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Algorithmic or Mechanical Trading

Algorithmic, Algo, Mechanical, Systematic, or Rule-Based trading, refers to a trading method where order execution is based exclusively on a pre-defined set of rules and instructions.Introduction to Algorithmic or Mechanical Trading


What is Algorithmic/Mechanical Trading?

Algorithmic, Algo, Mechanical, Systematic, or Rule-Based trading, refers to a trading method where order execution is based exclusively on a pre-defined set of rules and instructions.

 Mechanical-trading rules and instructions include variables such as price, time, and volume

 Mechanical-trading usually refers to a software code (automated-trading), but it can be also based on manual execution


Who Applies Algorithmic Strategies?

Several different market participants apply algorithmic strategies, such as investment firms, hedge funds, high-frequency trading firms, large individual traders, and small retail traders.

In the top of the chain, there are several large hedge funds and investment firms using state-of-the-art technology and hiring a wide team of programmers, mathematicians, and professional traders. They use proprietary systems, programmed to trade tiny inefficiencies between the dynamics of demand and supply. These strategies can focus on a single financial market, or on multiple asset classes. The asset classes involved include shares, ETFs, currencies, and government bonds.

Can Retail Traders Compete?

In the short-term, retail traders are unable to compete against institutional traders holding superior technology and unlimited resources. Retail traders can only develop and apply mechanical systems aiming to trade price swings lasting from a few hours to several days.

Read more: Algorithmic or Mechanical Trading

Trading Forex by Following the Smart Money

The Smart MoneyFollowing the Smart Money -The Six (6) Indicators

Traders who are able to recognize and to follow the movements of the smart money can improve significantly their trading performance.

What is the Smart-Money?

Smart money can be defined as the capital invested by traders with expert knowledge and often with inside information. The smart money can spot trends before others and trades basically against the general market sentiment.

Smart-Money and the Foreign Exchange Market

The Foreign Exchange market is a decentralized (OTC) market and that means there is no track record of the aggregate trading activity. That makes things even more difficult in identifying the smart money movements. However, there are quite a few indicators providing an insight to where the smart money is flowing.

This analysis includes the following indicators:

(1) Following the Long-Term Circles of Unemployment, Inflation, and Growth

(2) COT Analysis (Commitment of traders)

(3) The US-Dollar Index (USDX)

(4) The CBOE Volatility Indexes (VIX & Skew Index)

(5) The Treasury Bills Correlations

(6) Contrarian-News Approach

Read more: Trading Forex by Following the Smart Money

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