Retail Traders And High Frequency Traders

Tips To Take Advantage Of High Frequency Trading

The Securities and Exchange Commission SEC has been investigating High Frequency Traders HFTs for several of years, ever since the Flash Crash of 2010. The important Buy Side Institutions are not front run or affected by HFTs because they use Dark Pools, which are non-transparent order systems that don’t display until AFTER the order is filled. Consequently HFT algorithms cannot see the orders of the giant Mutual and Pension Institutions. Proprietary Desk Traders are those traders who work for the Sell Side Institutions to make money for their employers which are the big banks, financial services companies, as well as hedge funds and are not usually front run by HFTs.

Interestingly the general consensus among these professionals is that educating the individual investor and retail trader is probably the best cure for systemic mistrust by the general population regarding the stock market. The “stock market” in the eyes of the general population covers the entire financial industry including bonds, commodities, futures derivatives, interest rate derivatives, credit markets, real estate, stocks, annuities, and forex. This inaccurate assessment is one of the primary results of nebulous outdated information spread across the internet.

What seems to be even more of a problem is that the general public believes that HFTs are real human beings. The news media makes little attempt to clarify that HFTs are computer algorithms and not human floor traders. There is no one sitting at the other end of the high speed fiber optic line, waiting for the orders to flash by. It is a computer program searching among billions of orders for Cluster Orders. There are no people watching the HFT orders, no floor traders monitoring order flow, and nobody is watching the HFT screens.

The following are tips as to how retail traders can take advantage of High Frequency Trading order flow and avoid being included in Cluster Orders.

HFTs action that has huge gains with huge Volume on a daily chart are one day events. Rarely do the HFTs trigger the next day.

Learn to identify the setups that precede huge HFT price action the following day. These are compression patterns out of Platforms and Consolidations after Dark Pools have ceased accumulating. The goal is to get in ahead of the one day event.

Gaps as well as long one day run candles form, so it is critical to identify when the Dark Pools have stopped their accumulation at a particular level so you can prepare to enter before the news “leaks” to HFT algorithms.

The one day event can reverse the same day. It is not the norm but it does happen so these are a one day Swing style trading. Exiting the day of the run up just prior to market close is the best exit strategy, because sometimes profit taking or smaller funds cause the stock to drop down the next day.

Trading ahead of HFTs is taking advantage of their huge order flow and price gains. It takes an understanding of what strategies they are using at that time for example news, retail strategies, technical, arbitrage, or fundamental aka Dark Pool activity. Knowing what types of algorithms are causing the price action is important.

HFTs constantly change their algorithms to find certain predictable patterns. Cluster Orders occur when retail traders use red light/green light systems, an overly popular indicator such as MACD, or a guru recommendation which cause easy targets for the HFT order triggers.

There are no fail safe systems built into HFT algorithms, they are wrong much of the time. Also they place far more orders than are ever executed. In addition once the HFT starts it will run, even if the transactions are losing money for the HFT firm. You need to avoid these scenarios or you will lose money also.

Summary:

Remember to always trade with the trend of the giant Mutual and Pension Funds Institutions using Dark Pools. At times, HFT algorithms get it wrong and trade against the Dark Pool quiet accumulation. This pattern is seen frequently in stock charts on Volume indicators, and creates losses for the HFTs who have NO access to the pre-order status of the Dark Pools.

Do not be greedy, taking profits before the runs conclude is best. These one day events are best traded as such. Intraday trading of these is far too volatile for reliable and consistent profits.

Click Here: Thank You For Reading My Article

© 2013-2015 Decisions Unlimited, Inc. dba TechniTrader®. All rights reserved.

Disclaimer: All statements, whether expressed verbally or in writing, are the opinions of TechniTrader®, its instructors and/or employees, and are not to be construed as anything more than an opinion. Students/ subscribers are responsible for making their own choices and decisions regarding all purchases or sales of stocks or issues. At no time is any stock or issue on any list written or sent to a student/subscriber by TechniTrader® and its employees to be construed as a recommendation to buy or sell any stock or issue. TechniTrader® is not a broker or an investment advisor. It is strictly an educational service.