Veteran traders would have noticed the increasing complexity of trading in recent times. The conventional indicators such as candlestick patterns and chart patterns don’t seem to perform as much as they seemed to. Much of the blame has been laid on high frequency trading (HFT).
The ‘Why’ and ‘How’ of HFT Trading
HFT trading is carried out by institutional investors, hedge funds and investment banks and involves employing an automated trading platform run by powerful computers for transacting tons of orders at very high speeds. The powerful algorithms at work enable traders to scan multiple exchanges and markets in just a few seconds and execute tons and tons of orders. It gives these traders the power to make faster trades, a significant advantage over those unable to employ high frequency trading.
HFT firms are running profitably and are getting even more profitable through greater sophistication. And now even the average retail trader, who is sophisticated, has the complete knowledge about winning pattern set-ups. HFT has typically been used for chipping away small single tick profits over and over for winning massive profits.
Techniques of HFT Firms
HFT firms usually employ their massive capital for pushing markets back and forth, shaking out the weaker and smaller players by using techniques such as false breakout and stop hunting. HFT algorithms challenge the usual points where traders would place their stop or consider carrying out a breakout trade, push price to these points, and then exceed them before reversing the direction quickly. This gets the normal trader into a position of loss or gets him stopped out again and again on usually winning positions. This phenomenon can be felt in various kinds and durations, and happens in a range of time scales.
With the use of complex algorithms for analyzing markets, HFT traders anticipate trends and actually beat them to the marketplace. This helps them attain positive returns on their trades through their bid-ask spread, and earn significant profits.
How Traders Must Tackle HFT
For new traders, all it takes is to update your level of knowledge with certain skills to tackle the challenges posed by high frequency trading:
- Keep reviewing the weekly, daily and 4-hour charts. This will help you know what the general trend of the market is and warn you if you are moving against the trend, which isn’t ideal.
- Keep away from fast and hasty moves if a market heads quickly to a trend line break or an obvious resistance or support area.
- Know that when volume isn’t accompanied with the price break, it could be false.
- Make sure you are able to scale your positions which could help you adjust your entry or exit.
With these techniques, you can up your game to stand your ground is this sophisticated age of HFT. At TradeZero we’re here to help you succeed, which is why we offer one of the most user-friendly and sophisticated trading platforms for online trading for newcomers as well as seasoned hands. Get in touch with us at 954-944-3885 or email firstname.lastname@example.org.
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