uTrade Algos

A Beginner’s Guide to Setting-Up Global Exit Parameters in Algorithmic Trading Platforms

June 16, 2024
Reading Time: 4 minutes

Algorithmic trading on algorithmic trading platforms has revolutionised the financial markets by allowing traders to automate their strategies and execute trades at lightning speed. One critical aspect of algorithmic trading is the ability to set up global exit parameters. These parameters are crucial for managing risk and ensuring that trades are closed under predefined conditions, thereby protecting the trader’s capital. In this blog, we will explore the fundamental concepts and steps required to set up global exit parameters in algorithmic trading platforms.

Understanding Global Exit Parameters

Global exit parameters are predefined conditions that dictate when a trading position should be closed. These conditions can be based on various factors such as price movements, time, or technical indicators. The primary purpose of global exit parameters, on algo trading platforms like uTrade Algos, is to manage risk and increase chances of profits by ensuring that trades are closed at the right time.

Types of Global Exit Parameters

  1. Stop Loss: A stop loss is a predetermined price level at which a losing trade will be closed to prevent further losses. It is an essential risk management tool that helps traders limit their losses.
  2. Take Profit: A take profit is a price level at which a profitable trade will be closed to lock in gains. It ensures that traders capture profits before the market reverses.
  3. Trailing Stop: A trailing stop is a dynamic stop loss that moves with the market price. It allows traders to lock in profits as the market moves in their favour while providing a safety net if the market reverses.
  4. Time-Based Exit: This parameter closes a trade after a specific period, regardless of the price movement. It can be useful for strategies that are based on time rather than price.
  5. Technical Indicator Exit: These exits are based on the signals generated by technical indicators such as moving averages, Relative Strength Index (RSI), or Bollinger Bands. They provide a systematic way to close trades based on market conditions.

Setting Up Global Exit Parameters

Step 1: Choose Your Algorithmic Trading Platform

The first step in setting up global exit parameters is to choose an algorithmic trading platform, like uTrade Algos, that supports these features. Each platform has its unique features and scripting languages, so choose one that aligns with your trading needs and technical skills.

Step 2: Define Your Trading Strategy

When it comes to algo trading in India, and across the globe, before setting up exit parameters, you need a clear trading strategy. This strategy should include entry and exit rules, risk management guidelines, and performance metrics. Understanding your strategy is crucial because your exit parameters should align with your overall trading objectives.

Step 3: Identify Key Exit Conditions

Based on your trading strategy, identify the key conditions under which you want to exit trades. These conditions can include specific price levels, time frames, or technical indicator signals. For example, if you are using a trend-following strategy, you might want to use a trailing stop to capture increased chances of profits as the trend continues.

Step 4: Implement Stop Loss and Take Profit Levels

On automated trading platforms, implementing stop loss and take profit levels is fundamental to any trading strategy. Here’s how to do it:

  1. Determine the Risk-Reward Ratio: Decide on an acceptable risk-reward ratio for your trades. For instance, you might choose a 1:2 risk-reward ratio, meaning you risk INR 1 to make INR 2.
  2. Set Stop Loss: Based on your risk-reward ratio, calculate the stop loss level. If you are risking INR 100 on a trade, set the stop loss at a price level where your loss would equal INR 100.
  3. Set Take Profit: Calculate the take profit level using your risk-reward ratio. In the above example, if you are risking INR 100 to make INR 200, set the take profit at a price level where your profit would equal INR 200.

Step 5: Configure Trailing Stops

To set up a trailing stop on an algorithmic trading platform follow these steps:

  1. Choose the Trailing Distance: Decide how far behind the market price the trailing stop should follow. This distance can be in points, percentages, or dollar amounts.
  2. Activate Trailing Stop: Configure your trading platform to activate the trailing stop once the trade is in profit. The trailing stop will then move with the market price, maintaining the chosen distance.

Step 6: Set Time-Based Exits

For time-based exits, specify the duration after which a trade should be closed. This could be based on hours, days, or specific trading sessions. For instance, you might choose to close all trades at the end of the trading day to avoid overnight risk.

