Algorithms control the inner-workings of everything from particle accelerators to stock markets. They determine the news you see, what search results you get, how computers learn, and what gets recommended to you on Netflix or Amazon.
An algorithm is a predetermined set of steps for a computer to accomplish a task. It’s basically an instruction manual. And as in life, instruction manuals can be simple (e.g. building an Ikea side table) or extremely complex (e.g. filing a patent).
A famous example of an algorithm is Google’s PageRank, which determines the order in which websites appear in Google’s search rankings.
Algorithms also have a profound influence on our economy. Roughly 50% of the market moves through high frequency trading – the process of using dedicated programs to make automated trading decisions to place orders. Large portions of our economy are now managed with very little human intervention.
At Blue Line Trading, we use a relatively simple algorithm based upon the range of a stock's prices over a given period of time. In our Classic Service we use a period of one trading day looking back 7 periods (7 days). In the case of our shorter-term Prime service we use an intraday price range of 240 minutes, looking back a period of 28 hours.
The result is a trend line that identifies the dominant trend of whatever stock, index or ETF we are charting. Next time you get an email with a Buy or Sell Signal attached, know that our algorithm is hard at work tracking the market.
Find something that works...then trade it.
*Taken in part from Visual Capitalist, An Introduction To Algorithms