DOM when i tried it, was like a hypno toad so fast on stocks, 4hrs just went by without any trades being placed, not for me at all, that was before HFT aswell, couldnt really see the point.
I trade stocks using the tape and level2 almost exclusively. I dont know how to trade without it. When i started, i spent 5 months in a very realistic simulated environment, 8hrs every day, trading between 100-150 round turns per day. i lost a moderate amount of fake money and got really bad headaches often. However, it was worth it. I could go on at length about tapereading but suffice it to say it is possible, algos dont really make much of a difference. This style of trading is very intuitive and it helps to have a good understanding of market structure in order to be able to interpret what youre seeing correctly. That being said, the successful daytraders that i know personally ALL trade using the tape.
How do you deal with orders being pulled in a nano second faster than you can blink? How do you even tell if it's a real order or just one that is placed to trick others
Has really the tape which is orders filled, he'll see orders on level 2 which disapear without showing on the tape, he can see the game. I think been 15 years since i had level 2. Got to train yourself to think quick Kudos.
There are numerous ways to circumvent that kind of activity. Here's a few: You can add liquidity instead of taking it, trade on an exchange that has a speed bump built in (like IEX or NYSE American), trade in the dark, trade at the midpoint, trade in icebergs if you're moving large size, hide your orders etc etc. As for the second question, as another poster already mentioned, you can verify legitimate orders on level 2 by watching the transactions on the tape and seeing how level 2 responds - in the case of a large offer on level2 that people are hitting aggressively on the tape... does the offer decrement? Is it a big seller on a specific exchange? Is he refreshing? Ultimately, does he lift or hold? If he lifts, do you see him reappear somewhere else in the depth or does he slam the level back down the moment it breaks with a huge sell order? If he holds, does the price bounce violently off that level? In summary, if you can figure out his game, you can trade with him instead of against him. Most big traders leave their footprints behind.
Doesn't adding liquidity often leave you vulnerable to adverse selection? (Your resting order is subpennied by algos if your fill looks like a good one and the algos step aside and let you fill if your fill is probably a bad one... expectation wise in the immidiate future)? How do you look to add liquidity when you are trading?
If their claims are true that they can read and detect where big boys are lending support and resistance then it is possible. However it is really high risk because you are always last in queue without superior infrastructure. If you can't read the tape, you get raped. Your orders will always lose the bid ask spread without an edge.
I could literally answer this question with a one page response but I will keep it short. 99% of the time I'm adding liquidity. Keep in mind I trade stocks, not futures, and with the rebate passthroughs on various ecn's using various routing strategies, most of my trades are either negative commission or close to (meaning I get paid a small fee to trade). I prefer to get paid to trade rather than the other way around. Second, my entries are generally not at the nbbo. Typically, I'm entering in an area either above or below the current best bid/offer somewhere based upon my expectations at the time and therefore, I'm not fighting for a spot in line at the nbbo when price gets to my entry. There are other ways to jump the queue but I won't get into that. When I exit, I offer out. Occasionally I will hit out but even then I can use a take/make exchange to reduce my fees. My understanding of adverse selection is from the specialist days when they were obligated to make markets with players they KNEW were better informed than they were. I am neither making markets nor looking to capture the spread. Sure hft can game my orders but my agenda is very different than what they're doing.
For me adverse selection works like this for simplicity, take a stock with ticksize 1. Without any bias, go long and short randomly, allocate 50% to long and 50% to short. When you actually get filled, because of subpennying and other shitty tricks that guarantee you are the last man in the queue, you always have to exit at a loss of 1 tick or more because prices have moved against you. The mkt making hft algos will cancel their orders when price is moving against them, (can you cancel as fast as them?) while getting hit when price is going nowhere. That is their edge against the average guy.