Category Archives: Research Paper

New Series: Effects of High Frequency Trading (HFT) on Modern Markets and Program Trading, July 30th 2013

Hello readers,

with this post I am going to start a new series of articles related to the effects of High Frequency Trading (HFT) on the Modern Markets and on Program Trading?

Why would we worry about HFT as retail traders? HFT can affect our day trading on the smaller timeframe (4 hours and lower). But most importantly HFT has effects on Program Trading. This is very relevant to me and to those who follow my trading method!

Why would that be? Well, in modern, high-volume markets knowing what Program Trading is doing can be used to develop a unique edge. My work as a trader and analyst is all about modelling the effects of Program Trading on price. So to my perspective it is very important to know how HFT can affect prices. And I strongly believe knowing HFT a bit better can help your trading even if you do not take advantage of the edge I have developed.

Hereunder is the abstract for the series of articles I am going to write, which are based on a recent research paper I have published for IFTA (Italian Chapter, SIAT)

High Frequency Trading (HFT) is widely spread in Europe and in the North American markets, with volumes estimated between 35% to 75%. Unfortunately the effects of HFT systems on the markets are very negative, especially during repeated and unavoidable stress situations, during which effects on price compound and multiply.

This series of articles describes the effects of HTF on markets highlighting, in particular, the causes of social and technical instability, the modification of price structure and the consequences on traders’ behavior. The presence of HFT influences the effectiveness of Program Trading – another computer-based class of algorithms with a stabilizing effect on the markets.

The portion of Program Trading referenced in the series of articles is indeed based on cause-effect rules activated by well defined price levels. Modeling such rules as a result of my research, allowed me to identified the trading edge in the method I use to trade the markets.

The rules used by Program Trading have evolved in the years to perfectly match the psychological response of traders, taken as an aggregated group, guaranteeing an ordered development of price on markets characterized by high volumes.

The presence of HFT disturbs the markets, which are not allowed to work properly due to the modification in price structure. The emergence of a weak price structure generates market dynamics not allowing traders who provide liquidity to be rewarded, while only rewarding perfect market timing, which we all know it is very difficult to obtain.

The last part of the series of articles will consider the potential evolution of HFT, from a technology point of view, too, and how professional and retail traders can counteract the presence of HFT if, as it seems, a more decisive and effective regulation of the phenomenon will not be undertaken by the appointed authority.

I hope you enjoy the new series of articles.

Have a great evening.

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Filed under Articles, Education, English language, High Frequency Trading, Program Trading, Research Paper, Trading Method

News in the Blog/Newsletter and in my recent Work (Feb 2013)

In this brief post I am going to share the news in the Blog/Newsletter and in my recent Work as trader/technical analyst. This post relates to the month of February 2013:

  • I have been invited to speak by Dale Pinkert at fxstreet.com in a webinar on Forex, Futures and Stocks . Dale is a great analyst and trader, has over 30 years of trading experience specializing in commodity futures & currencies. Dale is a former Member of The CME(IOM) and has also appeared on CNBC. The date and time are still to be defined. The webinar will be free and I will let you know how to register for those of you who are interested.
  • I completed and shared on the Blog the new paper for the SIAT Journal (Societa’ Italiana di Analisi Tecnica, Italian chapter of IFTA). The article’s title is: “The effects of High Frequency Trading (HFT) on Markets and Program Trading”. The paper was published last week and focuses on the negative effects of High Frequency Trading on price structure and market liquidity. The abstract is available here in Italian and English Language. The paper is now available on the Blog’s page  ‘eBooks & Papers‘  only in Italian language, at the moment (but I will translate it soon).
"The Effects of High Frequency Trading (HFT) on the Markets and Program Trading" - February 2013

“The Effects of High Frequency Trading (HFT) on the Markets and Program Trading” – February 2013

  • A few months ago I have planned a new project, an eBook titled “Key Concepts to Correct Trading Behavior – A guide to relevant concepts for trading success in a market governed by High Frequency Trading (HFT) and Program Trading”. The eBook focuses on the most important concepts any trader should internalize in order to implement a correct trading behavior, in a world where the majority of trading volume (from 35% to 75%) is generated by computer programs. I have completed the eBook and I am in the draft review phase and I will only be able to finalize it after I will have completed my paper for the Technical Analyst of Year 2013 SIAT contest in Italy. The most important section of this eBook will illustrate a practical application of  the Bandwagon Theory to the daily chart of the EUR/USD forex cross. I will let you know when the eBook is out. If you want to be an early bird and help me with the review please inform me of your interest by sending an email to: fibonaccistalker@investidea.biz. Thank you in advance.
eBook "Key Concepts to Correct Trading Behavior", available for free in March 2013 on this Blog

eBook “Key Concepts to Correct Trading Behavior”, available for free in March 2013 on this Blog

