In algo trading, in its purest form, a software program takes your money and, like a human money manager, decides how and where your money is traded or invested. It will look at opportunities around the clock and around the world. It will execute at split-second speeds and adapt as trading conditions change. Even if you are not ready to embrace this fully, you can still make money using algo concepts.
One aspect of automation is speed. An automated program can monitor markets around the clock, spot opportunities and execute trades at speeds you can’t humanly match. Another aspect is scope. An automated program can sift through more information than you can alone.
A way to semi-automatically increase your speed is to use filtering watch lists. With a filtering watch list you dictate a set of parameters. Your computer uses your parameters to scan a universe of symbols. The computer populates your watch list(s) with its top picks. You manually trade the markets that impress you the most.
A way to manually increase your scope is to pick one or two good news sources: a financial newspaper, magazine or Web site. Look for keyword mentions of a market or a sector among the top stories. Keep a log. Look for repeated keyword mentions. You don’t need to read whole articles. Over time, you will start to see money-movement patterns just by following keywords. Tracking keywords is an algo concept.
Another way to manually deal with scope is to choose a broad basket of markets that bear at least some relationship. You might include the Nasdaq 100 index and semiconductor stocks or the S&P 500 index and 30-year U.S. Treasury bonds or the euro, yen, Australian dollar and gold or energy and corn futures. You might include exchange-traded futures representing the German, Japanese and Brazilian stock markets. The basket should be broad enough that there is always something profitable, long or short, and connected enough so that a change in one part of the basket alerts you to, or confirms, a change in another part of the basket. Choose things that often move directly and things that often move inversely with each other.
Whether you use a watch list, a keyword checklist, a matrix of charts or other filtering tools, the idea is to visually scan a familiar universe. This gives you good scope. With practice, you will be able to see and seize opportunities quickly.