Algo Trading sounds like a money-printing machine, right? Plug in a bot, hit start, and make passive income while sipping coffee.

But here’s the truth: if you don’t understand what’s happening under the hood, algo trading can drain your capital faster than manual mistakes.

Here are the Top 5 things you should know before diving into Algorithmic Trading:

1️⃣ Algo Trading is Only as Smart as Its Strategy

Bots follow instructions, not intuition.

Whether it’s a simple moving average crossover or a complex machine learning model, your algorithm is only as effective as the logic you give it.

Reality: Most profitable algos are built on:

  • Momentum strategies

  • Mean reversion

  • Arbitrage

  • Volume-based entrie

  • News/data reactions (with APIs)

🧠 Tip: Backtest everything before going live.

2️⃣ Backtesting ≠ Guaranteed Profits

Yes, your bot might’ve made 300% in a backtest — but that was past market behavior.

Markets evolve. Low volatility or high liquidity today can vanish tomorrow. Overfitting (curve-fitting to old data) is a real trap.

🧪 Use realistic data

🎯 Avoid hindsight bias

🚨 Factor in slippage, latency, and real-life execution delays

3️⃣ Execution Speed Matters

In scalping or arbitrage strategies, milliseconds can be the difference between profit and loss.

❌ Don’t rely on cheap VPS or public WiFi

✅ Use low-latency connections, colocated servers, or premium brokers if needed

💡 If your strategy isn’t speed-sensitive, execution speed may not matter — but understand what you're building.

4️⃣ Risk Management is Still King

Algo doesn’t mean risk-free.

Many beginner bots blow up accounts because they:

  • Don’t have stop-loss logic

  • Over-leverage based on win streaks

  • Enter trades during high volatility events (FOMC, CPI, etc.)

🔐 Always code:

  • Stop loss

  • Daily loss limits

  • Max drawdown triggers

  • Emergency shutdown conditions

5️⃣ Algo Trading is NOT Passive (at least in the beginning)

You’ll need to:

  • Monitor trades

  • Debug code

  • Handle API issues

  • Tune performance

  • Check broker compliance

Once your system is tested and stable, then it becomes more passive.

💭 Think of it like a business — build, test, refine, then automate.

🎁 Bonus Tip: Don’t Buy Random Bots Online

Those $99 “guaranteed profit” bots? Most are trash. Either they:

  1. Use unsustainable Martingale logic

  2. Overfit backtests

  3. Scam with fake testimonials

🛡️ Learn to build or understand your bot. If you're buying one, demand transparency on strategy, logic, and performance.

🧠 TL;DR

  1. Strategy > Software

  2. Back test smartly

  3. Speed only matters for some starts

  4. Risk rules save lives

  5. It’s not passive (at first)

If you found this helpful, drop a 💡 in the comments.

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