Does Algo trading really work?

#1
I have a short experience with Algo trading but not a very pleasant one. I read recently that operators know when algos will be triggered to give directional calls and when stop losses will get triggered. So they will first drive up the prices and then quickly move the prices down to trigger the algo on the wrong side. Hence it's quite often that stop losses get triggered soon after which the stocks move back in the right direction again.
Is that something the others have also experienced?
 

pannet1

Well-Known Member
#2
I have a short experience with Algo trading but not a very pleasant one. I read recently that operators know when algos will be triggered to give directional calls and when stop losses will get triggered. So they will first drive up the prices and then quickly move the prices down to trigger the algo on the wrong side. Hence it's quite often that stop losses get triggered soon after which the stocks move back in the right direction again.
Is that something the others have also experienced?
connect the dots please
 
#3
Ok...Let me give an example. I bought 100 shares of Colgate Palmolive at around Rs 1250 when Algo gave a buy signal and applied stop loss at 1200 (4% below purchase price). Soon after, the price dived all the way to 1200 and triggered my stop loss. After that it raced up again all the way to Rs 1300.
Its possible that there are other algos/AIs which can figure out when normally the other algos trigger buy signals due to MA cross overs /price exceeding MA etc. Operators will short sell in big quantities to drive down prices this time to trigger stop losses, thus helping to drive the share prices further below. Once done, the operators will buy in big quantities to drive the prices up again.
 
#4
Ok...Let me give an example. I bought 100 shares of Colgate Palmolive at around Rs 1250 when Algo gave a buy signal and applied stop loss at 1200 (4% below purchase price). Soon after, the price dived all the way to 1200 and triggered my stop loss. After that it raced up again all the way to Rs 1300.
Its possible that there are other algos/AIs which can figure out when normally the other algos trigger buy signals due to MA cross overs /price exceeding MA etc. Operators will short sell in big quantities to drive down prices this time to trigger stop losses, thus helping to drive the share prices further below. Once done, the operators will buy in big quantities to drive the prices up again.
They don't usually "know" other than what they see on L2 but it's easy enough to guess because a lot of people use similar strategies & indicators.


IF you think that someone is making profits by trading against whatever strategy your algo is using, then perhaps, you should consider trading against the results of your algo too, & buy when it says sell & sell when it says buy. On the other hand, IF you think that the big guys care about YOU & your algo in particular, then it is highly likely that it is NOT the case. :dead:

 

iwillwin

Well-Known Member
#5
I have no experience in algos/hft...but they are the reason we have liquidity....if one tries illiquid counters then there are operators or group of person involved in circular trading on that scrip....
Big guys or institution pay for getting information on number of quotes open....
Ever faced situation....u place a stop or any limit order and u cancel that, mkt still prints a trade on the cancelled order price, this gives me some information that there are Autobots/software they store/remember our orders or limits...
I don't have anything to do to stop them but listen to the price action and behave according to what market shows me....I have not answered your query but just shared my views
 
#6
They don't usually "know" other than what they see on L2 but it's easy enough to guess because a lot of people use similar strategies & indicators.


IF you think that someone is making profits by trading against whatever strategy your algo is using, then perhaps, you should consider trading against the results of your algo too, & buy when it says sell & sell when it says buy. On the other hand, IF you think that the big guys care about YOU & your algo in particular, then it is highly likely that it is NOT the case. :dead:

 
#7
Thanks for your insights. Yes, it sometimes seems evident that algos are responsible for bringing liquidity to illiquid counters and at Option strike prices which sometimes seems strange. But perhaps they are setup to take advantage of various potential profitable opportunities which cannot easily be detected by humans.
 

against_tides

Well-Known Member
#8
algo is nothing but decisions based on available underlying data, without emotions(which is big -ve for human based trade).
The market doesent care if you are trading manually or algo based..and yes...big guys have more data to make better decision
 
#9
The one thing that algos are best at is arbitrage-trading due to the speed at which computers can calculate, seek & capture arbitrage-opportunities but the kind of example you gave where the price moved Rs.50-100, presumably over hours or days, doesn't require an algo. Given that most hedge funds can't beat the market is proof that there aren't all of these magic-algos floating around that can predict prices since if it was so easy to make one, then all of these billion-dollar hedge-funds would have them & they'd easily be able to outperform the market year after year but vast majority of them don't - https://www.marketwatch.com/story/w...-funds-beat-the-sp-than-we-thought-2017-04-24

Big players & small players have their own advantages & disadvantages; for instance, it's much harder for big players to enter the market without getting a lot of slippage (that is, move the market) whereas small players have the luxury of entering & exiting quickly with hardly any slippage, most of the times. So ultimately, it's about recognizing one's own strengths & trying to make the best use of them rather than worrying about what others are doing.
 
#10
Algo with Zerodha does not has good accuracy on the results irrespective of P/L,
With Any algo platform, the results should be constant for same period being back test irrespective of time for the indicators which are independent of time, But it is not so, Hence I have lost the confidence with streak.tech algo,
Same algo used yesterday which gave 110% results in 90days back test period is showing -15% results now,
Same algo used in live market gave a buy in HUL at 1803 is giving buy only at 1780 in the next day when I back-tested it after a day
Same algo with same backtest period is giving different results, hence totally lost the confidence with streak.tech algo system
I used EMA breakout system
 

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