I believe algos/HFT has a handprint on a lot of markets...some markets more than others.
Professional institutional traders have a completely different mindset than most of us retail traders and I think that's mainly do to the resources they have available to them along with the fact that their salary job is a lot more financial secure. In addition, the firms they work at has a deeper interest in
behavioral finance, stress management, psychology than the typical retail trader that tends to go back in forth about the importance of psychology as part of the trading plan.
As retail traders, we have to carry a lot more stress and most of us can not manage it properly nor able to develop it as a successful aspect of the trading plan. This is why I joke (serious joke) when tax time comes around every year (April - May)...realities hit like a slap in the face and the negativity, disbelief, blame, mudslinging tends to peak around this time period.
Today its algos/HFT fault for someone's trading problems, tomorrow its someone's else fault and the next day its the fault of something else. We need to find away to develop positive thinking and try to get into the mindset of a professional trader...
not an easy task.
Note: If someone has a job and is a profitable trader. Don't quit your job. That job helps with the financial stability and the psychological stability...always helpful to have a backup plan regardless if that backup is trading or the job.
By the way, thanks for the link to marketpsych.com and there's many other behavioral finance firms being contracted by the largest institutional firms in the world. In fact, there's a growing graduate and PhD work in these areas. Those with the education background in such are being snatched up by top financial firms and given top salaries to help keep the firms traders (including quants) in top shape especially those that have problems dealing with work stress or personal stress at home.
If I could do college all over again, behavioral finance is where I would go.
I'm glad you mentioned this and I wish more talked about it. This is something I preach a lot here at the forum...the cost of doing business is much more than just commissions and fees. Not only does it mainly fall on deaf ears, the really
naive or ignorant just sit there and look at totals (gross income) and start their imaginary compounding and comparisons.
Although what I'm about to say about some recent factual statistics has nothing to do with your conversation...I going to make a connection to your point about
cost of business as a trader and the
cost of living as trader. Someone here at ET recently posted some documentation info about percentage of forex traders at IB that were profitable. The info show
+40%. Yeah, that's right...+40%. How in the hell can that be possible when we are all told from forum to forum that 95% are losing regardless if they're trading stocks, forex, futures, options or whatever.
http://www.elitetrader.com/et/index...retail-traders-in-the-us.299513/#post-4275369
Go ahead, how many negative people at this forum ran over to that thread to announce its fake, scam, impossible or whatever ? Not a single one. Yeah, there's been other threads in the past 12 years at this forum where someone posted some broker documentation of the profit/loss of the clients at that broker. Same reaction, very little replies about the realities of those numbers and no replies by those running around preaching algos/HFT is making trading impossible.
On the flip side, here's my knock on those broker profitability statistics. The broker does not know the
cost of living for each trader and does not know the
cost of doing business beyond the commissions and fees for each trader. Thus, hypothetically, someone that only made 10k in profits after broker commissions & fees while living at home with mom & dad, on mom & dad insurance plans, no debts and with mom & dad paying for everything for that trader...
Hypothetically, his 10k is still 10k after the cost of living/cost of doing business because the parents are paying for everything else versus someone that made 40k in profits but had 35k cost of living/cost of doing business because he's a single parent and has one child dependent. Essentially its 10k for mama/daddy boy versus 5k for the single parent although the gross for one is 10k and gross 40k for the other. Thus, the naive will only play with compounding numbers of 10k or 40k.
Do you know anyone that's successful, with kids and recently divorced ? That's another dose of reality that hits the profitability consider 40 - 50% are likely to get divorce if they marry or in a common law relationship.
My point is this, I wonder how much of those 40% forex traders at IB are actually
trading for a living and the demographics behind those numbers to better understand the realities of being a trader...understanding what a trader has left to compound considering we all know realistically its not the gross income. I'm also curious about info like how many are automated retail traders versus discretionary retail traders versus retail algo traders versus private traders that had a former professional background.
That kind'uv information will be extremely useful in our trading industry...a lot more useful than just saying +40% are profitable or that
"I know someone".
Last time I heard that type of statement was from the 90's by scalpers using level II.
Simply, you're right...there's no such thing as a safe place to put your stop but you do need a stop not because we're trading in the growing presence of algos/HFT but we're trading in the presence of the ever growing global connectivity between world markets and because weird crap happens on the internet that we can not control.
The latter occurred recently in the markets when I saw the market reaction to the UK European vote...the impact went beyond just Forex GbpUsd. I also saw it shave the price action in futures (e.g. Emini futures) and boost the price action in other futures (e.g. Gold GC futures)...a strong volatile price movement in many key markets due to a vote.
