HFT for dummies
Posted: Mon Aug 06, 2012 9:27 am
A good read over at zerohedge for those interested in the basics of High frequency trading and the impact these kind of trades may be having on market fills & market movements.
http://www.zerohedge.com/news/interview ... ncy-trader
Personally, I have started to employ stop-limit orders to enter a position whereas previously I would have used a stop order. If I miss out on a trade then so be it. I’m not overly fussed.
Fellow forum member ‘Jez liberty’ produced an excellent series of articles over at his blog that showed (for the particular tests performed) that by using stop limit orders you will miss some winning trades but you will be compensated by slippage savings on nearly all other trades and over the long haul it’s more or less balanced. (again, for the particular tests performed)
To exit a position I still use a stop order but it’s now held in my head.
Of course I run the risk of exiting at a price worse than a stop held in the market, since I’m not watching the screen all day, but I also might be able to avoid the odd price spike through my stop & the subsequent reversal.
A good way to test this would be if price closes below your stop (if long) you simply exit at MOO the next day. You could set up your system in this way and you can see what difference it makes to your simulation bottom line.
These changes have been made by me due to a run of bad fills over the last 6 months or so. When I say bad I mean fills right at the top or right at the bottom of the price bar as well as fills at prices that exist for less than a second.
As I’ve said in a previous post, I do not and never will begrudge any market maker, broker, HFT-er or ‘vampire squid’ his/her fair share of clip or gouge . . . . but Guys, c’mon, it’s gotta be fair.
Perhaps HFT is not responsible for this sort of thing but just in case it is and just in case this sort of thing is destined become the new norm I’ve decided to rethink the situation and use the afore-mentioned tactics.
QUESTION:
Has anyone else implemented any strategies/countermeasures to combat this relatively new (and here to stay!) market phenomenon? (i.e. HFT)
Would be happy to hear thoughts/opinions/rambles.
http://www.zerohedge.com/news/interview ... ncy-trader
Personally, I have started to employ stop-limit orders to enter a position whereas previously I would have used a stop order. If I miss out on a trade then so be it. I’m not overly fussed.
Fellow forum member ‘Jez liberty’ produced an excellent series of articles over at his blog that showed (for the particular tests performed) that by using stop limit orders you will miss some winning trades but you will be compensated by slippage savings on nearly all other trades and over the long haul it’s more or less balanced. (again, for the particular tests performed)
To exit a position I still use a stop order but it’s now held in my head.
Of course I run the risk of exiting at a price worse than a stop held in the market, since I’m not watching the screen all day, but I also might be able to avoid the odd price spike through my stop & the subsequent reversal.
A good way to test this would be if price closes below your stop (if long) you simply exit at MOO the next day. You could set up your system in this way and you can see what difference it makes to your simulation bottom line.
These changes have been made by me due to a run of bad fills over the last 6 months or so. When I say bad I mean fills right at the top or right at the bottom of the price bar as well as fills at prices that exist for less than a second.
As I’ve said in a previous post, I do not and never will begrudge any market maker, broker, HFT-er or ‘vampire squid’ his/her fair share of clip or gouge . . . . but Guys, c’mon, it’s gotta be fair.
Perhaps HFT is not responsible for this sort of thing but just in case it is and just in case this sort of thing is destined become the new norm I’ve decided to rethink the situation and use the afore-mentioned tactics.
QUESTION:
Has anyone else implemented any strategies/countermeasures to combat this relatively new (and here to stay!) market phenomenon? (i.e. HFT)
Would be happy to hear thoughts/opinions/rambles.