What are the Most Popular & Profitable Algo Trading Strategies? (2024)

Algorithmic or Alog-based trading is also very popular in the stock market to get better returns compared to traditional human intelligence-based trading. It is not only giving better returns but also doesn't need too much time to take the decision and execute the transaction, every trade happens within a fraction of a second, backed with AI-based algorithms.

Traders across the globe use the day trading algorithm and make hefty amounts of money in the equity market, commodity and forex trading. If you are also interested in trading try the Algo-based trading where multiple types of strategies can be applied as per the trend and sentiments of the market with better chances of getting returns from trading.

Also Read: What is Algo Trading How it Works and is it Profitable

Algo-trading software has all types of strategies fed through the algorithms and you just need to activate or enable which strategy you want to use while trading in the market. Here you need to understand what are trading strategies mostly used by traders and which trading strategy can is suitable for you and give you the highest returns.

Simple Algo Trading Strategies

Before we move on to the other trading strategies let's start with simple algo trading, that are commonly used by traders to earn some profits. These strategies are not only simple but also easy to use and implement in various market scenarios.

Momentum: It is one of the most simple algo trading strategies you can easily apply while trading in the stock market. When there is momentum in any stock, traders pick such stocks with the hope that they will move further and can give some returns. In this strategy, technical indicators like Swings, RSI, , Moving Averages and Breakouts are used to find the levels of momentum and the right levels to buy the stocks.

Also Read: How to Select Stocks for Intraday: 10 Tips to Pic Best Stocks

Trend Following: Understanding the trend of the stock market is very important to trade profitably. You can check the market heat map to check whether most of the stocks are trading negatively or positively. It is recommended to buy the stocks in an uptrend and sell in in a downtrend. In the Algo trading strategy, the trend following-based trading is implemented through the algorithm.

Market Timing: Perfect timing to enter into a trade is also one of the main factors to make your trade successful. Traders can wait to buy at the low point but missed the all-time low. Similarly, at the time of selling the stock at a higher price, missed the timing, as the stock moves further and can give more returns. But Algo-based trading can find such right timing to buy, sell or book profits into the trade position.

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Arbitraging: This is one of the oldest and very simple trading strategies traders use to take advantage of price discrepancies of the same stock trading on different stock exchanges.In arbitraging the action involves at the same time purchasing and selling the same stock in different markets.

Though the price difference is very minor, you can make profits from small but multiple trades in huge volumes. Algorithms can easily keep an eye on such stocks trading with the major price differences and simultaneouslycan create both buying and selling positions at a much faster speed compared to humans, helping traders to generate profits.

Most Popular Algo Trading Strategies

Apart from the above-listed simple algo trading strategies, there are some most popular algorithmic trading strategies that most traders or broking houses use in their daily trading strategies. Let’s find out what are these popular Algo trading strategies.

News-based Trading: Any kind of news related to a listed company also affects its stock price movement. A corporate announcement, quarterly financial results, acquisitions, bagging large orders and economy or sector-related news can affect the stock price positively and negatively. Algorithms can analyse such news through social media and other relevant websites to find out the company-related news and relate the same to take the opportunity of buying or selling the stock.

Pairs Trading: Paring the two stocks for trading can give the advantage of moving the stocks of two different industries in opposite directions. In this strategy, the market is trending upwards or downwards but two both stocks move on either side and create a hedging position for each other. Algorithms can find the relationships between such stocks, and the industry or sector analysis and use the historical price movement in different market conditions and decide which and how to create the right trading position.

Swing Trading: Swing trading involves the practice of taking advantage of creating a position on both sides of market movements. In swing trading, you can make profits from the erratic movement of the market, as the price oscillates between the overbought and oversold zones. During the day trading algorithm spots the swing highs and lows to create the trade positions at the right support or resistance levels.

Black Swan Catchers: It is a financial term, used to describe an unpredictable event that can occur beyond normal expectations but have potentially disastrous results. Natural calamities, or the recent COVID-19 pandemic are examples of black swan events. Catching the black swan is the investment strategy that leverage the extreme market volatility due to such events. Algorithms-based trading can gauge such unexpected events and monitor the market levels to trigger trading or investing opportunities.

Also Read: Trading or Investing Which is Better and More Profitable

Inverse Volatility: This strategy is usually used, in combination with markets for exchange-traded funds (ETFs). In this strategy, inverse volatility ETFs are bought to hedge against the volatility risk to the portfolio. Here you can get substantial returns if volatility remains low, as inverse volatility ETF plays on market stability being the prevalent condition.

Risk-On/Risk-Off: This trading strategy works when changes risk tolerance of an investor are observed closely in response to global economic patterns. Under this strategy when risk is considered in the low order then investors bet on high-return investments. However, applying this strategy involves monitoring the various factors that an algorithm can analyse such factors and take decide the risk level in the market is running low or at high levels.

