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Rule based trading is the future of investing

05 August 20226 mins read by Angel One
Rule based trading is the future of investing
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When the world saw the inception of personal computers and the internet, few people had imagined the scope of impact these would have on their financial lives. In trading, the story is not very different. The Internet and computers have helped people simplify their trading journeys, and now, anyone can trade in global markets simply through the click of a button, from the comfort of their homes. Forget the heat, the sweat, and the intensity of the trading floor – today, most investors focus on making calculated trades with the help of rigorous analysis on their very own PCs and laptops.

But when the very first rule based trading systems were being built in the US, the very engineers who made the first rule based trading systems started bringing a new way of trading into the retail investing space, bringing new value propositions to the trading landscape. 

Before we see why rule based trading is the future of investing, let’s first look at some of the key advantages that rule based trading can bring to your approach to the stock market.

Eliminate the guesswork and the delays

Rule based trading removes the guesswork and the delay that is caused between the moment when you gauge the room for making the trade and when you actually send the order across to the market. In rule based trading, the orders are executed as soon as the conditions to execute a trade are matched, in accordance with your strategy. 

Monitor the markets with hawk-eye vision

When you trade manually, you are likely to monitor the markets for as long as you are in front of your computer, your mobile, or when you are not sleeping. Think about the number of good opportunities you missed when you were not monitoring the markets. And even when you are on your system, it is unlikely that you can keep an eye on each and every tick that occurs in the market, right? With rule based trading, you can survey the entire market to identify the best entry and exit points according to your strategies on a continuous basis.

Backtest, and eliminate all the possible errors in the execution process

Apart from the fact that rule based trading has no room for human error, you can also backtest your rule based trading strategies. In other words, you can see how your strategy would have performed by using historical market data, supplied by your rule based-trading partner.

Well, these are just a few of the many advantages of rule based trading, and you can probably see why so many people must be attracted to this proposition. It is no surprise that in 2018, over 80% of the moves in the US stock markets originated from trades placed by computers on their own. Today, all sections of the market – whether you look at equity, futures and options, arbitrage trading, forex, and even commodity markets are making use of rule based trading.

If you are an experienced trader, you must have measured your performance by pitching it against the market performance, right? rule based trading is gaining traction amongst both institutional and retail investors, and fast. And the reasons are not difficult to spot. The days of beating the market will soon be over, and talk on the floor will be about algorithms that can beat their own past performances. That’s right. 

We are seeing machine learning and AI making strong inroads to all industries, and rule based trading is a very potent field for AI and machine learning enthusiasts. Imagine making your own algorithms learn from their past performance, and hyper-optimizing them to make better decisions on the market data every passing day. 

Now that’s what we call a real upward curve. rule based trading is therefore, not only attracting the interest of retail and institutional investors, but also AI research companies and Fintech players, that are looking to introduce disruptive ways of trading in the market. Looking back, who would have thought that predictive models could correctly predict forex futures within 0.05 points confidence – something that even top-notch analysts aspire to, over the course of their careers. It is no wonder, that 90% forex trades are made by algorithms, and not humans. 

rule based trading is no longer the future – you can start coding your own strategies with little programming experience. Take Angel One’s SmartAPI for example, which takes care of executing your trades with it’s cutting edge trading execution engine, and that too, for free! Gone are the days when rule based trading was limited to the institutional investing landscape, and required teams of software engineers and market analysts to make it happen. Check out Angel One’s SmartAPI today. And once you get started, you might even end up beating your own past performance by coding your go-to strategies and automating your trades with SmartAPI.

‘Investments in securities market are subject to market risks, read all the related documents carefully before investing.’

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