The process of algorithmic trading

Algorithmic trading is the use of an automated system to execute trades in a market. These trades are executed in a predetermined manner using one or more algorithms and without human interaction. In this chapter, we will examine several common trading algorithms, along with tools that you can use in combination with pandas to determine the effectiveness of your trading algorithms.

Financial markets move in cycles. Proper identification of the movement of the market can lead to opportunities for profit by making appropriate and timely buys or sells of financial instruments. There are two broad categories for predicting movement in the market, which we will examine in this chapter: momentum strategies and mean-reversion strategies.

Momentum strategies

In momentum trading, trading focuses on stocks that are moving in a specific direction on high volume, measuring the rate of change in price changes. It is typically measured by continuously computing price differences...