Course index:
- Basic Concepts of Money and Personal Finance
Introduction to the value of money, the importance of saving, and spending control. - Budgeting and Financial Planning
Create a personal budget, manage income and expenses, and set financial goals. - Inflation and Purchasing Power
Explanation of how inflation affects the value of money over time. - Interest Rates and Time in Finance
Differences between simple and compound interest rates and their importance in investments. - How to protect your savings. Protect yourself from scams.
How to protect your money from the scams that abound today - Basic Savings Instruments
Explanation of savings accounts, term deposits, and how they work. - Introduction to the Stock Market
Basic concepts of the stock market and its role in the global economy. - Actions: What They Are and How They Work
Explanation of stocks, types (common and preferred), and how to invest in them. - Bonds: What They Are and How They Work
Differences between corporate and government bonds, and their importance in diversification. - Risk vs. Return on Investments
Concept of risk and how it affects investment choices. - Diversification and Creation of Basic Portfolios
Basic diversification principles to reduce risk in an investment portfolio. - What is an ETF and How Does it Work?
Introduction to ETFs (exchange-traded funds) and how they track market indices. - What is a Mutual Fund?
An explanation of mutual funds and their benefits for beginners. - Financial education for the family
All the information you need to make ends meet. - Economic Cycle and its Impact on Investments
How the stages of expansion and contraction in the economy affect investments. - Growth Stocks vs. Value Stocks
Learn about different types of actions and what to expect from each one. - Fundamental Analysis of Stocks
Explanation of how to analyze a company's value based on its fundamentals. - Basic Technical Analysis: Charts and Patterns
Introduction to basic technical analysis tools, such as trend lines and candlestick patterns. - Options: What They Are and How They Work
Basic concepts of call and put options and their uses in investments. - Futures: What They Are and How They Work
Introduction to futures contracts and their application in investment and speculation. - Introduction to Cryptocurrencies
What is digital money, how it was created, and the characteristics of Bitcoin and other cryptocurrencies. - Blockchain and its Importance in Finance
How the technology behind cryptocurrencies works and their applications in finance. - Risks in Cryptocurrency Trading
Volatility, fraud, and regulations in the cryptocurrency market. - Leverage Principles and its Risk
What it means to trade with leverage and the associated risks. - Investor Psychology and Emotion Management
How emotions influence investment decisions and tips for managing them. - What is Algorithmic Trading
Basic explanation of the use of algorithms to perform operations in the financial market. - Financial Analysis of Companies
Introduction to basic financial statements and their interpretation for valuing companies. - Investing in Commodities: Gold, Oil, and Other Goods
How commodity investments work and their role in diversification. - Advanced Investment Strategies: Hedging and Derivatives
Introduction to strategies for managing risks through financial derivatives. - Creating and Managing a Complete Portfolio
Practical application of prior knowledge to build and manage a diversified portfolio.
Algorithmic trading sounds like something out of a science fiction movie, but it's actually a practice that is changing how markets are traded. It is using computer programs to make buying and selling operations automatically, following predefined rules and algorithms.In Argentina, where the stock market and cryptocurrencies are a world of opportunity (and risk), this type of trading is gaining ground.
In this lesson, I'll explain what it is, its advantages over manual trading, an introduction to the indicators and algorithms it uses, and the legal and ethical aspects you need to consider. All in a clear and relaxed tone, as if we were chatting over mate in Plaza Arenales in Devoto.
What is algorithmic trading?
Algorithmic trading, or algo-trading, is a way of trading in the markets using technology. Instead of a person looking at charts and deciding when to buy or sell, a computer program does it for you.This program follows rules (or algorithms) that you specify, based on data such as prices, volume, or trends.
Imagine you're a fan of Mercado Libre stock. In manual trading, you'd spend hours looking at the price to decide when to enter or exit. With algorithmic trading, You tell the program: “If the stock goes up 5% in one hour, buy; if it goes down 3%, sell.”The program does everything on its own, without you having to be glued to the screen.
In Argentina, algorithmic trading is growing, especially among traders who trade cryptocurrencies or on the Buenos Aires Stock Exchange (BYMA). It's a tool that allows you to take advantage of quick opportunities, which is key in a market as volatile as ours.
Advantages of algorithmic trading over manual trading
Algorithmic trading has several advantages that make it attractive, especially when compared to manual trading, where everything depends on you and your decisions. Here I tell you the main ones:
- Speed and efficiency: Algorithms operate at a speed that no human can match. They can analyze thousands of data and perform operations in milliseconds.In Argentina, where the blue dollar or stock prices can change in minutes, this gives you a huge advantage.
- Elimination of emotions: One of the biggest problems with manual trading is that emotions (fear, greed, stress) cause you to make bad decisions. Algorithms don't feel anything; they just follow the rules you gave them.This is key in a country where economic news can make you panic and sell everything.
- Consistency: A human can get tired, distracted, or change his mind. An algorithm is constant and always operates the same, without hesitationIf your strategy is sound, the program will execute it flawlessly. In a market like Argentina, where consistency is difficult, this is a real coup.
- Analytical capacity: Algorithms can process data that you could never handle alone, such as trading volume, historical trends, or movements in other markets. This allows you to find opportunities that you wouldn't see with the naked eye.For example, you can program an algorithm to detect if a YPF stock is rising while the dollar is falling.
- 24/7 Operations: Markets like cryptocurrencies never close, but you do need to sleep. An algorithm can operate day and night without stoppingIn Argentina, where many people trade Bitcoin or Ethereum, this ensures you don't miss out on important transactions.
- Backtesting: Before using an algorithm, you can test it on historical data to see how it would have performed. This gives you an idea of whether your strategy is good without risking real money.In manual trading, this is almost impossible to do accurately.