Also Read: Types of Risks Associated with Investing in the Stock Market

Index Fund Rebalancing: As the name suggests, index funds are linked to benchmark indices, these funds with the defined period but during that, it has to be kept rebalancing to make sure the holdings are aligned with the index. When this happens traders using the algo trading strategy can capitalize on such actions. Algorithms can make quicker decisions than humans rebalancing the trades at a faster speed.

Most Profitable Algo Trading Strategies

Though all the algo trading strategies are formulated to generate profits, few give lower profits, few can give higher profits. Less or more, if implemented with the right timing and strategy can give some profits as per the different market scenarios. Here, we brought some of the Algo trading strategies that are considered as one of the highly profitable.

Mean Reversion: In this strategy, you need to identify when market the is overbought oversold zone and take the trades in the reverse direction to achieve the mean reversion. This strategy is more profitable when the market is range-bound and has the tendency to revert to its mean. Algorithms can check when the price of a stock, comes out of its defined range and indicates a mean reversion, then the algorithm can be easily configured to take the decision to trade.

High-frequency Trading: HFT is an algo-trading strategy that involves placing a large number of trades in a very short period. This HFT strategy can be implemented through a powerful computer running a high-speed network to execute each transaction within microseconds and milliseconds. However, thus HFT strategy is effective and highly profitable in the markets having high liquidity and transaction cost is also low in every trade.

Machine Learning Trading: Machine learning-based trading, uses algorithms to develop an artificial intelligence system, that can analyse a large quantity of data and find profitable trading opportunities in the market. Machine learning algorithms can identify and analyses huge amounts of historical data, like share prices, news and other events. However, this also strategy is effective when there is a huge amount of data available to know the patterns or trends that become difficult to identify through traditional techniques.

Scalping Trading Strategy: Under this trading strategy a large number of small trades with the motive to earn small profits on each transaction. The algorithms can identify even the small price movement in different stocks and place the trades as per the market trend and scope of profitability. This is a very popular strategy to generate profits with a large number of trades.

Market-Making Strategy: Under this strategy, algorithms fuel the liquidity in the market by buying and selling securities from both sides of the market. The aim of this market-making strategy is to make small profits on every trade but generate high-volume trade so that in the long-term algorithms can generate substantial returns.

Quantitative Strategy: Quantitative strategy consists of trading based on quantitative analysis, relying on complex mathematical computations and analyzing the key numbers to identify trading opportunities. Price and volume are the two most important components used while performing the quantitative strategy and are used as the key inputs also used in the algorithms-based trading models. And when it is used as an Algo trading strategy, a large number of purchase and sale is performed to generate a large volume of trades and profits.

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Best Intraday or Day Trading Algo Strategies

These are the best algo-trading strategies used in the stock market that can be implemented as per the market conditions. Traders or investors, as per their risk-bearing capability, time horizon and availability of funds, can apply the strategy to get returns. Few strategies work, in bullish market conditions and few strategies in a bearish market and few of them are applicable in range bound market or few strategies are more profitable in a high volatility market.

Also Read: Best Option Strategy for Bearish Market: 7 Option Strategies

There are various algo-based trading software like AlgoBullsandTradetronused by the broking houses to take advantage of algorithm-based trading and can generate the maximum profits in trading. There are a few day trading algo strategies that you can use for intraday trading. And you can choose the best intraday algo trading strategy as per your feasibility.

Also Read: 7 Biggest Mistakes To Avoid While Doing Intraday Trading

Wrapping-up

Compare to humans, Algo-based trading strategies can no doubt take faster decisions and takes quick actions in the market. Huge volumes or traders with smaller profits can make money from such trading strategies. Here you just need to enable or use the right strategy as per the market scenario, you can start with using the basic algo trading strategies to apply the complicated one, as soon as you start getting the profits from your previous strategies.

Choosing the best strategy would be not enough to get assured returns from the stock market trading. You also need to choose the best Algo trading software and the right platform that can install and run such a highly complicated software system. As trading through Algorithm based software is possible if there is no proper infrastructure, network connection and connectivity for running the Algo software system on computers and performing trading activities.

Monesyukh is one of India's leading online trading platforms that offer Algo-based trading solutions for investors looking to earn some profits. It is using the most popular Algo trading software like TradeTron, Algobulls and FoxTrader for people looking to take advantage of trading in the stock market through automated pre-programmed trading instructions and enjoy the benefits of a smart trading ecosystem sitting from anywhere in the world.

Also Read: Best Algo Trading Platform and Trading Strategies

Moneysukh is also providing a complete trading investment solution for equity, commodity and currency with trading account and demat account facility at nominal charges. If you are looking for a reliable broking house to start your investment journey, you can choose Moneysukh that will also provide you with the most dynamic online platform for all trading.

Also Read: How to Open Demat Account: Benefits and Documents Required

Here you can also get tips and recommendations from market experts to buy, sell or book profits while trading in stocks, commodities and the forex market, backed by a strong research team to make sure you can earn the best returns and minimize your losses while trading in financial markets and increase your wealth investing in the best-in-class assets through here.

Also Read: What to Know Before Investing in Stocks: 10 Things to Consider