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Trading is considered as a complicated business and human mind complicates it further. We
always tend to look for shortcuts for success, which never comes along. Let’s face it, everyone wants
to be successful in life, while living in a swanky beach house or driving a top-class automobile. The
stock market success stories about how one can turn their life by investing has led to an increase in
affinity towards stock market.

After spending years in this field, I very well know that overnight success is a myth. One becomes
wealthy step by step by following a trading system with discipline and consistency. It doesn’t matter
whether this system is simple or complex.

If you want to get rid of your 9 to 5 job and make a consistent passive income from the stock market,
Algorithmic Trading is your rescue. Read on to know more….

PS: Algorithmic Trading cannot make you a millionaire overnight. It requires patience and discipline
to build and follow a trading system which can generate consistent income.

Are you new to Algorithmic Trading? Well, this guide is made for people like you.

Have you tried everything possible in Stock market, but only earned pennies? We will show you
step by step method to grow your wealth and live the life that you always wanted.

Are you too confused or looking to quit markets forever? Just give this method a try, we cannot
promise you results overnight, but you have nothing to lose!

In the United States, around 70% of total trading volumes comes from Algorithmic Trading. In
developing nations like India, it accounts for around 40% of trading volumes, not a bad number at
all! Machines are replacing humans in every field and so is financial trading. So only way to keep
yourself at par or above is to learn and implement algorithmic trading methods.

Retail traders tend to keep away from Algorithmic Trading considering it complex and out of reach.
However, it’s not true at all. Building an Algorithmic Trading system can be a simple task if one
knows the fundamentals behind it. And this guide intends to introduce you to the world of
algorithmic trading.

Before we get into the detail, let’s see what can the end result look like.

Below is the equity curve of one of my range breakout system

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A capital of 200K invested in 2006 multiplied to 6~ million in 2016, and the profit still keeps coming.
This is 30 times growth in 10 years without compounding. Had it been I allowed compounding, this
would have been a billion-dollar system!

Now, since you know why it is worth to invest your time in developing algorithmic trading system,
let’s try to understand the basics behind it.

Algorithmic Trading Introduction

Algorithmic Trading is a process to Buy or Sell a security based on some pre-defined set of rules which
are backtested on historical data. These rules can be based on technical Analysis, price action,
indicators or even Stock fundamentals. For example, suppose you have a trading plan that you would
buy a particular stock if it closes in Red for 5 consecutive days. You can formulate this rule into
algorithmic trading system and can even automate it so that Buy order is placed automatically when
your condition is met.

It’s said that your success in Trading depends on 30% market analysis, 30% risk management, 30%
emotion control and 10% luck. If we keep luck aside, then Algorithmic systems can take care of rest
90%. Most of the Traders fail when emotions intervene in their trading decisions. Even the seasoned
traders panic while pressing Buy/Sell button which eventually leads to loss.

Algorithmic systems will take care of all these drawbacks associated with manual trading. Also, if you
are busy with your day job and cannot devote time to trading, then you can simply automate your
algorithm so that your computer can trade on behalf of you.

Checklist to become an Algorithmic Trader

Learning algorithmic trading is super easy. Yes, you read it correct!

The only thing is you need is right guidance and resources at the right time. The Internet is full of crap
and you need to be careful about how and where to start.

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Based on my 10+ years of experience, I have created a 5 step checklist to become an algorithmic
trader. If you follow this in order, you should be able to write your own trading system in less than 6
months.

Step 1: Brush up your technical analysis skills

Assuming that you are building a trading system based on technical analysis, this is the most important
step. Even if you think you are an expert technical analyst, never stop learning. Technical analysis is
more of an art than science, and there is no end to it. The best way to learn is to observe price charts,
make it a habit and make notes whenever necessary.

Varsity is one of the best websites to learn technical analysis. If you are looking for some hardcopy
books, here are the suggestions.

Step 2: Trade for Real regularly

I have met people who simply do paper trading and aspire to become an algorithmic trader. Believe
me, that’s not going to work. In order to win the war, you have to go out and fight yourself! So, open
a trading account and start trading regularly. Don’t just speculate or trade based on the gut feeling.
Try to apply the concepts you learned in technical analysis.

You might fail in the beginning but note down your observations from each trade. Try to maintain a
date wise trade log. If you buy any stock, make a note what made you buy it. Collect as much data as
you can as that is going to be the foundation of your algorithmic system development.

