Yesterday I held a Webinar for FXStreet.com titled “Practical Considerations on the effects of HFT on price“.
In the webinar I have touched on the following 4 points:
- I have provided a brief introduction on HFT (High Frequency Trading) and how it matters to us
- Presented the major effects of HFT on market price and price structure (very important)
- Touched briefly on the “war” between algorithms in the market
- Closed with an example of HFT “disturbing” a well-formed setup of a Program Trading algos.
Why am I so interested in HFT if, as retail traders, we cannot leverage them to our advantage? HFT algos run on specialize technical infrastructure and networks that are attached to the main electronic exchanges. Therefore, there is no way we can compete with HFT.
However it is important to know HFT and study what are its effects on price. Particularly HFT behavior is capable of modifying price structure and can “help” Market Crashes!!! This is why there is a lot of talking about HFT and whether they are “socially useful”.
The debate surrounding high frequency trading has become increasingly heated, reflecting the varied perspectives on the ability (and desirability) of high frequency traders to move faster (and on the basis of potentially greater information) than other traders. In the past I have written about the contrarian view represented by Paul Krugman represents on HFT.
But my interest in HFT – like my interest in trading – is practical. Why am I worried of HFT? Because I know how it can have impact and skew my edge.
And what is my edge? If you do not know my work you may not know that I model effects of classes of Algorithms (other than HFT) on price. By doing that I can understand if/when/where Algos participates on price.
At the end of last year I have studied a typical example of how HFT can “disturb” my trading setups. If you are interested you can read here the full article on the battle of HFT versus Program Trading.
There are only few things that can be proven or are true about the markets. One of these is the existence of algorithms (which trade a very high volume, in some cases more than 80%) and they work on all time frames, in high volume markets, with clearly observable effects on price. And I am not talking only about HFT (High Frequency Trading) here.
The good news is that we can leverage the Algos (other than HFT) on price and and obtain a powerful edge that can significantly improve our rate of success. Something that the application of Traditional Technical Analysis will never be able to provide.
Have a look at how in the brief summary of this webinar.
“I will provide a brief introduction to HFT (High Frequency Trading) and some definitions. I will then elaborate on 2 major effects of HFT on the markets. First is the effect on price structure and how it changes. I will then touch on the underlying “war” between classes and families of algorithms (not only HFT). I will conclude with the effects of HFT on methods that attempt to frame price structure and show a real market example – during planned news – and what can happen in those cases.”
So, if you haven’t had the time and the opportunity to watch yesterday’s webinar you can watch it here below:
Click here to watch the webinar recording here, and then let me know what you think about it.
Have a good day all.
To your success, rooting for you…