How does one define algorithmic trading?

[Prashanth]

This is a copy of something that I saw on a Algorithmic Trading group.

How does one define algorithmic trading? I've tried doing searches online but haven't found much. Is it the application of technical analysis or is it something non-related to TA?


No, it is not just a straight forward application of TA

Algorithmic Trading is a technique used by individuals or professionals to automaticaly take and manage trading positions on financial markets. Algorithmic trading is often based on a set of rules that have been programmed. These rules combine the detection of price movement patterns, technical indicators, and specific position and risk management techniques.

[Sam]

Algorithmic traders remind of robots. I'll any day rather be a discretionary trader. Its human.

[Prashanth]

Personally for a pretty long period of time, I have been a Discretionary trader. The major problem with discretionary I faced was that trading being subjective, there was no single way to analyse my mistakes and whether it happened due to my fault or due to wrong understanding.

A Mechanical trading system on the other hand takes out the emotion and second guessing out of the decision making.

Recent trades have been more of mix with entry being mechanical and exit (profit booking) being discretionary since no system can catch a reversal right at the beginning while a trader can by observation may make a effort.

Also, at some places, discretionary is always better. For example, coding a system which can identify major patters - Head and Shoulder, Wedges, Channels, etc while not impossible is very tough since most patters are subjective and rules cannot be clearly defined. Its more about what we see rather than there being a fixed criteria which cannot be changed.

All successful traders will use some sort of proven trading strategy to begin with but the level of discretion allowed by it will vary. A trader with no plan at all will fail.

-- Prashanth
Some rules can be bent, others broken - The Matrix :)