Step 3: Pick a Software or Tool

You would need a software or tool to convert your trading strategy into an algorithm. And once the
algorithm is coded, the tool should have a capability to backtest this algorithm on historical data.
Picking a right tool is important as you cannot re-invest your time learning different tools.

I did an independent survey among 1000~ experienced traders to know which algorithmic trading tool
is best. The survey focussed on 5 parameters and users were asked to rate out of 100 for each tool.
See the result below:

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 ALORITHMIC TRADING TOOLS COMPARISON
Amibroker Metastock Zerodha PI Matlab Python

98
95

93

91
90

90
89

88

86
84
83

82
78

78

75

75
74

72
68

64
63

57

55
45

45

EASE OF USE LEARNING CURVE FEATURES BACKTESTING SUPPORT

Clearly, Amibroker stands out in all aspects. I have been personally using Amibroker from past 10
years, and never had any complaints.

So, whether you are a beginner or experienced trader, I would recommend to start using Amibroker
for algorithmic trading system development. It is a feature-rich, robust software that allows you to
develop and backtest trading systems. Even people from non-computers background find it very easy
to learn.

Step 4: Code and Backtest your System

Now here comes the important part. Based on the data you collected in Step 2, you need to code your
algorithmic trading system. Assuming that you are using Amibroker, it provides a neat coding interface
where you can write trading systems using Amibroker formula language (AFL). You need not to be a
computer programmer to learn this language, a little practice can help you get going. Check out this
link if you want to learn AFL coding from scratch.

Make sure you add risk management rules, position sizing and commission calculation in your code.
Against the mass belief, the algorithmic trading systems need not to be complex always. I have a live
system which has just 50 lines of code, and it’s performing well since a year now.

Once you have coded your system, you need to backtest it against historical data to see how it works.
Never ever start trading on a system without backtesting it. It is a way to validate the performance of
your system. Also, make sure that the historical data source is reliable, otherwise backtesting results
may not be accurate.

Post backtesting, you can also optimize the system parameters to further improve its performance.
All this can be done with few clicks in Amibroker. Learn trading system development using Amibroker
here.

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Step 5: Take it Live

This is the last step of this exercise. Once you are convinced with the backtest results of your coded
system, you can take it live. Do not try to fully automate it at least for 1st six months. Manually place
the orders based on buy/sell signals generated from the system. Amibroker has a scanner feature
which can automatically send you email or show popup messages when a signal is received.

Observe the system performance for few months and try to compare it with the backtest results that
you saw earlier. Don’t get disheartened if there are few losses, no system in the world is 100%
accurate. If you are not convinced with the performance, then tweak it further to obtain the desired
result.

After you are fully satisfied that your system is working, you can try to automate it. Depending on your
exchange and country, there are different options to automate. And almost all of these options
support Amibroker. The money will start flowing in passively, your system will do all the hard work
for you.

These 5 steps are more than sufficient to become a successful algorithmic trader. Spend most of the
time in Step 2 and Step 4 as the foundation of your system depends on it. You would be tempted to
hire a freelancer to code your system, but I would recommend to do it yourself. It’s not difficult at all!
Drop me an email if you need help with coding.

Also, never stop with just 1 system. None of the trading systems will work forever. So keep
experimenting with new systems always. Diversification of systems is more important than
diversification of the portfolio.

Algorithmic Trading Myths

Algorithmic Trading is complex and requires deep mathematical and statistical knowledge

No, it’s not. You can even convert your simple trading rules into Algorithms and trade live on it.

Algorithmic Trading requires huge capital

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No! You can even buy very small quantities using Algorithmic Trading.

Algorithmic Trading is not for retail traders

It is for everyone. In fact, most of the retail traders are jumpings into algorithmic trading from last few
years.

Algorithmic Trading requires super-fast computers and infrastructure

This may be required only if you are doing high-frequency trading using algorithms. For anything else
your PC is sufficient.

Algorithmic Trading and Automated Trading are same

Not at all. Algorithmic trading can be done manually too.

Interesting Reads

Trading Tuitions Academy

Amibroker AFL Tutorial

Algorithmic trading courses for absolute beginners

Auto Trading softwares and plugins

Algorithmic trading systems archive

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