  • On October, 24th 2012 I held the video-live event organized by SIAT and Traderlink. Such event was reserved only to SIAT members, the Societa’ Italiana di Analisi Tecnica (local chapter of IFTA, the International Federation of Technical Analysts). Some people showed interest and in the coming weeks I will share the Italian version of the material and then start recording a few videos covering the content of that event in English language. This material will also cover my proprietary timing technique called Fibonacci Stalking (that also gives name to my Blog). Please inform me of your interest for this material by sending an email to: fibonaccistalker@investidea.biz. Thank you.
  • In the last week of the month of November I have started reviewing and offering video analysis for major and widely-followed stocks. I call this series of analysis FibStalker View on Stocks. So far I have analyzed the following stocks (tickers): AAPL, ACN, BAC, BIDU, GOOG, GS, HPQ, RIMM, NFLX. I will soon add Facebook (FB). You can find the video analysis in my Blog’s ‘Stocks & ETFs’ page. More and more stocks and ETFs will be added going forward. If you like to have a stock analyzed, please inform me of your interest by sending an email to: fibonaccistalker@investidea.biz. Just make sure the stock is widely followed and trades high volume.Thank you.
  • In the last week of the month of November I have started analyzing other widely-followed forex pairs. I call this series of analysis FibStalker View on Currencies. In my list I have, so far: EUR/USD, GBP/USD, AUD/USD, USD/CAD, USD/JPY, EUR/AUD, NZD/USD. I will add other pairs as we move forward. You can find the video analysis of the current forex pairs I cover in my Blog’s Forex page. If you like to have a forex pair analyzed, please inform me of your interest by sending an email to: fibonaccistalker@investidea.biz. Thank you.

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Filed under eBook, English language, Research Paper

Articolo: Gli effetti dell’High Frequency Trading (HFT) sui mercati e sul Program Trading – Abstract (Italian Language)

In questo post presento l’abstract dell’articolo che sto scrivendo per il giornale istituzionale della SIAT (Societa’ Italiana di Analisi Tecnica), capitolo italiano dell’IFTA (International Federation of Technical Analysts). Ho gia’ scritto una serie di articoli e post sull’argomento HFT (che trovate piu’ sotto), e continuero’ a studiare approfonditamente e a scrivere su questo argomento.

L’articolo di cui riporto l’abstract qui sotto si intitola: “Gli effetti dell’High Frequency Trading (HFT) sui mercati e sul Program Trading

Abstract: L’High Frequency Trading (HFT), com’è noto, è molto diffuso sia in Europa che nei mercati Nord Americani, con stime di volume totale trattato che vanno dal 50% al 75%. Putroppo gli effetti dell’HFT sul mercato sono piuttosto negativi, specialmente nelle ripetute ed immancabili situazioni di stress, durante le quali gli effetti sul prezzo si compongono e moltiplicano. L’articolo descrive gli effetti dell’HFT sul mercato soffermandosi, in particolare, sulle cause di instabilitá del mercato sociali e  tecniche, sulla modifica della struttura del prezzo e sulle conseguenze nel comportamento dei trader professionisti. La presenza dell’HFT influenza anche l’efficacia del Program (o Algorithmic)Trading – anch’esso basato sull’utilizzo di metodi computerizzati — ma alcuni di questi algoritmi presentano effetti stabilizzanti sul mercato. Una parte del Program Trading, infatti, quello cui si fará riferimento, è basato su regole di causa-effetto che reagiscono a ben determinati livelli di prezzo. Tali regole sono evolute negli anni per adeguarsi perfettamente alle tipica risposta psicologica dei trader, presi come gruppo aggregato, che garantisce uno sviluppo del prezzo ordinato sui mercati caratterizzati da alti volumi. La presenza dell’HFT disturba i mercati, cui non e’ permesso funzionare correttamente causa la modifica della struttura del prezzo. L’emergere di una struttura debole del prezzo per via della presenza dell’HFT genera dinamiche che non permettono di ricompensare i trader che forniscono liquiditá al mercato, ma premiano solamente timing di ingresso perfetti, molto difficili da realizzare. L’ultima parte dell’articolo considera le possibili evoluzioni dell’HFT, anche in ambito tecnologico, e come i trader professionisti e retail possano difendersi dalla presenza dell’HFT se, come sembra, una piu’ decisa ed efficace regolamentazione del fenomeno non sará intrapresa dagli enti preposti.

