What are the different types of directional algorithms and how to start?
Sep 29, 2022
11:00 AM

Upbots Academy : What are the different types of directional algorithms and how to start?

Last week we discussed the subject of arbitrage in trading and more specifically in automatic trading. It is virtually impossible for a human being to exploit an arbitrage opportunity by hand!

Today we will discuss the latest facet of automatic trading, namely the "simple" directional strategy. Be careful here, we use the word simple but this is in no way related to the complexity of the underlying strategy. Compared to high frequency strategies or more elaborate and complex strategies operating on several markets at the same time, it is indeed simpler.

What is algorithmic trading?

Algorithmic trading uses computer code and software to open and close positions according to predefined rules, such as price changes in the underlying market. When market conditions meet the predefined criteria, trading algorithms can execute a buy or sell order for you to avoid scanning the markets manually and save you time. The different types of directional trading algorithms

Technical analysis

Several technical indicators are used in this method (Bollinger Bands, Stochastic Oscillators, MACD, etc.). To create a technical analysis algorithmic trading strategy, it is crucial to understand the various technical indicators and how to use them.

There are many different technical indicators, which means there are numerous possible combinations. Using a plan based on technical indications can be quite effective when done correctly, and by that I mean in a different way. It's all about research.

Mean reversion

This mathematically-based method makes the assumption that each asset has a historical average price that it will eventually return to. The mean reversion trading technique, to put it more plainly, is based on the premise that an asset's price is transient and that, after a specific period of time, this item will return to its average price. This technique is built using technical indicators, Bollinger bands, and moving averages.

Trend following

This technique is predicated on the notion that a financial asset can maintain a trend as long as it does, up until signals to the opposite materialize. Depending on the configuration that has been created, the robot can either open a bullish trade, open a bearish position, or close a position once these indications arrive. Therefore, this strategy is the complete antithesis of a mean reversion strategy.

How do I get started?

There are several barriers to entry when it comes to algorithmic trading. The first is the same as for manual trading, namely the technical knowledge needed to develop, test and implement a trading strategy.

The second is also "training", but this is the programming language you will need to learn in order to code your strategy.

Nothing could be easier?

If you want to get into automatic trading without having completed your technical training, you can opt for an all-in-one solution such as Upbots. This allows you to use trading bots without any knowledge, just by linking your API to the platform. Moreover, the use is free and you only pay for the performance fees afterwards.

More information here: Upbots


An automatic trading strategy does not have to be the most sophisticated in the world to be profitable. A simple strategy, simple not simplistic, can be enough.

Nevertheless, it is all a question of research and training, which is not necessarily possible for everyone due to lack of time. This is where Upbots and its marketplace comes in!