Perfecting High Frequency Trading – Introduction
We are at a unique place in history. We are at the age of digital disruption where new life-changing events are happening on a daily basis. In the past, moving from one invention to another took decades. All areas like healthcare, manufacturing, and retail have been affected. In the investment world, we are in a period of digital disruption when new technologies are coming up regularly. Consider the blockchain technology that launched less than ten years ago. Today, bitcoins, litecoins, and ethereums are worth billions of dollars. The same is true with the high frequency trading that allows computer-generated codes to make investment decisions. In this article, I will write on why and how you need to approach HFT as a trader.
You can be an individual trader and make trading decisions. This is where you study your charts and make an investment decision. You can also be an individual trader and still practice high frequency trading. However, if you want to be successful in this, you need to be part of a small team of people from diverse background. You need someone from a software development background who will help you come up with the code for your investment. This should be a person who understands different facets of development.
To be successful in this, you need to have people who are passionate about investments. They should also be highly-skilled in this field of coding. Finally, they should share the passion and dreams that you have about trading and investments. Remember that if you don’t have a good team, chances are high that you won’t succeed in it.
- The Code
As I have mentioned, high frequency trading enables you to have a computer code that makes investment decision. It will buy something when a certain criterion is met. For example, the criteria can be to buy an asset when: the simple moving average, stochastics, and relative strength index reaches a particular point. The code that you develop should be effective and it should always use data that is available. The data should be a good and credible source also.
Not all codes will work the same. As a high frequency trader, you should have different codes for different scenarios. For example, you can have a code for commodities trading and another one for stocks. After creating the code, you should backtest it using the data that is available in most trading platforms. You should backtest it to ensure that you have a code that works in an effective way. The backtesting process should take a considerable amount of time as this will determine the success or failure of your code.
- Regular monitoring
As a high frequency trader, you should pay close attention to how you monitor your trades. Remember that not all codes will work the same way. Some will be successful than others. The right thing to do is to ensure that you are always watching as your codes do their thing and take action when you believe they have made a mistake.
Finally, you should work towards upgrading the code. The success of your code will always be determined by the number of upgrades that you do to it. As you monitor the code, you should ensure that you identify the areas of weakness and then work towards fixing the weak areas. If you do this, chances are that you will be a very successful high frequency trader.