HFT vs Discretionary Trading

[MrN]

Well done.

You can't compete against HFT without utilizing that approach yourself. And if u do find a way, it is likely illegal, similar to the poor fellow in London who used off the shelf software to pillage the HFT firms with his spoofing.

Imagine a trader in 1998 paying $25 a round turn attempting to scalp against the floor - its not going to happen. The access and cost structure makes it impossible.

Baron mentions traders vs. investors. Most every short-term trading strategy that I am aware of (in stocks) that has been somewhat durable works by dampening the excesses of "emotional" long term investors - so there is a symbiotic relationship, which is precisely why the strategy types that fit this model have been relatively durable. I'd say the best way is - put away the indicators and figure out something that actually makes sense based on how markets need to function. A principle of trading is u can make money if your counterparty is more time-sensitive and urgent than you are. From that one idea you can find stuff that works, not "competing against hft" or "buying with a stop above this level or indicator" which is doomed.

The key point to understand is that an HFT system is able to capitalize on split-second opportunities that you as a human being simply cannot. So the real edge an HFT has is in the micro-second analysis and execution capability.

But, is that an edge OVER a competing discretionary trader in the market? Technically yes, because the HFT is doing something a discretionary trader can't even do. But to imply that an HFT is taking money out of the pockets of discretionary short term traders and therefore "making all the money" is misleading and untruthful in my opinion.

It would be like saying a day trader is taking money out of the pockets of long term investors, but we know that's not really the case. If anything, the day trader just provides liquidity for the long term investor whenever that investor chooses to buy or sell. In other words, just because you trade in and out of AAPL 10 times a day doesn't really impact my ability to get out of my 5,000 share long term position that I've been holding for 4 years whenever I choose to do so. You have an edge over me in the sense that you can take advantage of short term price fluctuations but your activity isn't really affecting me because it's taking place in a completely different time frame.

 

[Xenomorph]

Everyone talks about HFT and algorithmic trading like they are a same thing... but that is not even remotely true. Most automated algorithmic trading systems are NOT high frequency. Many are actually very low frequency.