Common Algo Trading Strategies Every Investor Should Try

According to some research, 53% of American families own some type of stock. If you’re interested in investing, you might want to try algo trading strategies.

These are trading strategies that are based on patterns and algorithms, and there is even algo trading software that you can install.

However, to be successful, you’ll need a good trading strategy. Keep reading to discover the best trading algo strategies that you can try to make money.

Cross-Sectional Momentum

The cross-sectional momentum strategy compares the metrics across different stocks to predict what the future returns will be.

For example, if Google and Facebook predict a momentum breakout, this could be driven by the market. However, this could help you interpret the signals and get ahead of the curve.

You’ll want to consider the movement and figure out what drives a stock so that you can invest or sell it at the right time. However, this strategy is normally more computational since you’ll have to calculate metrics.

Trend-Following Strategies

You’ll also want to have trend-following strategies, which is great for algo trading. The algorithm can easily find the pattern, and you can follow trends in channel breakouts, price level movements, and technical indicators.

This is one of the easiest strategies to implement because you don’t have to make any predictions or forecast a price. The trades are based on the occurrence of any trends, which can be easy to implement into the algorithm.

You may want to try using a 50 and 200-day moving average.

Mean Reversion

The mean reversion uses more math, and it calculates the average of a stock’s high and low prices. It involves identifying a trading range for a stock and then calculating the average price through analysis.

When the current price lags behind, the stock is more attractive in hopes that it will increase. However, if the market price goes beyond the average price, the stock is then undesirable because they assume that it will fall.

Dollar-Cost Averaging

You can also try dollar-cost averaging, which is to invest a fixed amount of money over time. This will eventually lower the amount that you need to break even, which can be a great long-term investment.

If you are investing in a 401(k) account, then you’re likely using this strategy.

Market Timing

This type of strategy will use backtesting, live testing, and forward testing. You’ll have to optimize this timing to make sure that the algorithm has enough data to know how the stock will perform.

You’ll also have to compare the live trades with the other tested models to see if they’re a good investment.

Discover More Algo Trading Strategies

These are only a few of the best algo trading strategies out there, but there are many more you’ll want to try.

However, before investing, make sure that you talk with a financial advisor. They will be able to help you come up with the best strategy.

If you’re interested in more financial topics, explore our website to find even more great articles just like this one!