Will somebody please do this research? / has anyone already?

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Moto moto
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Post by Moto moto » Fri Nov 11, 2011 3:54 am

As an idea....
combine HFT trading for putting positions on and off, leaving a small amount open from each profitable trade working so that by default you get on a trend.......slowly these small amounts build up over time as an instrument starts trending and you end up getting on a trend without actually having to worry about how you got on the trend.
Simplistic maybe :)

SimJimons
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Post by SimJimons » Fri Nov 11, 2011 8:25 am

Moto moto, most HFT strategies are built around market making concepts, and as such they are trading against the trend. Hence, it might be a little difficult to blend HFT and trendfollowing in the way you proposed :P

I agree with Chris67. Having said that, I do believe that the best HFT players will make a lot of money going forward. The bad ones, however, will be their prey. In contrast, I don't see Winton eat our performance away, directly. Obviously their size may make it more difficult for them and others to make money, or they may have a better "forecasting machine" than us. But we're not their prey, I hope :)

Moto moto
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Post by Moto moto » Fri Nov 11, 2011 10:02 am

SimJimons - -"Moto moto, most HFT strategies are built around market making concepts, and as such they are trading against the trend. Hence, it might be a little difficult to blend HFT and trendfollowing in the way you proposed"

As an ex options market maker, I actually was more momentum based, and not necessarily "against a trend"- I just used the extra edge off a theoretical point of view to try and build positions when they went in the way of what I determined the trend to be. Often if you can capture those trades where the trend is with you quicker than others, or skew your biases slightly that edge can be enough. (In my previous experience often enough it is those others crossing the spreads that are actually trading against the trend....but every day is different)

You can actually use momentum strategies with HFT, and their idea of a trend time frame is clearly different to many others.....so I disagree and think you can blend HFT trading and trend following.
(maybe this is just a different definition of HFT but I dont think the two HFT, and TF are mutually exclusive or worth thinking that HFT guys do it exclusively in one manner or way) :)

but I definitely agree they will most likely eat their own young.....when they have more IT staff than traders its a different race

SimJimons
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Post by SimJimons » Fri Nov 11, 2011 10:36 am

Moto, I was sort of kiddin' with you! Obviously HFTs come in many shapes and forms. But, I still think the easy HFT money is/was made by providing liquidity, i.e. making the spread. I have a few friends that used to make serious money trading equities this way (with Sharpes of about 10) that are out of business today (since spreads have been reduced to nothing). So, the easy money is probably gone, or only available to the fastest of the fast. The problem with this kind of HFT is that if you're not fast enough to make the spread you will end up eating it. Hence, two equal strategies on paper may deliver extremely different returns. A tricky business indeed...

Moto moto
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Post by Moto moto » Fri Nov 11, 2011 11:09 am

no problems Sim - I juts did not want to discount anything.
It is an interesting concept though.
Especially when it comes to something such as option market making.
("purer" HFT whereby you really need to capture the bid offer spread faster than others is a different story)
When it comes to options, you can build a book whereby you can definitely get the best of both worlds. Particularly when playing from a long volatility viewpoint, as you then are stopped out by adverse moves when having a delta, can trade your gamma and clip the spreads to pay for the time decay, and yet also participate in those freak black swan events.
Effectively you option market make to try and get the same profile as a trend follower.
Of course you will have other issues such as liquidity, the fact you may get taken out of positions as part of market making duties and the real issue of competing against those market makers who just do it for spread and volumes and the associated technology issues.....however (while next to impossible to accurately quantity) this might be made up for in those periods whereby the extra volatility pays for itself and more, the black swan events occur and the "free" options you are often handed/left with when running such option books over a large variety of strikes and series.

It is something I have been trying to tinker with, but I think it needs a bit of discretion (much like market makers need to with their books and moving skews), is quite a full time job and the resulting tech issues kill an individual. However - I have some ideas and trying to do some similar things - not as a market maker, but still in that vein to see if I can scrounge some value out of it. I think technology and time will hinder me.

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Post by Bravochico » Fri Nov 11, 2011 1:03 pm

Hft comes in all shapes sizes. The notion that it's market making based,co tar trend just isn't true anymore.

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