Algorithm (aka “algo”)

An algorithm, or "algo," is a set of coded instructions that tells a computer exactly when to buy or sell, without a human clicking the button in real time. The person who builds it decides the logic in advance — for example, "buy 500 shares if the price crosses above its 20-period moving average" — and the software then watches the market and executes that rule automatically whenever the conditions are met.

Algos range from simple to extremely complex. Some just break a large order into smaller pieces so it doesn't move the price too much when it hits the market. Others are built to react to news headlines, order book changes, or price patterns across dozens of stocks at once, making decisions in microseconds. What they share is that the logic is fixed ahead of time and carried out mechanically, without hesitation, fear, or second-guessing.

The nuance beginners miss is that "algo" doesn't mean one specific strategy — it's a category. A slow-moving algo rebalancing a pension fund's portfolio over several hours behaves completely differently from a high-frequency algo firing thousands of orders a second to capture tiny price differences. When traders in a chatroom say "the algos are running this," they usually mean fast, aggressive automated flow is pushing price sharply in one direction, but that's a loose generalization, not a precise description of any single system.

Retail traders can't usually see which orders come from algos versus humans, but they can often see the effects: sudden sharp moves with no obvious news, price reacting instantly to round numbers or technical levels, or liquidity vanishing for a split second during volatile moments.