The differences between high and low-frequency trading bots
Trading algorithms are computer programs that execute a trading strategy automatically. This article will discuss the differences between high, medium, and low-frequency trading.
High-frequency: Bots that make small but fast profits
High-frequency bots execute many trades per minute. These trading bots make tiny earnings in milliseconds to microseconds. You might be wondering if it's worth it given that they just make small profits. But if a bot performs this thousands of times every day, these earnings can add up significantly.
One example of an HFT bot is a bot that keeps a close watch on the news. When a news story about a company is published, these bots can quickly read the material. Then, after analyzing the content, they determine whether it will have a negative or positive influence on the company's stock price. If they anticipate a price rise, the bots rapidly purchase stock in advance of it increasing. Keep in mind that all of this happens within a split second.
Because of their rapidity, high-frequency trading bots have a significant benefit over humans. Human traders must first read the news, which might take tens of minutes. Then they must open up their trading app and place an order. So while they may still be profitable, high-frequency trading bots already got into the market before everyone else did and thus made more money.
High-frequency trading bots may utilize a variety of variables in their strategies. For example, they might simply follow the trend or identify arbitrage possibilities in complex data sets.
Medium-frequency: From minutes to hours
Scalping and intraday trades are strategies executed by medium-frequency bots. The former is limited to 1 to 15 minutes, with a maximum duration of one hour. The latter has a timeframe of 15 minutes to 4 hours, and the position is closed before the end of the day.
In scalping, positions are held for a couple of minutes so the risk is minimal and profits are small. Intraday positions also close within a day, but they are held for a few hours, increasing the risk compared to scalping but also resulting in greater profits.
Low-frequency: Slow and steady bots that stick to the plan
Low-frequency bots execute swing trades, which have a timeframe of at least 4 hours to a few days or weeks.
You could argue that low-frequency trading bots are less complicated because they don't have to process billions of pieces of data in a split second. However, they may still utilize complex approaches that consider numerous elements and indicators before entering or exiting a trade. They can also be based on methods we humans might follow.