An algorithm is the steps in a process or a quantified set of rules that is followed for calculating a solution to a problem, an algo is usually programed by using a computer.
Algorithmic trading is a defined method commonly using automated pre-programmed trading instructions for entries and exits filtering through the variables of time frame, price, volatility, and volume to capitalize on repeating patterns. This kind of trading started to become popular as computing power and speed increased over the past 35 years. Algo trading was created to optimize and profit from the speed of execution and edge in processing large amounts of historical data and real time price action to use computers to beat human traders.
If you are interested in studying algorithmic trading there is a wealth of books available on the topic. Algorithmic trading has a wide topic area from using software to backtest signals, coding more complex systems looking for repeating patterns, patterns on different time frames, and seasonal patterns to name a few. Other edges that algo traders can have over humans is speed in execution, mechanical execution removing emotions and ego in decision making, and computing power to identify great risk/reward ratios in historical price data across diversified markets.
If you are interested in learning more about algorithmic trading below is a list of the best algorithmic trading books on Amazon based on sales, ratings, reviews, and author popularity. A lot of the barrier to entry has been removed in 2020 and most traders can start at some level with using computers, historical price data, backtesting, and execution speed for a trading edge.
- Advances in Financial Machine Learning by Marcos Lopez 4.6 stars 336 ratings
- Python for Finance: Mastering Data-Driven Finance by Yves Hilpisch 4.6 stars 109 ratings
- Algorithmic Trading: Winning Strategies and Their Rationale by Ernie Chan 4.3 stars 73 ratings
- Algorithmic Trading and DMA: An introduction to direct access trading strategies by Barry Johnson 4.3 stars 66 ratings
- Trading Evolved: Anyone can Build Killer Trading Strategies in Python by Andreas Clenow 4.2 stars 106 ratings
- Building Winning Algorithmic Trading Systems, + Website: A Trader’s Journey by Kevin J. Davey 4.1 stars 160 ratings
- Inside the Black Box: A Simple Guide to Quantitative and High Frequency Trading by Rishi K. Narang 4.1 stars 51 ratings
- Introduction To Algo Trading: How Retail Traders Can Successfully Compete by Kevin J. Davey 4 stars 63 ratings
- Quantitative Trading: How to Build Your Own Algorithmic Trading Business by Ernie Chan 3.9 stars 94 ratings
- Algorithmic and High-Frequency Trading by Álvaro Cartea 3.9 stars 41 ratings
- Machine Trading: Deploying Computer Algorithms to Conquer the Markets by Ernest P. Chan 3.8 stars 42 ratings
- Hands-On Machine Learning for Algorithmic Trading by Stefan Jansen 3.6 stars 30 ratings