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    « Time Tested Trading Tips, July 17, 2011 | Main | Bestsellers of 2011 (So far...) »

    July 18, 2011

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    For what it is worth...here is my two cents:

    High frequency trading has certainly impacted the markets and the way prices fluctuate. For instance, in many cases the added liquidity could mean better fill quality but in other circumstances it might mean larger price swings. Humans have a tendency to look at change in a negative context; however, I'm not convinced the overall impact is either positive or negative...just different. In my opinion, traders should focus on how and where the market is going rather than why or how it is getting there.

    Traders are, in essence, competing with all other market participants; whether it be an algo-trading system, a specialist on the trading floor or someone clicking a mouse in their pajamas. In my opinion, it is naive to assume that it is possible to completely level the playing field. Even if high frequency traders were banned from the marketplace, there will almost always be somebody, or some entity, that will have more resources and knowledge than you. For instance, Warren Buffet isn't a high frequency trader but he certainly has the means to conduct fundamental research better than the rest of us. Similarly, someone standing on the floor of the CME (Chicago Mercantile Exchange) or the CBOE will probably have some sort of informational advantage. In previous decades, it was the traders standing in futures pits or on the floor of the stock exchange that had the undeniable advantage and, unfortunately for them, that is no longer the case. As markets have moved toward electronic and over-the-counter trading, the "edge" has simply shifted away from floor brokers/market makers and toward high frequency traders; once again, I don't believe the market is any better or worse off, it is just different....and investors must learn to adjust accordingly.

    Carley Garner
    www.DeCarleyTrading.com
    cgarner@decarleytrading.com

    The advent of HFT and dark pools has been the third revolution in trading in recent history. The personal computer was the first. the second was the change from fractions to cents in pricing which narrowed the spreads. the third is HFC and dark pools. What this has done is to continue to marginalize the retail trader. It is estimated that well over 70% of all trading is now institutional. The increased domination of institutional machine trading has had the following effects: 1) What used to work fairly well in trading no longer works as well; 2) trends have tended to become more truncated and much more difficult to trade and 3)sentiment indicators no longer seem to work as well...adapt or die as a trader.

    The "Flash Crash" was the result of a domino effect after the sell-off on Sunday evening of silver. It was PURE manipulation. But don't worry, the Federal Reserve system was set up to avoid this sort of thing and they'll get them -- next time. Yeah, right! And I have some ocean front property in Arizona for sale.

    HFT adds liquidity the 99% of the time you don't need it and soaks it up like a sponge the 1% of the time you really do need it. If you don't think the flash crash wasn't caused by HFT you have a bag over your head. This is just an absolute disaster waiting to happen. And, by the way, isn't it interesting how all the big wirehouses raised the cry about the SOES bandits in the '90's as having an "unfair" advantage in front-running the market and now they've turned 180 degrees and are justifying it for themselves. As far as it disadvantaging the private investor, the money HFTers are making doesn't come out of thin air. Whether its mutual funds, pension funds, the retail investor it all basically comes out of our pockets.

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