High frequency trading ideas ~ forex grid trading strategy system
I just started reading Larry Harris book "Trading and Exchanges" (thanks to Max Damas glowing book review) and already a couple of potential high frequency trading techniques stood out:
"Quote matching" - a technique whereby front-runners place a limit buy order just a cent (for stocks) higher than the best bid price. If the order is filled, they then place a limit sell order just a cent lower than the best ask. Assuming the best bid-ask quotes dont move, the worst they can do is to lose 1 cent by selling the share back to the best bidder, while the most profit they can make is the bid-ask spread plus rebates for providing liquidity minus 2 cents by having the sell long limit order filled. This could work out quite profitably if the bid-ask spread is wide. But of course, the best bid-ask do change constantly, so front-runners would need to cancel and correct their limit orders constantly, and the optimal algorithm for doing this could get quite complicated. Meanwhile, if you are a bona fide liquidity provider, you would have to avoid providing this free option to the front-runners by constantly monitoring who is in front of you. As usual, this chess game can quickly degenerate into an HFT arms race.
"Manipulation of stop orders" - a.k.a. "gunning the market", a technique whereby the market gunners buy aggressively so as to trigger large buy stop orders that they believe are in place at a higher price. When these buy stop orders are filled, the prices are driven higher still, and these manipulators then sell their position profitably.
One of my old momentum strategies was a victim of these market gunners, and after that sad experience I refused to use stop orders any more, at least for stocks. However, here is a question for our knowledgeable readers: can other traders actually see what stop orders there are on an order book (whether for stocks, futures, or Forex markets)? And if so, would a trading robot that simulates stop orders by sending out buy market orders when the stop price is touched work better than manually placing a buy stop order on the order book?
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market, but loose money in a choppy market. It is not a problem as long as the market is trending and the system is making more money than it loses. Such a
system can be profitable for several months and you would be happy with it. BUT...
PREPARE FOR THE WORST...
Market change over time. A well designed system starts with trend analysis to stay away from potentially losing trades. There are two problems of how a Forex
system recognizes the trend.
PROBLEM: FALSE "STRONG TREND" INDICATION.
The system responds only to immediate price action. An explosive price movement that is usually the result of news release is tempting people to jump in and
make a profit. It looks like a "strong trend", but what usually happens next is a hard fall.
To avoid falling into this trap, check for the SOLUTION to find a REAL trend:
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SECOND PROBLEM: TREND RELIABILITY
Most systems use various indicators to determine the trend. Actually, there is nothing bad about using indicators. One Simply Moving Average can do the job.
The problem comes with the question: "Is the market trending NOW?" Whether the market is trending or not trending is not like black and white. The correct
question is: "How well the market is trending?"
And here we have something called TREND RELIABILITY.
Trends exist and they can be traded up and down for a profit. You have to focus only on the most reliable market trends. "Forex Trendy" is a software
solution to find the BEST trending currency pairs, time frames and compute the trend reliability for each Forex chart:
==> http://www.forextrendy.com?nsjjd92834
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