traders to conduct professional trading directly via their smartphone. All they need to do is open a position, and the trading panel will take care of the rest. These tools help the trader to save a lot of time since there’s no need to monitor the trading terminal all the time.
- Repeater of trading activity. These algorithms are also known as “copying algorithms.” Algorithms are used by traders who manage the capital of various investors. The key advantage is that by trading on a separate “master account,” the manager adjusts the risk management individually with the possible installation of lower take-profit and stop-loss for each investor’s account and depending on the requirements for the conservatism of trading operations on the investor’s side. All trading terminals in this case should be installed within a single server, which is the most popular method. Or trade data can be transmitted via the Internet. Copying algorithms are installed on the trader’s main trading terminal and on the terminals of investor accounts. One of them acts as a “master,” while others act as receivers. After that, open positions on the “master” will be automatically opened on investor accounts. The main advantage is that there’s no need to carry out repeated actions on several terminals because the loss of time is primarily due to price changes on charts, which is bad for high-frequency trading.
Trading Robots: Full-Fledged Trading Algorithms
In terms of automated trading systems, there are three main types of trading robots popular among traders:
- Conservative trading algorithms. Classic trading strategies focused on moderate returns at moderate risks. Something involving long-term trading. Most traders eventually resort to exactly these trading algorithms. Most often, they’re strategies that demonstrate monitoring of real trading over a duration of years. The most common strategies are those related to trading by trend, with the signals of continuation or beginning of a new price trend, or algorithms trading the breakdown of levels of a certain range of candlesticks. Strategies of this format show stable results in historical testing for decades. However, the main problem in finding such an algorithm is adjusting the initial input settings of the trading robot to the historical data for a good growth curve in the historical testing on the part of the seller-algorithm. This point should always be taken into account when purchasing a trading robot, seriously considering the products only with the monitoring of real live trading on real trading accounts.
- Aggressive trading algorithms. Highly aggressive strategies are also known as “overclocking” strategies. These are aggressive strategies that use hedging or averaging with the multiplication of trading volumes in maximum active variations. Hundreds of percent profit in weeks or even days is compensated by the frequent burning of the trader’s entire deposit. New traders are often impressed by such algorithms and lose all their money, leaving the industry forever. Trading with overclocking trading robots without a professional understanding of fundamental and technical analysis almost always leads to the same thing — the complete loss of the deposit. Regardless, overclocking strategies are still popular, and some traders manage them in an impressive manner, earning considerable profit. Though most professionals absolutely reasonably use a conservative approach to increasing profits by scaling up deposits with investors’ funds.
- Innovative and currently popular strategies. I’m not determining the effectiveness or aggressiveness of strategies in the direction of current trends. It’s simply a method of determining the algorithm’s relevance that is used to determine the strategy’s popularity in thematic publications. These were very different algorithms at different points in time. Arbitrage systems for currency markets were popular 10-15 years ago. Going back five years, night scalpers gained the peak of popularity, and a year and a half or two years ago, interbank arbitrage algorithms for cryptocurrencies were discussed most actively. Now Machine Learning is at the head of the table, using popular online solutions, which in the last year have been used in absolutely all areas of technology; for example, the ChatGPT. But that’s another story for another day, and it’s actively gaining momentum.
Hence, we can say that there have been significant changes throughout the history of trading. I think that automated solutions are not only in the life of algo-traders forever but will continue to evolve.
