Algorithmic Trading for Beginners

What is algorithmic trading?

An algorithm is just a set of rules: “buy AAPL when its 20-day momentum is positive and sell when it drops below the 50-day average.” That’s it. No magic. The advantage over manual trading is that rules don’t panic, don’t get greedy, and execute 24/7.

Why retail traders are adopting algos

• Removes emotion from trading — no more selling at the bottom because you're scared
• Tests ideas against historical data before risking real money
• Executes faster than you can open your brokerage app
• Runs while you sleep, work, or live your life

The old way vs the new way

Key concepts you should understand

1. Backtest — Running your strategy against historical data to see how it would have performed. Like a flight simulator for trading.
2. Sharpe ratio — Measures risk-adjusted return. Above 1.0 is decent, above 2.0 is strong. Full explainer →
3. Max drawdown — The biggest peak-to-trough decline in your portfolio. A -40% drawdown means your $10,000 became $6,000 at the worst point.
4. Paper trading — Running your algorithm with fake money to validate it works in real-time before risking capital.
5. Alpha — Returns above the market benchmark (usually SPY). If SPY returned 10% and you returned 15%, your alpha is 5%.

Getting started with AlgoThesis

The fastest path from “I have an idea” to “I have a tested algorithm”:

1. Write your thesis — What do you believe about the market? “Electric vehicle adoption will accelerate because battery costs are falling.”
2. Review AI-discovered tickers — TSLA, RIVN, LI, BYD — does this list make sense for your thesis?
3. Pick a strategy — AI generates 3 angles. Start with the one you understand best.
4. Read the backtest — Look at Sharpe ratio, max drawdown, and the equity curve. Is the risk acceptable?
5. Paper trade first — Always. Run with simulated money for at least 2 weeks before going live.