5 Tips to learning how to trade with an algorithmic formula

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algorithmic formula

The term algorithmic freaks you out the first time you hear it. However, it is a simple concept to understand.

Why is this so? Funny thing about algorithmic formula is that you usually use it in your normal trading routines without even recognizing that you used it. We can describe an algorithm as a set of rules we apply when carrying out tasks such as trading.

In trading, algorithmic trading is a complex set of rules and instructions that you would use when placing a buy or sell in the market. It comprehends and analyses various markets; thus, there is no possibility that you will make a mistake when trading.

For newbies determined to learn this concept, this article provides tips that could help you become a good algo trader.

1. Find a mentor

trader mentor
(Image credit: JB Klutse / JBKlutse Foundation)

The trading concept could take time to learn. Therefore, you need to have a teacher: your mentor. He or she will act as a guide as you make those small baby steps into the industry. 

You could also rely on them when you want answers to various queries related to the concept.

Remember, your mentor has more experience than you have. He or she made mistakes; hence, they can help you deal with greed, knowing how to code, and how to develop profitable strategies, because, your result should be to acquire profits.

2. Join forums

For you to succeed in any industry, you will have to join a peer group. As you flock together, it will make it easy to understand difficult complex. In these forums, people are at different levels of the learning phase, including the experts. 

Participate in these forums and ask questions, whenever you need answers. The good thing about the current technology is that it provides platforms such as social media. You will find these groups on sites such as LinkedIn and Facebook.

3. Learn programming

When you hear the word programming, you should decipher that you have to do some coding, automatically. Note that algo trading is not just the regular kind of trading. You will have to go an extra mile than the average trader.

Experts recommend that a newbie should start by learning to program using python. The coding language is easy to understand and it is versatile. Additionally, be sure that you have some mathematical background since you will have to use statistics when creating these algorithms.

4. Have a basic understanding of how to trade

Your “tech-savvy-ness” may not be the only solution to know how to do this. If you only know how to code, you will have a disadvantage to that individual who knows trading and coding at the same time. In other words, learn the basics of trading.

Remember that as you learn, you will have to implement and test different strategies to be successful. Therefore, do some trading before you develop any formula. If you do this, it will be easy to capture any market inefficiency and inconsistencies, which should be your primary target in the first place.

5. Read different journals and books

Successful people hide their secrets in books. You will have to read as many books as you can, including online journals and blogs. In these resources, you can learn various trading strategies, and some of the mistakes they did when starting.

Experts recommend that one should read around 20-30 books, and keep a record of thoughts that you would want to try as you develop the code, including strategies that would work for you. Ensure that these books talk about algorithmic trading in detail.


A rule of thumb when trading is to avoid being greedy. Use real money to test various strategies. On the other hand, use your capital wisely. Start by investing 20% of the equity you have for the first time, and continue to increase the amount with time.

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