Benefits of Rule based Trading – Why Rule based Trading is best?Last Updated Date: May 01, 2022
Check out various Benefits of Rule based Trading & know why it is growing very fast.
The world of trading involves making quick and smart decisions based on several variables, including price and volumes. So, how does a trader make these decisions?
Different traders use different strategies but a rule-based trader uses predetermined rules wherein the decision-making is simplified because of the use of machines and algorithms.
The use of automation makes it easy for a trader to follow a set of rules or instructions aimed at executing a trade speedily and in an error-free manner.
A trader who is at the beginner level may initially find it easy to base decisions on opinions gathered from others and personal judgment.
The trader may even see some reward but may soon discover that what worked once need not necessarily work on every trade executed.
This is when the need for a defined rule-based trading system comes into play.
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Benefits of Rule based Trading
Check out various benefits of rule based trading that every trader should know about –
No Emotions – 1st Benefits of Rule based Trading
Rule-based trading is not based on subjectivity, ie, personal bias or emotions like fear or panic.
Also, a rule-based trader knows that opinions and discretion don’t play a role in this type of trading where the algorithm works to a preset rule.
The predefined rules are designed for entries and exits, types of orders, and the time, among others.
All a trader would need to do is set the rule, for instance, a stop loss or take profit order, and manage the exit.
Once the rule is triggered, the trader either takes profit or stops loss thanks to the automated trade.
Rule-based trading takes every trade, irrespective of the emotions or feelings of the trader.
Minimal Errors – Benefits of Rule based Trading No.2
Rule based trading ensures that results are precise and errors are fewer when executing a trade.
On the other hand, while placing manual trades, there are chances of errors Because the order placement is speedy and accurate, the likelihood of consistent rewards is higher.
The speed and precision also help traders steer clear of any significant fluctuation in prices.
Also, a huge number of orders can be placed and used across markets on the basis of different parameters.
Backtesting Ability – Reason Why Rule based Trading is Best
Rule-based trading gives traders the advantage of being able to backtest.
This helps traders know what aspects of their trading system are functioning well and what doesn’t because they can make use of historical data to run their systems or rules.
This ensures that any errors in the rule-based system are removed.
Good for Newbie Traders – Advantages of Rule based Trading
Because of automated rules and the absence of any emotional or discretionary elements, newbie traders may use a rule-based trading system to continue their trading journey.
Rule-based trading takes away the panic or stress element from trading and gives a retail trader the confidence to continue trading.
Coding Not Required – Pros of Rules based Trading
Earlier, a trader would need to have an amount of coding knowledge to adapt rule-based trading to algorithms. This posed a challenge to traders who didn’t know much about coding.
Now, thanks to the role of FinTech, traders may make use of fintech platforms that help convert text into codes and make rule-based trading accessible and easy to use.
Once traders know these aspects of rule-based trading, they may be able to use strategies like trend-following ones, for instance.
The trends used for example are breakout, moving average, and price level movement, among others.
Another strategy is the mean reversion strategy, which essentially is how an asset’s high and low price reverts to the mean value over a period of time.
The high and low prices are temporary. The strategy involves identifying and defining the price range and getting the algorithm going.
Benefits of Rule based Trading – Conclusion
Rule-based trading comes with a range of benefits, including eliminating subjective or emotional decisions from trading.
This means new traders may be able to cut down losses and execute trades easily.
Rule-based trading has evolved and thanks to advancements in technology and the arrival of fintech platforms, knowledge of coding are no longer mandatory.
Traders may be able to use third-party platforms to automate their rule-based strategies.
These take away errors, bring in speed, and ensure that large orders may be placed across multiple markets and varied parameters.
All a trader needs to do is log in to their Angel Broking demat and trading account and check out SmartStore, a one-stop solution that helps traders with carefully curated tools and resources to kickstart rule-based trading.
Like what you see? These are just some of the many reasons to choose Angel Broking, which is fast becoming one of the most preferred broking partners in India.
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