As long as the stock market has existed, there have always been trading strategies that have been very successful for a while, but then have become diluted so they are no longer as successful as they once were. Does High Frequency Trading (HFT) fall under this category?
HFT has certainly been extremely successful for its practitioners over the last few years, to the extent that everyone is now trying to get in on the act. But because there are now so many players, it is unlikely that the success of the high frequency traders will continue.
It is interesting that many traditional traders have actually modified their strategies because of the effects that HFT is having. Good day traders and screen traders for example have developed a knack, almost a sixth sense for knowing when the HFT strategies are kicking in on a particular stock.
If you are an active trader, ask yourself this. Do you see HFT as a threat or an opportunity? Are you giving up trading particular strategies because you are worried the high frequency traders will get there before you or are you working the HFT plays to your advantage? How many trading opportunities have you ignored because you don’t want to go up against the HF traders?
Don’t accept defeat before you’ve even started. If you watch the market, modify and adapt your strategies to take into account all the variables, including the activities of the high frequency traders, you should be able to stay ahead of the game.
The debate about high frequency trading will go on and on. But in the meantime, you still need to make money as a trader, so don’t let good trading opportunities pass you by through fear of the HFT competition. Otherwise you have lost the game before you even started.
Happy trading!
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