Archives of “high frequency” tag

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Is this the next ‘edge’ for traders?

  
  Education
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It took Peter Borden a while to come around to modafinil. He never takes prescription drugs. He doesn’t drink to excess. He’s into acupuncture and alternative medicine. But he was working two jobs—by day, he does quantitative analysis and project management for a venture-capital-backed B2B start-up; by night, he’s developing a proprietary high-­frequency trading system for a Wall Street start-up of his own—and what he needed was more time to work. 

So a few months ago, Borden ordered a three-week supply by mail. (“It was a piece of cake,” he says.) He popped his first pill—“the maximum suggested dose”—as soon as the package arrived, and within a few hours he started feeling a pleasant fuzziness. “Not fuzzy-headed,” he says, “but crisp. A crisp softness to it.” Soon he was experiencing a level of concentration he’d never imagined. “My senses sort of shifted to the visual, and my auditory sense went down. Sounds didn’t even register. It was like walking around on a winter day when it just snowed. It was very easy to stay visually focused.” 

Next came a head rush. “I sensed it was blood actually moving to the optic nerve. Your eyes start to feel very sort of engorged, and your awareness comes to the front of your face, which is kind of a freaky sensation. I would describe it as being very much like Adderall, but without the speediness.”  (more…)

Animated GIF Shows The Rise Of High-Frequency Trading

  
Analysis, Education
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Here’s a great chart from Nanex, documenting the rise of high frequency trading as fed in by main feeds from more than a dozen major exchanges.

Nanex has color-coordinated the trades as they come in from the different exchanges (PACF, for those trying to understand, is NYSE Arca).

The GIF starts from January 2007 and continues for four years, leaving out the trading seen just last week when a computer glitch at Knight Capital Group erroneously executed trades for more than half-an-hour.

A nice hat-tip to Reuters’ Felix Salmon for pointing us to it.

Risk & Chance

  
  Education
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Here are some interesting quotes from ‘Risk & Chance’ (Dowie and Lefrere) that have a relevance to trading and speculation more generally:

Henslin (1967) notes …dice players behave as if they are controlling the outcome of the toss.  One of the ways they exert this is to toss the dice softly if they want a low number, or hard for a high number.  Another is to concentrate and exert effort when tossing.  These behaviours are quite rational if one believes that the game is a game of skill. 

As a trader I wish I could figure out what portion of my trading results can be attributed to luck, and what portion to skill. The problem is that trading seems to be a game of both skill and luck, so we spend half our time figuring out just how hard we should be throwing the dice. Splitting skill from luck is a problem for all speculators, but high frequency traders can find out much sooner than low frequency macro traders, who only take a few positions each year. In the latter case, it may be close to impossible to look back to a macro trader’s career and make this determination with any reasonable level of certainty.  

De Charms(1968) stated that “Man’s primary propensity is to  be effective in producing changes in his environment.  Man strives to be a causal agent, to be the primary locus of causation for, or the origin of, his behaviour; he strives for personal causation.

The polar opposite of mastery is helplessness.

In the markets, those with an ‘edge’ over the market can be thought of as masters, while those who don’t believe in outperformance of the averages can be thought of as helpless. Of course, in this case the helpless are not truly helpless; they may accept they have no influence on the outcome but provided they accept the proven long-term upward drift of the market, they can choose the path of the low-cost index fund, saving time and money against the perceived masters (on average, the indices outperform).  This doesn’t apply to the foreign exchange market.

Lefcourt (1973)… concluded that “the sense of control, the illusion that one can exercise personal choice, has a definite and positive role in sustaining life.” Thus, people show a preference for controllable over uncontrollable events.The distinction between skill and chance situations is further complicated by the fact that positive outcomes are most often attributed to the actions that precede them.

Think of many of the individuals who have made big gains in the housing market, founders of certain successful businesses, and some flavour-of-the-month fund managers. Positive results, especially those associated with a large monetary gain, often imbue individuals with a false sense of superiority and foresight, or even control, over events that are actually largely outside of their control.  

If Trading is War, Is All Fair?

  
  Education
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An article in today’s New York Times focuses on high-frequency traders and the efforts that they are making to avoid regulations that may limit their growing power in the markets.

According to the article, “Critics say traders with access to the fastest machines win at the expense of ordinary investors by seizing on the best deals and turning fast profits before other traders.”

Many attribute last May’s “Flash Crash” to high-frequency trading, although according the article, “Regulators did not blame high-frequency traders for causing the sell-off.”

High-frequency trading firms defend that the technology they utilize to build their business is part of “stock-exchange modernization” and helping to create “a level playing field.”

How do you feel about high-frequency trading? Has its rise affected your own trading? How have you had to change the way you trade to remain competitive?

As one of the comments on the article suggested, would it be foolish to think an average trader can beat an automatic trading professional?

Risk & Chance

  
  Education
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Here are some interesting quotes from ‘Risk & Chance’ (Dowie and Lefrere) that have a relevance to trading and speculation more generally:

Henslin (1967) notes …dice players behave as if they are controlling the outcome of the toss.  One of the ways they exert this is to toss the dice softly if they want a low number, or hard for a high number.  Another is to concentrate and exert effort when tossing.  These behaviours are quite rational if one believes that the game is a game of skill. 

As a trader I wish I could figure out what portion of my trading results can be attributed to luck, and what portion to skill. The problem is that trading seems to be a game of both skill and luck, so we spend half our time figuring out just how hard we should be throwing the dice. Splitting skill from luck is a problem for all speculators, but high frequency traders can find out much sooner than low frequency macro traders, who only take a few positions each year. In the latter case, it may be close to impossible to look back to a macro trader’s career and make this determination with any reasonable level of certainty.   (more…)

Risk & Chance

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #

Here are some interesting quotes from ‘Risk & Chance’ (Dowie and Lefrere) that have a relevance to trading and speculation more generally:

Henslin (1967) notes …dice players behave as if they are controlling the outcome of the toss.  One of the ways they exert this is to toss the dice softly if they want a low number, or hard for a high number.  Another is to concentrate and exert effort when tossing.  These behaviours are quite rational if one believes that the game is a game of skill. 

As a trader I wish I could figure out what portion of my trading results can be attributed to luck, and what portion to skill. The problem is that trading seems to be a game of both skill and luck, so we spend half our time figuring out just how hard we should be throwing the dice. Splitting skill from luck is a problem for all speculators, but high frequency traders can find out much sooner than low frequency macro traders, who only take a few positions each year. In the latter case, it may be close to impossible to look back to a macro trader’s career and make this determination with any reasonable level of certainty.  

De Charms(1968) stated that “Man’s primary propensity is to  be effective in producing changes in his environment.  Man strives to be a causal agent, to be the primary locus of causation for, or the origin of, his behaviour; he strives for personal causation.

The polar opposite of mastery is helplessness. (more…)

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