Qui sotto la lista degli articoli pubblicati, in ambito HFT, sino ad ora:

Questi articoli sono apparsi nella mia Newsletter gratuita che invio ogni fine settimana ai miei sottoscrittori. Se ritenete quest’articolo interessante vi prego di condividerlo con amici e colleghi trader.

Anche questa settimana inviero’ il mid-week update con una video analisi del Dollar Index, del cambio Euro-Dollaro e dell’indice S&P500 (potete trovare qui l’sempio publicato il 7  Novembre, disponibile solo in lingua inglese), con incluso un aggiornamento dei piani di trading per l’Euro e l’indice S&P500. Per riceverlo leggete qui sotto e sottoscrivete la Newsletter gratuita. Grazie.

La newsletter normalmente contiene vari articoli che includono: una video-review del fine settimana sul cambio Euro-Dollaro e altre coppie forex (FibStalker View on Currencies), indici o commodities, articoli riguardanti il mio metodo di trading, commenti al mercato, piani di trading per l’Euro ed S&P500 e anche articoli, come quello appena letto, relativi all’HFT e Program Trading. Potete registrarvi qui per ricevere la newsletter gratuita settimanalmente, cosi’ da poter leggere i prossimi articoli su program trading e HFT. Normalmente non pubblico tutti gli articoli sul blog.

Sottoscrivete la mia Newsletter gratuita per ricevere idee e setup su forex, azioni e futures, imparare di piu’ sul mio metodo di analisi e trading e sulle modalita’ con cui analizzo il prezzo.

Thank you for subscribing should you decide to do so. Lots of other people are doing the same.

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Filed under Articles, Italiano (Italian language), Program Trading, Research Paper, Trading Method

An Examination of the Linkages Between Money Management and Trading Goals (English Language)

Dear readers,

I have just released on the blog my first research paper titled: “An Examination of the Linkages Between Money Management and Trading Goals“. This is a summary of my thesis for the Masters of Arts in Finance at National College of Ireland, I have earned in November 2010. I published this work on the SIAT Quaderno, the journal of the Italian Chapter of IFTA (International Federation of Technical Analysts).

An Examination of the Linkages Between Money Management and Trading Goals

An Examination of the Linkages Between Money Management and Trading Goals

Abstract: This paper is a summary of a research study whose objective was to establish a linkage between money management techniques (helping determine “how much” can be risked per trade) and trading goals. Three money management techniques were examined and applied to the profitable “Turtle Soup” trading system. Trading goals were split in three different sub-goals: downside protection, upside potential and an opportunistic outcome. A uni-variate Monte Carlo simulation method was adopted and a trading data distribution calibrated using known goodness-of-fit techniques and tests. The study not only confirms that good money management techniques are able to modify the results of a profitable trading system positively affecting trading performance, but it also demonstrates that, as a result of such capability, money management techniques can be used to control achievement of trading goals. In particular, different features of money management are able to separately affect the achievement of different sub-goals. The paper concludes that a linkage between money management techniques and trading goals exists, therefore selection of the latter is not disjoint from considerations and choices made in the area of the former. This work also offers a generic, re-usable framework to study the impact of money management techniques on trading performance, given any trading system.

Please Notice: Research papers and eBooks are free but only accessible upon registration. If you wish to download this research paper please visit my eBooks & Papers page.

In the eBooks & Papers page you will find all the eBooks and Research papers I have published so far and those I will keep publishing in the future. I am currently working on an eBook focusing on . I like to publish about several topics related to Trading:  Market Analysis, Money Management, Risk Management, Trading Psychology, Trading Methods, Position Sizing, Trading Business Planning, Trading System Evaluation, and a lot more. I try to make available only quality material based on my direct experience in trading and studies in finance in the last 11 years.

Thank you for your interest.

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Filed under English language, Money Management, Research Paper, Trading Goals