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Algos are designed to lure retail traders into false setups and also to detect retail trading patterns and run them out of their stops more effectively than old fashioned MMs. It is constantly evolving, I imagine with lower latency and faster processors, as mentioned earlier, volatility and traps for retail will increase.
Can you help answer these questions from other members on NexusFi?
Actually my motivation was to deal with an important issue after having an awful trading day. I can't find any info on how algorithms are designed to detect retail traders but from personal experience with individual stocks it is obvious to me, especially when volume becomes low, the algos are waiting to pull the floor out once you buy in after seeing them move up briefly. Futures seem better due to the higher volume than a lot of the stocks I trade.
The way the game is rigged it is logical that they would want to make it even more difficult, efficient, as technology and the trading programs evolve. Al Brooks has said price action will follow his theories because of our DNA and the fact that trading programs are coded by humans. I am not as optimistic, I don't think that algorithms have to trade by human rules and patterns because they were coded by humans.
Read Richard Ney's books, nothing is different now to what it was in the 1920's, or ever for that matter, it's just that technology has sped things up for all of us, I certainly wouldn't have liked to try and trade with hand drawn calculations.
I don't think your issue is with HFT - it's the same as for all of us - ourselves, and remember most HFT algos are trading stocks and working with fractions of a cent, other algo's for sure are using fibs and vwaps but they are not HFT, even though they may trigger some others into action.
Same for all of us - look inside rather than outside.
It seems you are looking to externalize blame instead of taking responsibility.
I see it all the time, people blaming algo's, blaming HFT, blaming their platform, their broker, their wife, their kids, their internet connection, whatever. Take responsibility.
Beyond that, use common sense. If you truly feel that HFT is impacting your trades, then don't compete with HFT. It's rather simple. Increase trade duration, stop scalping, etc.
If you feel algo's are after you, hunting stops, etc, then sorry but you don't understand the market very well. Algo's are there to facilitate transactions for the most part. Any good trader knows where the weaker traders and rookies place their stops, and the market will naturally gravitate towards those areas to test them. This has absolutely nothing to do with an algo, it's simply how a market works.
I think KosherTrader does have a point in this thread. If there is one constant in the markets, in my opinion it would be that trading always gets harder. I don't see this as an attempt to blame external factors, rather as acknowledging the need to keep up and improve.
When asked by Futures Magazine: "You have spent a lifetime in trading and in research. Name a couple of simple truths that you have discovered." William Eckhardt replied: "Improve your trading or it will degrade; there’s no coasting in this game."
Furthermore, it isn't set in stone that certain niches just have to exist. It may very well be that for some trading styles and time frames, edges attainable with the resources of a retail trader will degrade to a point where they no longer cover slippage and commission.
I think this isn't limited to scalping but pertains to all time frames. Long-term trend-following, a very simple and well known strategy, has been in decline for several years with losses in 2011, 2012, and 2013, as per the Barclay CTA Index which is mostly comprised of this strategy.
As for markets always getting harder, that is because the tools are getting better (ie: computers -> faster). There is always going to be someone with a technical advantage, whether it was 50 years ago, today, or 50 years from now. There is not much you can do about that except to find a different way to play the game.
You don't stand a real chance of success until you accept responsibility for your actions, stop looking for answers elsewhere, stop blaming others, and start consistently measuring yourself. This is nothing special to trading, it applies to anything in life where you want to be better than the majority.
I think some anecdotal evidence is in order. Are there any day traders herewho have sustained a career at day trading for a decade or longer? Al Brooks, who is considered a genius in his field, is one who has maintained profitability for over a decade, I am not familiar with many others. If trading is defined as a career or profession then it must be sustainable for a decade or longer, given the fact most traders take a year or longer of study/practice and large failures to become profitable.
The snippet you chose seems more like a request for information. I'll try to add some by pointing to a Nanex comment that suggests an algo called "The Disruptor" was designed to specifically screw other traders. A post thanked by you.
Thanks for sharing that...I also liked the following which was a link in there:
( Attn: Big Mike)
Enough Already!
On Friday, Aug 5, 2011, we processed 1 trillion bytes of data for all U.S. equities, options, futures, and indexes. This is insane. …
It certainly is an important factor for success as others are as well, for example the information which games can be won. You can go to Vegas with the firm intent of only blaming yourself for everything, consistently measuring yourself, even keeping a daily journal on a message board of your attempts to make a living through beating the gambling machines, yet no edges can be had there.
