Is Rule Based Trading the Future of Investing?

Here, we will know about Rule Based Trading & know why it is know as Future for Investing.

Technology is slowly beginning to seep into all spheres of our lives – and where it already was, it is now moving from technology to high-tech.

Take your average Joe’s smartphone for example – in the 2010s, and now. It’s 2021, and stock markets too, have been subject to some major technological developments.

A few days ago, the ability to place a trade from a mobile app was considered revolutionary.

Today, it is considered essential, and we can’t do without it anymore. But what about investing for the short and the long term? Are we in for a massive shift over here too?

What Rule based Trading is Future of Investing?

Well, if you look at the cryptocurrency markets, one thing becomes very clear to us.

Today, most investors and traders in the cryptocurrency landscape, have already started to turn towards smarter ways of investing.

If you are familiar with the term “Hold“, you will probably understand what this is all about.

Investors who believe in holding a cryptocurrency portfolio have taken to smart portfolio rebalancing tools that work well in a high volatility market.

Now, the cryptocurrency market might be a very different ballgame. But what does stand out, is the nature of the game – and tricks of the trade that dictate success in buying and selling with a margin.

Stock markets speak a very similar story. Today, investors don’t necessarily come from a strong stock market background.

And those that do, do understand the amount of effort it takes to perfect an entry or an exit position after identifying the right opportunity.

Hours of charting, hunting for opportunities, and staying up to date with the market is what it takes to stay up to date with the market.

Not to mention, the amount of fundamental and technical analysis that goes into making a single, well-researched investment decision.

But what most investors have been missing until now, is the possibility that these learnings and actions need not be repeated by them in order to make a trade by their rules of the game.

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Why Rule based Trading is Important?

This is exactly where rule-based trading comes in. Today, everyone understands what rule-based trading means.

Algorithms mean rules, and rule-based trading means trading by rules that have been defined by the investor, or the person who writes code.

But rule-based trading is no longer as simple as writing an if-else block to trigger a trade down an execution engine.

Sure, one no longer needs to take care of the data feeds, analytics engines, and establishing personal stock exchange connections in order to make their computer trade on their behalf.

But, rule-based trading has been around for so long, that one wouldn’t be wrong in saying that there was 1st generation rule-based trading, and then there was another, and now there is yet another.

This is because investors who looked towards rule-based trading knew that there were many ways of making the computers trade on their behalf, only in smarter, and yet smarter ways.

Example of Rule based Trading

Consider a group of stock market experts that turned to rule-based trading in order to place their bets on Walmart stock.

They made use of satellite images in order to find out if the aggregated traffic outside the Walmart parking was large or small – and figured this variable into their price predictions for its stock.

What does it take to build such a system?

Well, stockbrokers have now exposed their trade execution engines through APIs, which take care of real-time market data feed, and trade executions too.

All that one needs to do, is to source the satellite images through a data provider, leverage a ready-to-deploy machine learning package in a language like a python.

This will translate images to traffic data, and build a mathematical model to give an appropriate weightage to the traffic factor. In addition to other fundamental and technical indicators.

And there it is – your own AI-based rule-based trading setup. Investors across the globe are already taking such ideas into action.

Because rule-based trading has become a lot easier, and the entry barriers have gone down significantly as plug-n-play APIs allow investors to execute trades on a stockbroker’s execution engine with light speed.

Investors no longer want to sit on their trading terminals calculating the right entry point for a stock according to the same strategy every day.

If it can be taught to a computer, it can be automated.

Today’s investor no longer wants to lose their night’s sleep over a position they didn’t close because the prices didn’t touch their forecasted exit points yet.

Rule Based Trading using Angel Broking SmartAPI

Rule based trading definitely is the future of investing. The question is, how smart are these algorithms are going to become, and how successful will they be in terms of beating the markets?

Looking at today’s investment environment where everything has gone digital, even long-term portfolios can benefit from rule-based trading setups.

For example, social media signals can be deployed to detect a market crash even when the investor is not on their feet when the market is actually crashing.

Or, detecting an anomalous price behavior of an asset, and divesting at the right point. Or, diversifying the portfolio in response to risk-adjusted returns.

The use cases of rule-based trading are countless, even for the savvy investor who doesn’t code. It’s only a matter of time when rule-based trading becomes mainstream amongst retail investors.

Check out SmartAPI by Angel Broking, which is already helping retail investors and startups alike in kick-starting their rule-based trading setups.

Rule Based Trading – Conclusion

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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