Building an algorithmic trading system is one of the best ways to enhance trading results, yet requires both time and effort.

Your first step should be generating an idea or strategy you believe could be profitable in live markets, something which requires extensive research and understanding of financial markets.

1. Research

Building an algorithmic trading system is a complex process requiring expertise in both financial markets and programming. To begin development of this type of trading system, research the market and create an overall trading strategy.

Once your strategy has been determined, the next step should be gathering high-quality historical data and conducting backtesting tests on it. This will allow you to detect any flaws within your system and make necessary modifications if necessary.

Once you have a solid strategy, the next step should be coding it using Python or C programming languages and then testing in various environments to see how well it performs under various market conditions and hours.

It will enable you to ensure that your algorithm is effective and will perform efficiently on a live trading platform, but do not begin trading real money until after conducting a thorough test and can demonstrate it is profitable.

2. Design

Designing an algorithmic trading system requires many critical steps. From setting your trading goals and how the system will achieve them to choosing hardware and operating systems that will form its base, this step should not be overlooked.

Prior to developing your strategy, you should carefully consider how you’ll back-test it. This allows you to assess if your algorithms work with real data and ensures their efficacy.

A well-designed trading algorithm should be capable of identifying trading opportunities and taking swift action on them at the appropriate times, while offering risk management features to limit your losses.

Algorithmic trading is an intricate process that takes hard work. Therefore, having a solid background in computer science, mathematics and data analysis as well as experience with finance is vital in order to develop an effective trading strategy.

3. Implementation

An algorithmic trading system (ATS) is a set of rules used to make trading decisions in financial markets. They may include buy/sell decisions, position sizing rules or concepts like equity curve trading.

Implementation is the final stage in creating an algorithmic trading system, and requires creating an automated system capable of identifying trading opportunities in the market and being capable of taking immediate action once identified.

When designing an algorithmic trading system, it is vital to consider network latency issues. Because algorithmic trading systems send orders out in multiple directions at once, this may cause network processing latency issues – commonly referred to as microbursts – which must also be taken into consideration.

Algorithmic trading systems must also be carefully overseen by regulatory authorities, who typically implement circuit breakers on financial markets to prevent flash crashes from quickly buying and selling assets, which can quickly deplete market liquidity.

4. Testing

Testing an algorithmic trading system is crucial. Early identification of defects allows developers to ensure the final product meets both technical and business parameters.

Algorithmic trading systems must be robust to withstand market shocks and volatility, adapting quickly to changing market conditions while still producing profitable trades.

Backtesting is the initial stage of testing your trading algorithm against historical data streams. Once backtested, results from this test can then be compared with live trades to determine how effective your system actually performs.

Forward testing involves running the algorithm against sample data sets to verify its backtested expectations and compare actual live trades against its expected outcomes. In addition, this phase requires developers to compare real life trades against their expected model.