Algorithmic Trading for Retail Traders

Undoubtedly, the need of the hour is to regulate algorithmic trading for retail traders.

Thus, here we shall discuss about the algo trading guidelines laid by SEBI.

They have published an article link is mentioned below to seek suggestion from all algo traders. 

SEBI | Consultation Paper on Algorithmic Trading by Retail Investors

Is it possible to have only winning trades by doing algo Trading?

Firstly , we may loose funds by 

  • doing manual trading.
  • investing on non performing mutual funds.
  • taking unsolicited trading advisory services.

Is there any way to protect us from loosing money by the above investment options?

When we enter into stock market for making money its our responsibility to safeguard our money too. 

Understandably, as a trader we need to educate ourselves about the golden rules for doing algorithmic trading. As a result, we shall not loose in long term if we are consistent. 

Advantages of Algorithmic Trading:

To begin with, the primary benefit of algorithmic trading is that it can search the condition in a fraction of millisecond.

Importantly, a highly sophisticated execution engine coupled with a robust algorithm can execute signals for hundreds of accounts in a millisecond.

For instance, a program designed in such way that never exits positions if the trend is continuing.

Notably, in a single trade it can generate more than 500 points for banknifty.


On 3rd Jan 2020, a completely trending day, an early trade entry in LongXL strategy has brought us 543 points. A return of Rs. 13,575/- on a single trade with an investment of Rs. 12,500/-.

Since, our main focus is retail traders with marginal funds, hence we do not encourage any of our strategies to take multiple trades, be it a volatile day or a trending day.

Further, our Trend following strategies shall generate signals only if the trade conditions are satisfied.

DTMAlgo strategies are designed  to cater to the needs of different types of traders.

For example,  OptionZoom works on OTM options, and LongXL works on ITM or ATM strike prices.

Finally, as more and more traders are entering into algorithmic trading, liquidity is improving significantly and as a result causing reduction on the bid/ask spread.

Do’s and Don’ts of Algo Trading Services:

While this is true that there are many algorithmic trading service provider in India, via different public marketplaces and yet there is no proper system to check the validity of the algo bots, neither it is viable. 

But the only way to safeguard our hard earned money is to empower ourselves as a trader.

To repeat a proper analysis, market research and following algo trading guidelines are very important prior opting for any algo trading. 

Guidelines to develop Algo Strategy: 

Similarly, an individual algo creator needs to follow the below mentioned guidelines to ensure the profitability of their products:

  1. Firstly, stock market knowledge backed by some professional certification.
  2. Secondly, algo should have a positive Risk-Reward.
  3. winning % vs risk reward is favorable to the investment.
  4. importantly, entry price and exit price has no wrong calculation while generating backtest result.
  5. Above all, the algo need to run in live market and generate positive return before it is offered to the retail client.
  6. As a rule, the algo bots should be running on their own trading account with real money.
  7. Above all, algo should never go into any infinite loop.
  8. Importantly, the algo service provider should have strong technical and trading background.
  9. Overall, algo should give positive returns after deducting slippage and brokerage. 
  10. Absolutely, all  algos should have a defined Stoploss to ensure safety of the capital of the client.

 Do’s as a Trader:

  • Firstly, look for algos which is running in the market for quite sometime.
  • Secondly, check if the algos are generating positive return excluding slippage & brokerage.
  • Also, check if number of trades are less.
  • Risk Vs reward is minimum 1:2 or more.
  • Finally, try to avoid scalping based algos. 

It should be noted that all of our DTMAlgo  strategy bots are time tested in live marketplace. We run all the bots in our own broker account with real money before publishing them for retail traders and were are also trading on them.

Don’t as a Trader:

  • Obviously, there can be many reason behind the loss of retail Algo traders such as unavoidable/abnormal market conditions.
  • Definitely your focus should be on consistency and not to  jump from one service provider to another for interim relief.
  • Without a doubt, do not trade on strategy which is very recent and does not have  its live market trade history.

Algo Trading Guidelines:

Generally, a good algo strategy has its winning and loosing trend, none can generate profit continuously and each is designed for a particular market pattern.

Market movement keeps on changing. Market generally takes three types of trend

  • Up/Down trend, which is called trending market
  • may remains in range without any specific direction, which is commonly known as range bound market.
  • Volatile times, where we see a sudden change in direction during the same day, for instance a strong uptrend reverses with a strong down trend. 

Points to note:

  • Since, each strategy maker design their strategies for these different market conditions, no strategy can be profitable in all three market conditions. 
  • Some may work on trending market and some may work on range bound market or few may work well in volatile market conditions. 
  • Similarly, each algo strategy undergoes a cycle of profit and losses, as a trader one need to understand why the strategy is generating profit and why is it loosing, once that understanding is clear, making profit from algorithmic trading becomes relatively easy. 

What should I do as a Algo Trader?

Firstly, as a algo trader one needs to understand the market well and choose the strategy that fits their expectation.

For instance, if I choose a trend following strategy during range bound market or volatile market condition, then I am bound to loose money for some time until market becomes trending again.

With this in mind, don’t expect a trend following strategy to generate profit on volatile or rangebound market. 

Mistakes to avoid:

Usually, when a strategy generates profit we deploy more lots/quantity.

On the other hand, the market condition changes and the strategy performance degrades, and we incur losses at higher quantity and tend to stop algo trade, thinking this will not work for me.

Importantly, don’t increase your trade quantity when the strategy is making profit.

If you wish to increase the lot size, then wait till the strategy starts making losses and accordingly increase the quantity. 

Contrary to that, if someone chooses to maintain the same quantity or can increase the quantity when the strategy is incurring losses , then they can probably sustain algo trading and be a winner in the long run.

Algo trading with SEBI :

  • Any algo strategy needs some change during its execution. If that stops performing as expected, the algo creator need to work on that to make it relevant.
  • Hence, each time we change an algorithm does that need to be re approved again and again? How that can be organized.
  • There are many individual algo traders, who trade on their own algos.
  • At an individual level each algo trader cannot approve their algos by any approving authority considering the regulations, time and actions involved in the approval process. 
  • A single approved algo can generate multiple signals. 

How can a system differentiate if the signal is really coming from the approved algorithm?

API shall contain a field with approval Id or something, but the same approval ID can be used by multiple un approved algos too. However, there may never be a full proof system to validate that.


To conclude, algorithmic trading is a systematic way of trading, where we trade based on a proven strategy and continue to follow the same system.

Clearly, if we maintain a discipline and can follow the  golden rules explained above then we can reap the benefits in long run. 

We all are well aware that in share market winning and losing trades is a part and parcel of the game.

Please have a realistic approach and don’t fall into the trap of becoming rich overnight. Its a systematic approach and you will earn slowly and gradually. 

Instead of focusing on algo strategy approval, SEBI needs to increase the awareness about algorithm trading amongst the interested traders.

To me that is the only solution for a long live algo trading.


Surajit Chatterjee

Surajit Chatterjee

DTMAlgo, is a Fintech startup aim to offer fully automated institutional standard trading products for Retail Traders at affordable price.

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