In the previous article, we defined the trading styles, what personality traits suit some of those better and described three of them. Here, we will continue with two more: algorithmic trading and event-driven trading style.

#4 Algorithmic trading style

Algorithmic trading or algo-trading is a trading style where traders rely on the algorithm to manage their trades. Software that follows a defined set of instructions - the algorithm, can place and close orders in accordance with the trader’s inputs.

Traders who prefer the algorithm, use it to detect the best possible prices and then take action that will bring them the highest earnings. Algo-traders make markets more liquid and systematic - they rely on the program and so turn off their emotions from the trading process.   

Some of the main benefits of algorithmic trading style are:

• lower risk of manual errors when placing orders,
• trades are executed at the best prices,
• significant price changes are avoided,
• emotional and psychological factors are excluded.

If you find yourself relying on technology when it comes to investing and finance, and you have a keen eye for technical charts, your trading style might be algorithmic.  

Interesting fact: It was Ed Seykota who developed the first computerized trading system. By continually improving the system, he made it adjustable for various trades and preferences. Later on, by doing research, Seykota developed a method to support personal traders’ growth, which he described in his book “The Trading Tribe Process” (2005). 

#5 Event-driven trading style

Event-driven trading is used before or after a major corporate event (mergers and acquisitions, regulatory changes and earning calls). The goal of the event-driven trader is to benefit from temporary stock mispricing.  

We usually connect this trading style with corporations and hedge fund managers because they have teams of specialists that analyze the movements of big companies.

If you like to be up to date with news in the world, especially with what’s happening in corporations and how their decisions can affect the world’s economy, you are the right candidate for the event-driven trader.
In addition to that, take a look at our economic calendar and follow events that often have a significant impact on the financial markets and currency volatility.

If you’re an event-driven trader, then:

• your predictions about the global situation come true more often than not,
• you prefer fundamental analysis over technical,
• you’re curious and like to be versed in various areas,
• you like to analyze and discuss global and local events and their consequences.

Interesting fact: Cornwall Capital, a private financial investment corporation, successfully utilized this strategy back in 2007, when the subprime mortgage crisis began. The managers’ move was to short the subprime mortgage market which, by the end of 2009, turned $15M investment into $120M. 

Conclusion

There are two trading styles that fit in all timeframes and don’t have a bottom line for the capital required - algorithmic and event-driven. 

Algorithmic traders are the ones whose preferable trading style is by using a computer program. They trust the system and don’t want to spend time checking on prices frequently and executing orders. 

When there’s a big event going on in the corporate world, event-driven traders are the most active. Because of their strong analytical skills and forward-thinking, they’re skilled at processing new information and are able to predict an event and take a position just before the event itself. 

It is very important for traders to recognize their trading styles and build their strategies on them. Sticking to a trading strategy allows you to remain focused amid the huge inflow of news and economic data that can seriously impede your analysis process. 

 

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