I apologize in advance but I need to rant a little... In the mafia, there are certain things that a made man is supposed to do and a certain way he is expected to do it. Of course, the central point of his "work" is to bring in some money for the mob. One thing that you may not know is that they take alot of pride in their way of living and making money. Whatever they do, they take immense pride in the fact that it is illegal. The end result of this if far from mob movie glamour: they will go into very complex and/or marginally profitable activities in order to boast that what they do is illegal. What it means is that they may use a great deal of ingenuity in time consuming complex schemes without ever assessing the risk/reward or the hourly pay they get from it. They could use this creative energy and time to make much more money legally but they don't, the point is that it has to be illegal. What does it have to do with trading? Alot I think. My everyday job is as a Sr. Analyst for a big bank, basically my job is to find good managers and keep track of the ones we have. In that capacity I deal with many hedge fund people. I have, over the years, noticed a very similar characteristic of the made man in hedgies. Nowadays hedge funds are all about quants and programmers. Just take a look at the postings... I definitely notice in them a propention to over-analyse. It seems a good hedge fund strategy has 1 or a few of these things: 1) they require lightning fast super computers 2) it needs 2 math Phd. and one top notch programmer working full time to keep the thing running. 3) it involves "picking up nickels in front of the bulldozer" 4) the hedge is so small that they need to be leveraged to the eyeballs just to make a profit. It seems to me they have absolute disdain for anything anyone with : a genuine interest in the market, some common sense and a little bit of risk management technique could do. Heck some of them I see just spend so much time/ressources/energy to turn a maybe 9-10% annualized return... I think they are like made man, except in their case the point is that it is complicated and that the garden variety trader can't replicate. Is this really the hedge funds of the future???
The flavor of the day doesn't mean it will be popular in the future. HTF is here to stay and many make good money doing it. In the end though the edges will get so small it will make it unprofitable for many of the hedge funds.... then they will move on to something else. "Trend following funds are great"... everyone sets up trend funds... trending has some bad returns... "trend following is dead" yells the crowd... the next fashion is born... It reminds me of this cartoon...which always makes me laugh
Only a small fraction of hedge funds do HFT. Most are global macro/long-short/trend/. A few are position traders. Your misunderstandings can only be explained if one assumes you just learned about hedge funds yesterday http://en.wikipedia.org/wiki/Hedge_fund#Strategies