Although it is difficult to formally define the word “algorithm,” suffice to say it is “a set of rules that precisely defines a sequence of operations. This includes all computer programs, even programs that do not perform numeric calculations.” It is a set of instructions used to accomplish a given task.
To make a computer do anything, you have to write a computer program. To write a computer program, you have to tell the computer, step by step, exactly what you want it to do. The computer then “executes” the program, following each step mechanically, to accomplish the end goal.
When you are telling the computer what to do, you also get to choose how it’s going to do it. That’s where computer algorithms come in. The algorithm is the basic technique used to get the job done.
A trading algorithm is just a computerized model that incorporates the rules you would follow when entering or exiting a trade.
Wikipedia says “Algorithmic trading, also called automated trading, black-box trading, or algo trading, is the use of electronic platforms for entering trading orders with an algorithm which executes pre-programmed trading instructions whose variables may include timing, price, or quantity of the order, or in many cases initiating the order by a “robot”, without human intervention. Algorithmic trading is widely used by investment banks, pension funds, mutual funds, and other buy-side (investor-driven) institutional traders, to divide large trades into several smaller trades to manage market impact and risk[ Sell side traders, such as market makers and some hedge funds provide liquidity to the market, generating and executing orders automatically.”
Wikipedia’s description states the computers not only scan markets for setups, according to an algorithm, but that the computer will actually do the trading for you as well, called algorithmic execution. At QiT we will scan and post setups but leave the actual trading to our members. We do not do any trading at all, only give you the stock suggestions that setup according to the rule set.
One of the most important aspects of trading with algorithms, above all else is:
ALWAYS FOLLOW THE RULES
Check our out the Performance Matrix for our algorithms and sign up today.