How to Choose the Right Options Algo Trading Strategy?
Are you interested in trading? Have you heard about the Algo trading? Algo trading is one of the most reliable and popular intraday trading strategies that uses heavy and complex computer algorithms for trading. Today most traders prefer Algo trading for more effective and accurate trading outcomes. However, algorithmic trading also has a higher barrier during entry. It is because algo trading depends on the instruction (programmed in the algorithm) that the trader uses and requires proper strategizing. 

Fortunately, a lot of effective strategies have surfaced that you can incorporate while using an options trading app. But before you begin we have prepared this blog post for your help, where you will discuss how you can choose the right options for Algo trading strategy.

What is Algo Trading?

Before we discuss ways to choose the right Algo trading strategies, let us first have a quick look at what algorithmic trading is. Algorithmic trading or Algo trading is an automated trading process that incorporates computer-based algorithms for quick and accurate trading. Writing quality algorithms requires high-level complexity and that is why a computer system is essential to write and execute Algo trading. You can use Algo trading through options strategy bot templates to make accurate trading decisions and gain good returns from your investment.

Ways To Choose The Right Algorithmic Trading Strategy

Also, when you use the options strategy builder app you can easily pick select, and apply suitable options strategies. Below we will discuss some top tips for choosing the right Algo trading strategy-
  • Methodology- Knowing the methodology of a strategy is necessary to choose the right one for algorithmic trading. You should know if a strategy is momentum-based, market-neutral, directional, or mean reverting. If the strategy has the ability to survive a regime change etc. You must properly understand a strategy before implementing it.
  • Sharpe Ratio- Another important factor that you should keep in mind while choosing an algo trading strategy. The Sharpe ratio of a strategy indicates how much profit you can expect against the volatility tolerated by the equity curve.  
  • Frequency- You must also understand the frequency of a strategy. Higher frequency strategies are more complicated and need more capital and technical expertise for implementation. However, an options trading app can help you find the most suitable strategy for algorithmic trading.
  • Leverage- Some algo trading strategies need more leverage to be profitable. Such strategies usually come with high volatility that often results in margin calls. You must have a high-risk tolerance and a significant amount of trading capital to implement these kinds of strategies.
  • Volatility- Strategies differs in their volatility characteristic. Some strategies come with higher volatility and others with lower risks. Usually, negative volatility equates with positive volatility. However, some strategies can have greater negative volatility. You must keep these factors in mind while choosing a strategy.
  • Maximum Drawdown- Maximum drawdown refers to the greatest overall boom-to-bust percentage drop on a strategy's equity curve. Momentum strategies are well known for having extended drawdown periods. This may not suit all traders, and you must choose your algo trading strategy wisely. An options strategy builder is the best way to choose your profile-based strategy.
  • Win/loss Characteristic- Win/loss characteristics are an essential factor in choosing an algorithmic trading strategy. Strategies differ in their win/loss characteristics. Even a profitable strategy can have more losing trades than winning trades. Momentum strategies are an example of this pattern as they depend on a few "big hits" for profit. On the other hand, mean-reversion strategies are totally different from momentum strategies.

Top Algo Trading Strategies

Algo trading has become popular among new-gen traders. Algorithmic trading is known to hedge significant amounts of profit due to the automated trading system. Choosing the right algo trading strategy ensures a good profile with minimal loss. Here is a list of top algo trading strategies you can apply with your options trading app-
  • Momentum
Understanding and using the momentum is crucial for any kind of trading including Algo trading. Utilizing momentum to make your Algo trading move is also known as momentum strategy. It is a classic, years-old method that has been serving traders for over 80 years. With time and efforts to leverage trading, traders incorporate momentum into algo trading. Understanding momentum is easy, and the trading moves associated with momentum are also straightforward. When you use an options trading app, you can utilize momentum in your algo trading. 

  • Trend Following
Following the recent trends in trading is related to momentum strategy and referred to as a series of momentum. As a trader, you must have a keen eye for the current market conditions, such as volatility jumps, range breakouts, volume profile skews, etc., to find the perfect scope of trading. Simple moving average crossover is one of the most popular Algo trading strategies among all the trend-following strategies. 

  • Market Timing 
Understanding the market and the right time to sell or buy is also important for trading. And there is no exception in algo trading as well. Here, you need to understand the market movement and choose your trading strategy, whether you want to sell or buy an asset. However, trading strategies based on market timing are not risk-free, it can be a profit or loss depending on the accuracy of your observation. When you use the options strategy builder app for algo trading, it will help you select more accurate market timing strategies for algo trading. 

  • Black Swan Catchers
Black Swan is a financial term that describes an unpredictable situation leading to a disastrous outcome (beyond normal expectations). So, a black swan catcher strategy focuses on leveraging back swans and hedging profit from such unpredictable market conditions. This high-risk algo trading strategy requires market speculation, identifying a black swan event, and finding profitable options contracts, or other assets that will skyrocket once a black swan occurs. With options trading strategy builder bots, you can easily identify black swan events and profitable contracts to invest in. 

  • Mean Reversion 
The primary concept of mean reversion is assets tend to revert to their average or mean price periodically. Therefore, in the mean reversion strategy, you need to identify when the mean reversion will happen ( of an asset) and tread according to it. So, the mean reversion strategies rely on the uncertain characteristics of asset price changes (high and low). When reversion is likely to drive the price higher; you should buy or vice versa. Options strategy builder app can help you identify mean reversion events for trading.


Algo trading is highly profitable trading that can hedge significant profit as long as you choose the correct trading strategy. Currently, there are various effective and beneficial options Algo trading strategies. And if you are new to Algo trading, it can be a bit confusing to pick the right options trading strategy to ensure good returns.

However, if you do not strategize your move (for buying or selling options), you can lose significantly instead of gaining. But with an options trading app, you can efficiently take part in options or algo trading. It can help you identify, backtest and apply algo trading strategy and profit.
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How to Choose the Right Options Algo Trading Strategy?
Aashutosh C 31 October, 2023
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