Algorithmic trading isn't perfect, but these advantages make it a powerful tool., especially in a market as unpredictable as ours.
Introduction to indicators and algorithms
For an algorithm to work, it needs clear rules, and those rules are usually based on technical indicators, which are mathematical tools that analyze market behavior. Indicators are like signals that tell the algorithm when to act.Here I'll tell you the most common ones and how they're used in algorithms:
- Moving Average: This indicator averages the prices of an asset over a period of time (for example, 50 days). If the price crosses the moving average upwards, the algorithm can buy; if it crosses downwards, it can sell.It's simple but effective for spotting trends.
- RSI (Relative Strength Index): Measures whether an asset is overbought or oversold. If the RSI goes above 70, the algorithm might sell because the price is too high; if it goes below 30, it might buy because it is too cheap.In Argentina, where stocks move rapidly, the RSI is widely used.
- Bollinger Bands: These are lines drawn around the price to measure volatility. If the price touches the upper band, the algorithm can sell; if it touches the lower band, it can buy.It is useful for volatile markets like ours.
- MACD (Moving Average Convergence Divergence): This indicator compares two moving averages to find trend changes. If the MACD lines cross, the algorithm can make a decisionIt is ideal for detecting buying or selling moments.
Algorithms combine these indicators with specific rulesFor example, an algorithm might say, "If the RSI is below 30 and the 50-day moving average crosses up, buy." These algorithms can be simple (based on a single indicator) or complex (using artificial intelligence to learn from the market).
In Argentina, many traders use algorithms to trade cryptocurrencies., because the market is fast-paced, and indicators like RSI and MACD help detect movements in real time. There are also more advanced algorithms, such as high-frequency algorithms (HFT), which perform thousands of trades per second, but these are typically for large funds, not mainstream investors.
Legal and ethical aspects of algorithmic trading
Algorithmic trading is not a game without rules. There are legal and ethical aspects that you have to consider., especially if you operate in regulated markets like the Buenos Aires Stock Exchange or with cryptocurrencies.
- Legal regulation: In Argentina, the National Securities Commission (CNV) regulates stock market operations. If you use algorithms, you have to make sure they comply with NVC standards., such as not manipulating the market or making fraudulent trades. For example, an algorithm that makes many fake trades to move the price (spoofing) is illegal. In the world of cryptocurrencies, regulation is looser., but you still have to be careful with fake platforms.
- Transparency: From the ethical side, Using algorithms to take advantage of less informed investors can be questionable.For example, high-frequency algorithms can outperform manual traders, leaving the small traders with no chance. In Argentina, where many investors are novices, this raises debate about whether it's fair.
- Risks of failure: Algorithms are not infallible. A programming error can cause huge losses in seconds.In 2010, the "Flash Crash" in the United States caused the market to fall by 91% in minutes due to poorly programmed algorithms. In Argentina, such a mistake could be fatal given our volatility.
- Privacy and data: Algorithms use market data, but they can also use personal information if you trade on platforms. You have to make sure your data is protected, because in the digital world scams are the order of the day.
Algorithmic trading is legal and can be ethical, but it depends on how you use it.In Argentina, where the market is small and regulations aren't always up to date, you have to be extra vigilant.
Let's imagine Juan, a 30-year-old trader from Rosario. Juan uses an algorithm to trade BitcoinHe programs his bot to buy when the RSI drops below 30 and sell when it rises to 70. In one week, Bitcoin drops by 10%, the algorithm buys, and then rises by 15%, so he sells. Juan makes 15,000 pesos doing nothing, while he sleeps. In manual trading, he would have hesitated or sold out of fear.
But not everything is so pretty. Maria, from Mendoza, uses a poorly programmed algorithm. Your bot buys YPF shares every time they rise by 1%, but it has no sell limit. YPF rises and falls rapidly, and the algorithm ends up buying high and losing 50,000 pesos in a day. This shows that algo-trading can be great, but also dangerous if you don't set it up right.
Who uses algorithmic trading?
This type of trading is not just for programming geniuses. Today there are platforms that let you create different types of algorithms without knowing how to code., such as MetaTrader or TradingView, which are popular in Argentina. There are also crypto bots, such as those from Binance, that you can easily configure.
Large funds and banks use algo-trading all the time, but smaller investors can also take advantage of it. In Argentina, many crypto traders use it for 24/7 trading, while others use it on both local and international stock exchanges for stocks like YPF, Banco Galicia, and Apple.
Tips for getting started with algorithmic trading
If you are interested in trying, start slowlyUse a demo account to test your algorithm without risking any money. Learn the basic indicators like RSI or moving averages before getting into more complex things. Review the laws of the CNV and make sure your algorithm doesn't do anything illegal. Find a testing environment to make sure it does what you really want and doesn't cost you a ton of money. It's really worth it.
In Argentina, where the market is volatile, algorithmic trading can be a great tool, but use it wisely.If you do it right, you can take advantage of a market that's constantly changing. Of course, always with great caution. As we've seen, the risks are high; a malfunctioning computer might not turn you into a Terminator, but it could cost you a few bucks. So, when it comes to safeguarding what you've earned, it's always better to be cautious and not risk what you've worked so hard to earn for something you might not need.
Next course date
Questions for you to reflect on
What advantages does algorithmic trading give you?
What risks does it have?
Should you invest large sums of money without proper training?
A brief overview of The Pocket Investor
The Pocket Investor is a project that combines experience and passion for financial education to help you transform your relationship with money. Through personalized mentoringWe help you design investment strategies tailored to your goals and needs, optimizing your portfolio to address challenges like inflation and the dollar.
The books on finance and investment, including the popular The Argentine Pocket Investor - El Inversor de Bolsillo argentino, are practical tools that explain complex concepts in a simple way, bringing the world of investments closer to anyone interested in financial growth.
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