Step 7: Implement Technical Indicator Exits

To use technical indicators for exits, follow these steps:

  1. Select Indicators: On algo trading platforms like uTrade Algos, choose the technical indicators that align with your strategy. Common indicators include moving averages, RSI, MACD, and Bollinger Bands.
  2. Set Exit Conditions: Define the conditions under which trades should be closed based on the indicators. For example, you might decide to exit a long position if the RSI crosses below 30, indicating potential bearish momentum.

Step 8: Backtest Your Strategy

Before deploying your strategy in a live trading environment, backtest it using historical data. Backtesting allows you to evaluate the performance of your exit parameters and make necessary adjustments. Ensure that your strategy performs well under various market conditions.

Step 9: Monitor and Adjust

Even after setting up your global exit parameters on automated trading platforms, it’s essential to continuously monitor and adjust them as needed. Market conditions can change, and what works today might not work tomorrow. Regularly review your trades and performance metrics to refine your exit strategy.

Setting up global exit parameters in algorithmic trading platforms is a critical step in managing risk and ensuring the success of your trading strategy. By understanding the different types of exit parameters and following a systematic approach to implementing them, you can enhance your trading performance and protect your capital. Remember to choose a reliable trading platform, define your strategy, identify key exit conditions, and continuously monitor and adjust your parameters for optimal results. Happy trading!

Frequently Asked Questions

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uTrade Algo’s proprietary features—advanced strategy form, one of the fastest algorithmic trading backtesting engines, and pre-made strategies—help you level up your derivatives trading experience

The dashboard is a summarised view of how well your portfolios are doing, with fields such as Total P&L, Margin Available, Actively Traded Underlyings, Portfolio Name, and Respective Underlyings, etc. Use it to quickly gauge your algo trading strategy performance.

You can sign up with uTrade Algos and start using our algo trading software instantly. Please make sure to connect your Share India trading account with us as it’s essential for you to be able to trade in the live markets. Watch our explainer series to get started with your account.

While algo trading has been in use for decades now for a variety of purposes, its presence has been mainly limited to big institutions. With uTrade Algos you get institutional grade features at a marginal cost so that everyone can experience the power of algos and trade like a pro.

On uTrade Algos, beginners can start by subscribing to pre-built algos by industry experts, called uTrade Originals. The more advanced traders can create their own algo-enabled portfolios, with our no-code and easy-to-use order form, equipped with tons of features such as robust risk management, pre-made algorithmic trading strategy templates, payoff graphs, options chain, and a lot more.

From single-leg strategies to complex portfolios, with upto five strategies, each strategy having up to six legs, uTrade Algos gives one enough freedom to create almost any auto trading strategy one likes. What’s more, is that there are pre-built algos by industry experts for complete beginners and pre-made strategy templates for those who want to try their hand at strategy creation.

An interesting feature that uTrade Algos is bringing to the table is a set of pre-built algorithms curated by top-ranking industry experts who have seen the financial markets inside out. These algorithms, called uTrade Originals, will be available for subscribers on the platform.

Algos have the capability to fire orders to the exchange in milliseconds, a speed which is impossible in manual trading. That is why traders leverage the power of algo trading to make their efforts more streamlined and efficient. You can try uTrade Algos for free for 7 days!

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Knowledge Centre & Stories of Success

In the world of algorithmic trading, measuring performance goes beyond simply looking at profits. Here strategies are executed at lightning-fast speeds and hence, metrics beyond profits are needed to assess the robustness of it all. Among the various metrics, the PnL aka Profit and Loss is a critical metric that sheds light on the effectiveness of your algo trading strategy. 

Algorithmic trading has become increasingly popular among traders looking to automate their strategies and capitalise on market opportunities. With the rise of algorithmic trading platforms like the uTrade Algos algo trading app, traders have access to powerful tools and technologies to execute trades with precision and efficiency. However, to make the most of these tools, it's essential to optimise your algorithmic trades effectively. Let us explore seven essential tips for optimising your algorithmic trades using the app.

In algorithmic trading, where seconds can make a difference, having effective exit parameters is crucial for managing risk and improving the chances of returns. Global exit parameters serve as predefined rules or conditions that trigger the exit of a trade, ensuring disciplined and systematic trading. In this guide, we'll find out about the concept of global exit parameters, explore their significance in algo trading, and understand how they function in real-world trading scenarios.

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