High Frequency Trading (HFT) is supposed to be the new superstar on the Street. I wonder if this will be the case in ten years. \u00a0More importantly, are we ignoring excellent trading opportunities because we perceive HFTs as the superstar?<\/p>\n
The NASDAQ Day Trader used to be king. Tech and then Internet stocks rained money on then this new breed of trader- the intraday trader. The Floor Specialist used to be the man. And then technology sadly ended the careers of many decade plus, seven figure and legendary floor traders.\u00a0Brian Hunter was the most brilliant natural gas trader in the business and then one day he almost took down a multibillion dollar fund, Amaranth. A writer friend of mine told me that during one year for Trader Monthly’s Top 30 Under 30, more than half on the list had blown up their trading accounts before publication. Bond traders used to be king back before “back in the day”, the Internet Boom. Big Bank Credit\u00a0Derivative\u00a0Traders used to rule the street and then they almost blew up our entire banking system. And on and on and on.<\/p>\n
Who are the superstars on the Street? I am sure there are some who work at prop firms, big banks and hedge funds who keep themselves out of the news and have consistently crushed the markets. And we certainly have the Stevie Cohens of the world (great traders traditional media has uncovered).<\/p>\n
I was reading about the superstar effect in the Journal the other day and started contemplating how this relates to today’s trading. The superstar effect is when a lesser competitor performs worse because they perceive someone to be much better. Lee Westwood will play worse when teamed in the final round against Tiger if he\u00a0perceives\u00a0Tiger as too good to beat (which could happen this Sunday at the Masters). And I started to think about HFTs. Our firm has shifted its focus towards Trades2Hold, longer intraday trades, as a consequence of HFTs. But we will trade in an out of a stock if it is most In Play, like an AIG from this week. And we need to take advantage of these trading opportunities when certain stocks are most In Play.<\/p>\n
But have we conditioned ourselves to give up on some of these opportunities because we perceive HFTs as king? 1) Are HFTs really the king? 2) Are HFTs going to remain the man in ten years or will they lose their crown like many of the other very successful trading stars in the past? 3) Are we as active traders giving up on certain plays because we perceive that HFTs will win even before the battle? 4) How many excellent trading opportunities are we ignoring because we refuse to trade against the HFTs, even with set ups where we would have an edge? 5) Are we performing worse against the HFTs because we believe they will beat us?<\/p>\n
I am not sure who will be king in ten years from now. Considering history data favors the discretionary trader. Perhaps it will be the discretionary trader using elaborate algos to enter and exit orders. Perhaps it will be the discretionary electronic trader with real-time access to many different markets through technological advancements. Perhaps the government will pass a trader tax and then HFTs will be no more. Perhaps HFTs will in fact be the king. Who knows?<\/p>\n
But for the moment my sense is we are passing on some trading opportunities where we as active traders would have an edge. Especially in stocks that are most In Play. We need to carefully define these very specific set ups. Also we must respect that during many plays it is unwise to fight the HFTs. As active intraday traders we should consider whether we are allowing HFTs to win even before we play. Are we suffering from the superstar effect?<\/p>\n","protected":false},"excerpt":{"rendered":"