How Stock Trading Software Programs Work

By Stock Research Pro • March 30th, 2011

A stock trading software program can help investors take the guesswork and emotion out of their stock trading strategy and more easily find those specific stocks that meet their defined stock investment criteria. Automated analysis and the use of software trading programs are intended to provide investors with the edge they need in making their stock investing decisions by automating the complex mathematics and the scanning of large volumes of data to return qualified stock investment candidates.

What are Algorithms?

Generally speaking, an algorithm is a set of instructions designed to deliver predictable results given a known starting-point. The results an algorithm will deliver are only as good as the instruction set under which it is operating. Incorrect definitions and assumptions will, of course, lead to bad results. As they pertain to stock trading software, algorithms are built on perceived market conditions, assumptions, and detailed criteria regarding stock investment candidates in order to deliver a set of results- stocks that might represent good investment candidates or those that no longer seem to be a good opportunity for investment.

Algorithms for Technical Analysis

When programmers develop software for stock trading, they usually do so based on technical analysis and the foundation on which that approach to stock trading was developed. Some of those assumptions can include:

  • Stocks are currently accurately valued- Technical analysis does not consider company financial strength, industry growth or other factors specific to that company. Instead, it assumes that those elements are properly reflected in current stock prices.
  • Price changes happen in trends- For technical analysts to be effective, stock prices need to move in predictable trends.
  • History will repeat itself- A third critical assumption is that, due to investor behavior and market psychology, past price trends will repeat in the future.

  • Working with Software Trading Programs

    Most stock investing experts agree that even the best trading programs should be used as a starting point in stock investing analysis and that, before risking any money, each stock investment candidate should be evaluated in greater detail.


    The above information is educational and should not be interpreted as financial advice. For advice that is specific to your circumstances, you should consult a financial or tax advisor.

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