Trading algorithms have the ability to react to market shifts and perform thousands of actions at a split second, something that is beyond the capabilities of human traders. In 2020, more than 90% of all trades in the Forex market were performed by trading algorithms. Large institutions such as investment banks, pension, mutual, and hedge funds that are operating on a high scale leverage these algorithms to save up on labor costs and overall reach better bottom line performance.
A new blockchain project is about to introduce the latest technological advancements in trading – including algorithmic trading – to the cryptocurrency market.
How does algorithmic trading work
Simply explained, algorithmic trading leverages the power of machines to automatically determine and instantly execute potentially profitable trades on the open markets. It works based on pre-programmed variables and conditions – for example, a program can be configured to buy 10 shares of a specific stock when its 100 day moving average goes beyond the 300 day moving average, signifying a strong trend that is highly likely to be profitable for the investor.
There are multiple benefits at hand. A program can react when multiple conditions are met, which is impossible for a human to do even on a small scale, resulting in less slippage (losses due to very short-term differences in prices due to high market activity, a factor that plays a major role in cryptocurrency trading). This allows for a higher quantity of accurate trades and reduces the possibility of mistakes when orders are placed. The program can check multiple dynamic conditions at the same time with 100% accuracy and react accordingly.
Furthermore, an algorithm can be tested and perfected indefinitely by running simulations based on historical patterns and scenarios. This is done to test hypotheses with the goal of improving its efficiency. Taking our previous example with the moving average, you can set the condition to buy 10 shares if the 100 day moving average goes beyond the 300 day moving average and then run the algorithm on the price history for the last 5 years of 1000 different stocks. The results can then tell you if your theory is reliable or not.
Another advantage of algorithmic trading is that it can reduce the possibility of mistakes by human traders based on emotional and psychological factors. Emotion can interfere with quantitative judgement and lead to a series of bad trades with potentially devastating outcomes. The algorithm will always only focus on the metrics and thus be consistent in its decisions.
However, this is where the line between machines and humans in trading is drawn. In cryptocurrency trading, emotion plays a tremendous role in how the market moves. Hence, reading variables that go beyond the quantitative nature of trading is required for you to be successful. This is also where it becomes tricky – can you actually design an algorithm that can reliably analyze the effect of emotions on the prices of cryptocurrencies? Turns out that with the help of AI, automated machine learning and blockchain technology, you can.
Dohrnii and automated trading for the cryptocurrency market
Dohrnii is an investment management ecosystem that not only brings algorithmic trading to the crypto market, but also introduces the synergy effects of AI, AML and blockchain for crypto trading. The project is underpinned by their native DHN token and offers its holders access to the various analysis tools, as well as to an ever growing pool of educational resources aimed at helping traders expand their knowledge and become successful in the long term. Completing the lessons successfully yields DHN tokens, allowing users to earn while they learn and to start trading with fairly low initial investment.
The concept of automated investing is greatly underpinned by algorithmic trading, but it has additional factors that come into play. It starts from the ground up, with the analysis that is conducted by the very same algorithms used to analyze the market today by big investment companies such BlackRock Inc. AI and AML come into play for the further analysis of the market based on a multitude of factors (including how emotion influences the cryptocurrency prices) and spotting potentially viable investment opportunities. Based on the data that is gathered and analyzed, a Robo advisor designs suggestions for portfolio adjustments and price predictions. The trader can then select specific conditions that, if met, will push the trade orders immediately by the algorithms to the third party exchanges through APIs, saving time and minimizing slippage.
The AI-based tools in the Dohrnii ecosystem adapt to every trader, their risk profile and budget. Through the onboarding process that consists of a dynamic questionnaire, the platform determines an initial profile of the trader and then adjusts it based on their interaction with the trading tools. Dohrnii analyses everything, from how the traders improve from the custom learning program that is presented to them based on their level, to their trading decisions and bottom-line performance.
Embracing the future of trading
Machines have proven to be more efficient than humans in most tasks when it comes to trading. The trend is already evident – it is a matter of time before tech-driven trading reaches widespread adoption even for small individual traders that are using online platforms and exchanges.
To learn more about Dohrnii, their crypto investment ecosystem and ongoing funding round with 66% bonus tokens for early adopters, visit https://dohrnii.io/en.