Did you know traders prefer trading algorithms because they are quick and reduce transaction costs? There are other advantages, like traders can understand the overall market impact costs and be able to place their order at higher profitability.
For every trading strategy, it is evident that traders are mostly using many indicators. But trading volume and trading price are commonly used by many traders. In fact, market microstructure and market quotation require more attention.
Let’s understand with a simple example. Consider you are using an algorithmic trading strategy known as ABC. This algorithm places orders at any time according to the market situation of the target stock.
ABC trading strategy always first monitors the lowest selling price or the highest buying price. After tracking the price, this strategy automatically creates and places a buy limit order or a sell limit order with a certain ratio that is set by traders. If bot fails to execute the automatic order, and if the market also begins to deviate from the original limit order price. The bot starts to cancel the newly created limit order. In addition, the bot regenerates the corresponding limit order according to the latest market information.
If, in some respect, all the transaction orders are completed, the buy limit order or the sell limit order will be issued according to the above ratio until all the orders are completed or the trading time ends.
The real advantage of the Handicap strategy is that it can make better quantitative control on the market orders. But its main disadvantage is that it is easy to deviate from the tracking market average price when trading volume of each day is uncontrollable.
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