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4 ways using algorithms could help strengthen your trading skill set


New to trading algorithms? We show you how they can help you develop your skills and achieve better results with your trades.

Sponsored by Stock Doctor. Stock Doctor provides you with the essential tool set you need to create, manage and optimise your portfolio. Register for your free 14-day trial.

Research, education and investing in yourself are key parts of becoming a well-rounded, successful and long-term investor.

As an investor, it's always important to make sure that you're making good use of the tools you have at your disposal.

In recent years, trading algorithms have come to the forefront of the trading world.

There are a range of complex reasons why. But broadly speaking, it's because they allow traders to carry out transactions at a far greater speed than humanly possible, while also weighing up a huge range of market factors.

So we're taking a look at some of the reasons why they can help you with your trading, and help you broaden your trading skills.

👋 Hey there! As this is sponsored by Stock Doctor, we'll be using some examples from its products in this article. But always compare your options and do your research. Make sure that you also read the product disclosure statement (PDS) and target market determination (TMD) before signing up for any financial product.

1. Cut through weaker stocks

One of the challenges facing any investor is stock selection. You may have started off with an investment portfolio of relatively rounded assets. However, once you start to branch out on your own, it can be quite a tricky process.

Market trends, emotions, prior performance and wider world buzz around a company can all make a stock seem like a good purchase – only to have it perform very poorly further down the track.

This is where having an algorithm can be useful. To point to one example, Stock Doctor's algorithm is able to look at the potential profitability of stocks with a considerable degree of accuracy.

Peter Ochota -- Stock Doctor member since 2009

"Before using Stock Doctor I was 'flying blind'. Now I have a system to help my investing."

It's important to remember that trading algorithms aren't a magic bullet for the trading process. As always, there's risk involved and the human factor also plays an important role. The market moves for a variety of reasons and real people play a role in it too.

However, algorithms like this can help you get a more objective opinion on a specific stock. In turn, you'll be able to make more informed purchasing decisions.

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2. Identify opportunities more clearly

Once you've got a clearer picture of what sort of stocks might be good buys in line with your trading plan, you're setting yourself up to be able to better identify opportunities in the market.

This means understanding not only which stocks to trade but also the best potential prices to maximise profits.

If you're leveraging an algorithm properly, you'll be able to get a clearer picture of which sectors or companies have either short-term or long-term potential. Additionally, you'll be able to do this at far greater speed than by manually combing through lists of stocks.

Of course, these principles should also be applied to your existing holdings.

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3. Streamline and optimise your portfolio more easily

Once you've used an algorithm to assess potential future purchases, it's worth applying it to your existing portfolio, too.

Although everyone's portfolio is different, it's entirely possible that it may reveal gaps in your current holdings that you hadn't realised were there.

If you discover these problem areas, you're then able to apply the same principles as above and fine-tune your portfolio accordingly.
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4. Create better trading strategies

Successful, long-term traders don't operate solely on gut instinct or hunches. In fact, doing that is almost certain to result in you taking some very hard losses on the market!

Rather, you need to have a trading strategy in place as a blueprint for your buying, selling and trading goals. This way, you're able to easily refer back to it when you feel things are going awry or when you're uncertain about a specific trading decision.

Keith Mundy -- Stock Doctor member since 2003

"I don't know how anyone can invest without Stock Doctor. To me, it is essential."

So how do you formulate your trading strategy? Well, consulting with fellow traders is always a good start. Stock Doctor members have access to a range of experienced experts who can share a range of insights.

Using tools like trading algorithms can also provide an additional edge, too. By applying a range of different options to backtesting, you're able to trial a range of parameters for trading.

You can then use the data generated by this process to develop a trading plan that aligns with your risk level and also allows you to achieve your trading goals.

To find out more about trading stocks, make sure you check out our step-by-step guide.

Disclaimer: This information should not be interpreted as an endorsement of futures, stocks, ETFs, CFDs, options or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involves substantial risk of loss and therefore are not appropriate for all investors. Trading CFDs and forex on leverage comes with a higher risk of losing money rapidly. Past performance is not an indication of future results. Consider your own circumstances, and obtain your own advice, before making any trades. Read the Product Disclosure Statement (PDS) and Target Market Determination (TMD) for the product on the provider's website.

Learn more about Stock Doctor

Sponsored by Stock Doctor. Stock Doctor provides you with the essential tool set you need to create, manage and optimise your portfolio. Register for your free 14-day trial.

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