This was an interesting interview, but it's a shame that he didn't go into more detail. Was it because he chooses for us not to understand it or does he lack the knowledge further from what he explains. It would be nice if someone could elaborate or clarify some of the points below. Thanks in advance. I've seen this happen occasionally; more frequently a few years back rather than now. I'm wondering how these systems can drop price that big and that fast when there are other orders that it has to chew through. Sometimes, this may include block orders. Additionally, I'm sure that there are other algos prepped for this kind of action and to take advantage of it. Would they not enter with their own trades and leave the primary algo high and dry? 1) Who day trades through Scottrade?! 2) My orders are much smaller than theirs and for the most part I get filled pretty nicely on limit. 3) Why do I need to understand this if I am satisfied with my fills. If they need a better understanding to fill their large order and take the time to educate themselves in order to get those fills, so be it. It doesn't bother me in the slightest if they make a million, so long as I get my fill. I'm assuming most seasoned traders know that this happens and probably take advantage of it. Also, if there are other algos programmed for this, they can get in before the primary algo to take advantage of the anomaly and in the process leaving the primary algo wanting. Now this is of real interest to me for various reasons. Most times, I do not put in hard stops. However, when I am dealing with more positions that I can handle, I will place hard stops in the ones that are behaving well. In saying this, sometimes I swear by God that they could see my stop and literally came to pick it up. This would be the only HFT activity that would upset me. It's hard work finding that sweet entry, only to be booted out before the party bus leaves. Individual accounts are too minuscule for HFT firms to play with. Is this really a fact or is this guy making this up? Also, I am pretty sure bigger firms protect their strategies so as to prevent other HFT firms from benefiting from it. So what's the deal here? Above were the main points of interest, though a lot more can be questioned from the interview. I still remain in the camp that HFT is not something that effects my trading. Either I have learnt to adapt or it really does not interrupt with my stlye of trading.
When the algo knocks down the price, their other algo swings in immediately in ms and scoops it up immediately before you can even type up the stock. It just registers on your filter.
Ridiculous. Crowd behavior aggregated from a bunch of retail accounts? IMO, one the first institutional HFT algo was from SUSQ. An "interest" algo that stepped in front of ECN limit orders and actually improves NBBO. Most of the stuff is arbitrary. We're not talking AI here. These are relatively basic principles that can operate in the ms-level. This guy makes it appear as "transcendence" and it's not even close.
Interesting Grandluxe. However, if it is algo vs algo, is there a chance that another algo could outdo them? If so, they would be in a bad place.
Drownpruf, thanks for the response. It seems like you may have better knowledge about HFT. If time permits, would you be kind enough to go through the questions I had posed (first post on this page). If not, I understand.
My experience with HFT is limited to D1 hedging in single names, but large caps (AAPL, GOOG, ETF). I can't offer much into the mechanics beyond what I experienced some 10Y ago, but from what I have seen (at large(ish) funds) it's no longer trending toward efficiency on the micro-level. The early algos were very beatable. You spoof on the buy, small... SUSQ et al would come in to penny you and you'd hit the bid on your intended short. No moral issue here, your intent is to get filled, not an overt-edge related trans. Macro-wise there are two diametric forces at play. The HFT smoothes the daily vol (lower var) via sub-penny and the majority being MR strategies, but makes the microstructure chaotic. It can be easier to fill in the vol-markets then it is in shares. It's very difficult to fill non-marketable share orders. I model all D1 fills as marketable. It's not a viable method if it cannot survive lifting offers. Low vol serves nobody but the HFT. They shut-down when overrun and reduce vol for all participants over the long-term. Not even systematic vol-sellers are served by HFT at the nominal line on vol is too low to short with impunity.
==================== Grande; I like that short term trader in the new Jack Schwager[HFT Market Wizzards if I remember my newest trade book title] He has a short bias, likes to pick tops in a long bull trend/up trend , like the , SLV + silver ''got hunted up several year ago] NOT the mr Bunker Hunt UP trend but the more recent silver trend to $50/+.LOL. I think he bought TYCO some also, but it was not clear to me, if that was a buy to open or or buy to close his position??????????????????????????????????????????????????????????????????????????? NOT that I want to trade counter trend much; but I like what he is doing, his counter-trend helped trend followers get out at good fills. For example , he is buying to cover his SLV shorts, when some trend followers finally sell to exit longs[main SLV, silver UP[trend. Forgot his name but remembered his trading plan...................................................................................................................
Just got done reading Traders Of The New Era. It is an excellent read! Being a full time trader I read a lot of trading books. At first mostly technical analysis books and then most recently trading psychology books. This book is a lot closer to psychology because you really get into the heads of real traders like ourselves. I felt like the traders being interviewed were everyday traders that I could totally relate to. When they talked about issues/concerns and what they do to avoid them I found myself saying to myself "yes! I have that issue too". The difference is they have been around long time and are highly successful so they give good advice on what to do. Unlike other books Traders Of The New Era doesn't try to teach you specific setups or trade management. However, I felt like I gained more knowledge from it than any book I can remember. If you are a trader that is active in the equity markets I highly recommend it.
Get concrete with tables, charts and statistics. You may just produce a classic must-read for this trading era.