Common Algorithmic Trading Strategies

Before diving into algorithmic trading strategies, let’s look at an overview of the most common investor types we see here at RIMAR. In addition to a brief description of each, we will identify the risk level and time horizon most commonly associated with the investor profile, which we use to assign a suggested strategy fitting that investor’s needs.

The Most Common Investor Types

Investor Type Investment Priorities Risk Level Time Horizon Strategy
Recent Retiree An investor at the end of their career looking to shore up a bit more money before they begin their retirement. They are concerned about losing their money and don’t want to invest too long, as they believe it will take away from their retirement.  Low Short Long, Event Driven
College Grad A young investor looking for an easy inroad to begin their investment journey. They do not know much about investing but have plenty of time to learn.  Low to Moderate Long Long, Arbitrage
Young Professional A young to middle-aged investor who has secured gainful employment and has a bit more money to risk. As a result, they feel comfortable taking on a bit more risk at the prospect of improving their returns.  Moderate Long Long, Options
High Net-Worth Individual An investor of means, because of their high social standing and income, they are able to take on a great deal more risk than would otherwise be the case.  Moderate to High Long Short, 

Options, Futures

The rest of this article dives into the facets of this table, showing how they impact your investment strategy.

Algorithmic Trading Strategies: What You Should Know

Investment strategies refer to the techniques used to generate profits from various asset classes, such as stocks, bonds, or commodities, for example, over a given period of time. While strategies get specific in terms of what individual platforms offer, these are the most common trading strategies.

The Most Common Trading Strategies

Strategy  Description Pros Cons
Long Investing your own money in a stock you believe will gap up in value. Typically has a long time horizon

Moderate to low risk

Investments often take time

Typically modest returns

Short Investing borrowed money in stocks you believe will gap down in value. High returns when successful High Risk
Event-Driven Investing according to major world events.  High return Requires understanding of global economies
Arbitrage Quickly buying & selling the same asset classes in different markets to capitalize on differences in price.  Low risk due to small margins Requires split-second timing
Options Signing a contract that provides the option to buy/sell a stock at a given time for a given price.  High return High risk
Futures Signing a contract that obligates the investor to buy/sell a stock at a given time at a given time.  High returns provided quickly

Liquid investment markets

High risk

Understanding these strategies is an involved process in and of itself. However, it’s also important to note that there are several varying approaches investors use to implement them. Algorithmic trading strategies, of course, use quantitative engines to make calculations about the best possible trades. In addition, there are also:

  • Traditional: Relying on an investor’s experiences and gut feelings to select and implement investing strategies.
  • Socially Responsible Investing: Selecting investment strategies that reflect an investor’s ethical beliefs to create a positive impact in the world.

These approaches may appeal to varying investor demographics as well. For example, a younger investor may be more interested in the environmental social governance (ESG) funds commonly attributed to socially responsible investing. By contrast, older investors might be wary of trusting their finances to a machine, making them more open to a traditional investment approach.

Algorithmic trading strategies, on the other hand, are more likely to appeal to:

  • Hands-off Investors 
  • New Investors
  • Tech-Oriented Investors
  • Budget investors
  • Return-Oriented Investors

Time Horizon

Time Horizon refers to the length of time before an investor plans on capitalizing from their investment. For example, a long-term time Horizon would imply an investment that is going to sit and grow for many years, resulting in a larger profit. By contrast, a short time horizon needs to build quickly since it will only be in the market for a limited time.

Although time horizon can significantly influence the type of algorithmic trading strategies investors would want to use, it does not dictate them. For example, someone with a short time horizon might prefer a high-risk strategy to garner a larger profit in a short time span before they retire, but they also might select a low-risk strategy to prevent major losses before retiring.

The general rule of thumb is that long investments do better with a longer time horizon. Even the most conservative trades require time to grow and accumulate, so the longer investors can leave the investment alone, the better. More fundamentally, however, the more central question to consider is what time horizon fits your situation best.

Risk Level

Risk level refers to the degree of uncertainty or potential loss involved in an investment decision. Among the many investment-related terms for newcomers to understand, risk is arguably the most important since it determines both how much is stood to be made or lost from a particular trade.

Although risk does not exist in discrete categories, they are commonly divided between:

  • Low: Risk which is limited only to the initial amount invested.
  • Medium: Similar to low risk, but investments which are inherently less likely to succeed. 
  • High: Leveraged investments which generate high profits, but keep the investor on the hook for potentially much more than they initially invested. 

The concept of leverage is fundamental to understanding high-risk investments. As further described below, leverage allows investors to generate a larger-than-usual return on a relatively short term investment. The problem is that leverage risks an equal amount of potential loss than return.

Leverage: using borrowed money (usually various financial assets or borrowed capital) to increase the potential return (or losses) of an investment.

For example, consider someone shorting a stock. If the stock behaves the opposite as predicted and gaps up in value, the investor still has to pay back the borrowed shares they sold. This means purchasing the shares back at the new (higher) price and eating the losses. In the worst cases, hedge funds have lost millions of dollars from this exact situation. With that in mind, leveraged investments should be approached with a great deal of caution and only with the guidance of someone with experience.

Let the Experts at RIMAR Capital Help

Finding the right help to guide your algorithmic trading strategies can be difficult. Often, quantitative platforms like robo-advisors do not offer human consultation, leaving new investors to effectively guess at things like their preferred risk level or preferred investment strategy. By contrast, higher-quality algorithmic platforms like quantitative hedge funds offer these services, but they are prohibitively expensive for the average investor, requiring millions in order to create an account.

In light of these options, hybrid options may provide most investors with the best possible options to meet your needs. Firms like RIMAR offer clients the best of both worlds, with advanced algorithmic trading strategies tailored to meet your needs alongside the financial advice of seasoned consultants. Best of all, we are available for as little as $1000 on your initial investment.

So, if you are looking to harness the power of AI investing with the peace of mind that there is an investment advisor by your side, Rimar is the perfect fit.

Getting Started With RIMAR

RIMAR Capital makes artificial intelligence-based investing broadly accessible to everyday investors who don’t fit the profile of a typical hedge fund client. With RIMAR, investors have the choice of several different trading strategies, all of which are backed by some of the industry’s leading experts. What’s more, RIMAR investors don’t need millions in assets to invest, nor are they subject to a battery of fees and prohibitions on when and how they can access their own money. So if you’re ready to pick up returns that are only possible with data-driven mastery of the market, RIMAR Capital is right up your alley.

Contact us today to see how RIMAR Capital can help grow your portfolio’s value with hedge fund-like returns earned using its algorithmic trading strategies and skilled quantitative trading staff.

Ryan Gordon

Ryan Gordon

Ryan is a qualified chartered accountant of South Africa. Ryan is an avid sportsman who also enjoys reading and spending time with friends and family in his down time. Ryan joined the RIMAR Capital team in 2019 as a business development manager.

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