Trading strategies are an excellent way for making money. It can even become a side hustle, but if you want to become a full-time trader, you can do so also.
Human beings sleep, but the trading market never does.
Becoming an investor is not all that challenging and the only thing you need is a marketplace and available resources.
However, understanding the market and the right investing strategies you should use is what matters and contributes to your trading success.
By 2028, the automated trading market is expected to hit $31.5 million.
When it comes to trading approaches, some are more effective than others, but in this article, we will dive deeper into automated trading strategies, so you can drive up your revenue.
9 Automated Trading Strategies You Should Follow For Increasing Your Revenue Rate
While the investing market is becoming quite competitive, the only thing left you to do now is to pay close attention to your automated investing strategies.
Each business will have its own automated trading strategies, but the most important part is to see which strategy best fits with you.
1.) Trend Based
Trend-based strategies often have one goal and that is to generate profit by increasing price returns for assets.
Trend-based strategies will assume that an increasing price will only continue to do so in the short term, but after some time, the value of the asset will drop and continue to do so.
Overall, this type of strategy pays more attention to short-term gains and promotes the idea that you need to invest in trending assets and sell them off after their trending period is over.
In this case, the automated systems will identify accurate trends in the marketplace and recommend them to you.
2.) Mean Reversion
This type of strategy is most popular with cryptocurrencies and other markets. It’s usually based on one assumption.
This assumption is that the asset’s price strategy will cause minor shifts from its average price, but at the end of the day, the price of the coin will be the same.
For example, if an asset has an average price of $2, its lower average price might be around $1.50 and its high average might be around $2.50.
During the lower average, people will wait until the price goes up and sell the asset after it peaks at an average high.
Mostly used for both long term and short term gains, but needs to constantly be overlooked.
3.) Momentum
Every trading marketplace is like the waves in an ocean. There are many ups and downs and if you don’t take advantage of them, you might not gain the momentum you are looking for.
This strategy is based on the average prices that will go up and eventually drop again over time.
The most crucial part here is to know when you should invest in this wave and when to exit it.
This will allow you to buy assets at their lowest prices and sell them off when they are at their highest peak.
Nevertheless, this strategy is similar to mean reversion, but is more based on momentum and doesn’t have minor changes in the average price. The same thing as the previous strategy mentioned.
4.) Arbitrage
Arbitrage is a powerful risk-aversion strategy that involves purchasing and selling in numerous different markets.
Purchasing a dual-listed stock at a low price in one market and selling it at a higher price in another market that has much lower risk rates.
Automation systems can identify price differentials and effectively inform you of any opportunities you can take advantage of.
After all, these opportunities are temporary, so you need to quickly take action.
5.) Natural Language Processing (NLP)
The trading market is widely discussed and has been affected by all types of content, including the news.
NLP is mostly used for cryptocurrencies, so if you are in this market, this strategy helps.
With the right NLP strategy, you can set your automation trading system to react to content that has been affected, either in a positive, or negative way.
NLP allows your automation systems to analyze articles and tweets with keywords and it’ll inform you if it’s the right time to buy or sell an asset based on the content it’s been affected by.
For instance, in this case, if the news is claiming that a certain asset is booming, the automation system will be able to detect this.
6.) High-frequency Trading (HFT)
The many reasons traders will use automated systems is because they can do much more than a human being can.
HFT is a strategy that allows automation systems to make a large number of traders in only a few seconds. It’s an excellent strategy to use if you want to be one step forward from your competitors.
HFT is also good because it eliminates the small bid-ask spread. This is the amount at which the asking price will exceed the bid price. A win-win situation for you to say the least.
7.) News-based Strategies
Numerous factors can influence the volume, price and volatility of your assets. A big one of those is the news and news-based trading takes advantage of this.
Automated trading involves looking through news articles that are relevant to its market and scanning through the automated keyword search.
After, the automation system will process all of these keywords from the articles it gathered and classify them for executing a trade deal.
If several articles are giving positive reactions, the automated systems will issue a buy order, if the reaction is regular, the order will be on hold, and if negative, it’ll sell the asset. Therefore, you’re always informed whether you are going to win or lose.
8.) Index Fund Rebalance
If you check up on investment portfolios, you’ll realize that each fund needs to be linked to a benchmark index.
These index funds have periods where they’ll rebalance holdings for aligning them with each index they’re linked with.
While rebalancing is happening, investors can capitalize on price differences by trading index assets.
9.) Weighted Average Price
Many professional investors consider this to be one of the most effective automated trading strategies.
The weighted average price strategy is about calculating asset prices with larger data sets.
The numbers are multiplied by a preliminary amount before the final numbers are averaged altogether.
Moreover, these strategies rely on weighing numbers by volume and time.
The order is conducted after the system detects that the asset price is below or above the weighted average.
How Can You Choose A Suitable Automated Trading Strategy
Check Your Market’s Conditions
Before you go any further, pay close attention to your market’s conditions. For example, the arbitrage strategy would only work under a set amount of conditions.
Therefore, before you go all in on the market, do careful research. Roughly 67% of investors fail when they invest and one of the primary reasons for doing so is because they don’t properly research the market.
Use A Demo Account To Test Your Strategy
Always test out your investing strategies before you put them into practice.
Without the proper testing, you’re only planning for failure and things might not turn out the way you want them to.
To properly put out your tests, you can follow specific metrics like:
- Net loss and profit
- Volatility rates
- Risk-adjusted returns
Make A Final Review To See If Your Strategy Is Winning Or Losing
Since the automation system is going to make up to thousands of trades in a short time, you want to conduct a review to see how effective it’s.
Analyzing your trades individually won’t really allow you to determine the success and loss rate.
At the end of the day, the trades performance will matter and you need to check out whether the results you have are the ones you are looking for or not.
Always aim for strategies that are bringing you profits and immediately stop all strategies that are only resulting in losses.
Especially if you are dealing with larger investments, the losses can be much higher than you think. Therefore, always keep an eye out for that.
The Reason It’s So Important To Have An Automated Trading Strategy
Any type of automated trading strategy you have, it’s important to analyze the marketplace and to use a demo account before you put your strategy into full practice.
Even after you pick a trading strategy, always see how much it’s benefiting your business.
If any strategy isn’t benefiting your business, it’s not worth continuing it in the long term.
Automated trading is excellent to do, but you need to pay close attention to the wins and losses.
The more money you invest in, the more chances you have of either winning or losing large amounts. Therefore, having the right strategy is highly important.
