  Algorithmic Trading What is an algorithm ? Algorithm is defined as a set of instructions to be followed by a computer to solve a problem with desired results. Almost all electronic devices follow some algorithm to accomplish given tasks.

### What is an algorithm ?

• Algorithm Is Defined As A Set Of Instructions To Be Followed By A Computer To Solve A Problem With Desired Results.
• Almost All Electronic Devices Follow Some Algorithm To Accomplish Given Tasks.

## What is Algorithmic Trading ?

• Algorithmic Trading Is The Approach To Automate Trades Based On A Predefined Set Of Rules I.E. Algorithm.
• It Can Be Used To Place Buy And Sell Orders Almost Instantaneously By Following A Predefined Strategy Which
Is Devised Based On Trading Styles And Other Factors Like Time, Price And Volume.
• Algorithmic Traders Use ‘High Frequency Technology’ (HFT) Which Enables A Firm To Place Thousands Of Trades
Per Second.
• This Approach Doesn’t Require The Manual Hassle Of Placing Orders At Time And Can Be Done Automatically.
• Moreover, One Can Even Backtest His Or Her Strategy On Past Data To Test Its Accuracy And Significance Before
Implementing It On The Current Market Scenario

Some well-known Algo trading strategies are listed below :

### Arbitrage

• In this strategy, we take advantage of the price difference of the same asset on different exchanges.
• Specific Algorithms capitalise on this strategy and quickly observe different exchange prices to place an order to obtain maximum profit.

### Mean Reversion

• Mean reversion strategies calculate the average price of a stock over a given period of time based on a few past indicators and previous price data.
• Assuming that the price will always revert back to its mean value.
1. IF Stock price < Mean Price : Buy Order
2. IF Stock price > Mean Price : Sell Order (Optimal Price)
• The optimal price can be decided based on past indicators and is selected to achieve the most feasible amounts of profit.

### Mathematical Model based Strategies

• There are certain proven mathematical models for option based strategies which evaluate certain parameters and place orders based on the changes in those parameters
• Some of the well known model based strategies are shown below:
1. Delta neutral strategy
2. Theta neutral strategy
3. Vega neutral strategy
4. Iron Condor strategy

### Market Timing Strategies

• Market Timing strategies use hypothetical testing of assets via backtesting to build a model for trading.
• These strategies are used to test how an asset will perform over time.