Is Algo Trading dangerous for the traders?

In 2008, SEBI permitted automated trading in India. Since then, the Trading and broking industry started its disruption in this field.

Let us know the basics of Algo trading and then we will discuss how it is different and superior to traditional manual trading.

An Algo trading is done by an AI-based software or tool where the system is instructed with the certain algorithm of Trade. It is empowered with ML and historical big data back-tested with results. When you instruct your system to make an entry for a trade and exit on a certain point with no human or emotional attachment, it comes under algo-trading.

The trading can be done in any underlying assets such as Equity, Derivatives, Commodities, Cryptos, and others.

In normal trading, a trader makes an entry by buying or selling a stock. it is based on some trading rules like moving averages, indicators, price action, and many others. Then there is a price target for profit booking as well as a Stop loss for taking the maximum loss. 

And another important parameter is to manage the capital and position sizing, averaging, or unit allocation. If all these go successfully over time, Then A trader makes a profitable journey.

But all these rules are theoretically so simple but very difficult to apply and hold in real-life trading because of our emotional attachment.

In trading, we are dealing with our money. A little fluctuation in our profit and loss impact our mindset to change decision which is not possible for a robot.

In manual trading, instead of correct entry we may not get an expected or calculated profit and also a profitable trade can convert into a loss.

Then comes Algo Trading. It is a machine, so no emotion. When a certain set of back-tested rules are imposed and coded, no one has to manipulate the trade. It will do all the things starting from capital management, loss management, profit booking, and so on.

Some popular trading styles are Momentum trading, Trend following, reversal trading, EMA trading, price action, etc.

Algo Trading is now getting more popular in cryptocurrency trading and many companies like AlphaGrep, irage Capital, and Dolat Capital is also providing this service.

 Already AI based tools continuously replace human involvement and make the system error-free. If a robot can manage your portfolio, Are we driving toward the day when there will be no jobs for Fund managers in Mutual Funds?