I was looking for this option when I got back to work after the maternity period. Had so many responsibilities, that I could not juggle between work, home, and passion. There when I was searching for some option that can satisfy the thirst of my passion without putting the stakes on other responsibilities. This trading came as a savior to me in those times. I got similar emails from certain friends who struggling to strike balance between responsibilities and passion. So, I thought of introducing you all to the new trading methodology which is Algo Trading. In this article, we will be covering How to do Algo Trading in Zerodha before that we will also understand what is Algo trading in Zerodha?
Today investors are very concerned about market volatility and unpredictability. Algo Trading stands for Algorithmic Trading. It is nothing but a combination of Algo and Trading. It means an algorithm is responsible for buying and selling decisions. Algorithmic Trading is the technique of using pre-programmed trading instructions to execute trade orders at rapid speed in the financial market. Trading software is used by investors and traders who input trading instructions based on time, volume, and price. For example, an algorithm is used by Mutual Fund companies to deduct the set amount from your bank account every month towards a SIP.
Algo Trading in Zerodha
Algo trading ( i.e., Algorithmic trading ) is the process of using computers programmed to follow a defined set of instructions (an algorithm) for placing a trade in order to generate profits at a speed and frequency that is impossible for a human trader. Algorithmic trading is the use of process and rule-based algorithms to employ strategies for executing trades. In other words, Algorithmic trading strategies allow you to make trading decisions on the basis of logic defined by you. In theory, the trade can generate profits at a rate and frequency that a human trader cannot match.
The best thing about this trading strategy is you can back-test the potential outcome of the logic or program you like to set up to control your losses in the financial market.
A very simple example of an Algo trading system would be one that buys an instrument if its 20-day moving average cross above its 50-day moving average and sells the instrument when the 20-day moving average cross below the 50-day moving average. The system would then execute and manage the trade. In reality, most trading systems are far more complex than this, but they still follow a systematic, rules-based approach.
Pros and Cons
| Pros | Cons |
|---|---|
| Reduced emotional errors | Mechanical failures |
| Ability to backtest and simulate | Algo trading systems cannot adapt to changing market conditions as human traders can. |
| Enhanced discipline | Costly |
| Achieve consistency | Time to get algo approved by the exchange |
| Increased order entry speed | |
| Diversified trading | |
| Multiple trading strategies |
Let’s now talk about the different ways you can do Algo trading with Zerodha. All these methods utilize the Kite APIs to automate the trades.
- Streak Platform
- Tradetron – Fully automated Algo trading platform
How to do Algo Trading in Zerodha?
Time needed: 5 minutes
Here are the simple steps involved in Algo Trading. Then, let’s begin!
- Visit the Streak site and log in with Zerodha Credentials:
All you have to do is visit https://www.streak.tech/login and log in with your Kite Id & password.
- Conversion of Trading Ideas into Algorithms or Logic
You can convert your trading ideas into algorithms in a few clicks, and then deploy this algorithm live for execution. You can also scan and search for your favorite stocks and access an exhaustive library of technical indicators. There’s a huge repository of fresh Strategies that you check out to get a hang of how the platform works. There are 60+ technical indicators inbuilt into the platform that you can use to build your strategy.
- Before you put your action plan to implementation you can familiarise yourself with Indicators and their impact:
The most important part of the section is Technical Indicators such as SMA, EMA, Hull, etc, and Oscillators such as RSI, MACD, CCI, etc. And you can familiarize yourself with these indicators over here.
– You can see a real-time technical ‘snapshot’ of each stock you want to track.
– You can deep dive and go through all the technical indicator values across each time frame such as 1m, 5m, 1D, etc.
– Create your watchlist, add multiple stocks to it and customize, rename or edit it as per your preference.
– Directly place orders from the Technicals section. - You can shortlist the Stock via Scanner as the Trading Strategy:
You have trading ideas. But how do you find the relevant stocks from the list of hundreds of stocks listed on the NSE?
Enter Scanners! This is a section on the Streak platform that helps you filter stocks based on certain conditions. Scanners are used to identify the stocks in play. You need to set up a few conditions and strategies and there you are!
For example
– If you want to know the list of NIFTY100 stocks that gained 2 percent in the last 1 hour.
– If you want to search stocks within different sectors such as NIFTY50, NIFTY100, BANKNIFTY, etc.
– If you want to know the Top Gainers, Top Losers, Stocks with a Bullish trend, those with a Bearish trend, and a whole bunch of other conditions.
You can also choose from a wide range of more than 150 pre-defined scanners, each scanner satisfying a certain set of conditions. - Create your own Strategy:
Once you are familiar with Technical Analysis, Scanners and you’ve created your own basket of stocks, you can try to finally create your very own strategy.
The discover strategy section has a huge list of pre-created strategies that Streak offers for educational purposes. It has several categories that you can choose from. You can click on any strategy to get a quick glimpse of the strategy conditions, its backtest results, P&L chart, and much more. You may also choose to use these examples to copy and deploy these strategies as your own.
You can start by giving your strategy a personal touch by naming it. The next steps are divided into 4 simple parts:
Add your stocks, enter quantity, and select the chart type, time frame, and holding type
Put your entry and exit signals
Entering Stop-Loss and Target-Profit (this continues to be mandatory in order to protect your downside).
Review your entire strategy and Run Backtest - Deployment of Strategy
Once you satisfy with the results of the backtest. Just like we do send sandbox testing before moving the changes to production. Similarly, you can deploy these changes to the scrips you selected with the logic. At any point in time, if you want to pause this option, you can simply click on stop, and deployed strategy will be removed.
Bottomline
Algo trading is poised to further transform trading with the use of cutting-edge technological capabilities like artificial intelligence and machine learning, as well as the usage of big data. The volume share of algorithmic trading today ranges from 70 to 80 percent in Western markets, whereas it is roughly 50 percent in India. Algo will surpass 95% of the market share in the upcoming years as volume increases dramatically. The future of India is in algorithm trading!