For the first time ever, I completely understand the mathematical reason why HFT and profits at this energy/small times must exist. It remains to be seen if the understanding at a theoretical level leads to a viable strategy, but for me understanding things on this level helps me connect with other knowledge and usually leads to insights. Interestingly, assuming markets are fractal, I also understand why we see similar oscillations on higher time frames.
Come on Nitro ... how about a little detail behind your insight? I could be a bit too much Gløgg this time of year Happy Holidays and thanks for all your past contributions!
Me too .... its so that people can endlessly talk about it and blame their losses on something outside themselves while re-assuring themselves their gains come from their brilliant trading skill. In short it keeps people in the game who shouldn't be in the game. I have long maintained that the majority of traders have no idea what they are really trading.
HFT is the replacement for nickel and dime spreads. The rise of HFT is the market's way of signaling that it doesn't work "right" at penny spreads.
HFT exists out of market structure, not efficiency. The motivation of brokers is to seek best execution at all times to earn their commission and to trade against other market participants. The cure to HFT is to implement a trading environment that is only concerned with accurate fills and elimination of getting picked off by market makers and specialists who know ahead of time how large the book coming down the pipe is. Doing this will eliminate bid/ask spreads entirely, and the existence of pre-determined market hours that generally must always post a best bid and offer is the reason for HFT. This can be eliminated from the market structure using the technologies I've developed, and will find price better than the transactionalism that is prevalent at every trading company today.
Fischer Black also came up with a system that did not involve market makers, a bid, or an ask. The downside is that you don't know what price you'll get and/or how long your order will take to fill (I don't remember whether it was "and" or "or" in the prior sentence, but that's not important). The problem, of course, is this is not what people want in a liquid capital market. Your own "technologies" also will have major downsides, probably significant enough to make them less appealing than the status quo to the majority of investors/investees. If you think you've got something as great as you imply, then publish your work in the Journal of Finance or somewhere on the Internet for academic critique.