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According to several researchers, high-frequency trading (HFT) accounts for approximately 70% of dollar trade volume in U.S. equity markets. That means that the day-trader, scalper, and even longer term stock market participant is facing some fierce competition. High-frequency trading programs can execute buy, sell, and cancel orders within 1/1000th of a second. HFT programs are only one type of a larger set of algorithmic trading (AT) programs, though.
The overarching goal of many AT programs is to find the efficient price. An AT program may arrive at that price in a variety of ways, but once it does, its goals are to sell above the efficient price and to buy below it. HFT programs combine finding the efficient price with rapid execution. They are often designed with the intent to buy and sell faster than other HFT programs can. This race for speed has moved beyond human capacity to a digital sprint where milliseconds and microseconds matter. Speed allows these programs to break up large orders into smaller ones in an effort to avoid detection. Many of the programs also attempt to lessen their impact on price. AT programs, which include HFT programs, have a tendency to trade on the same side of the market. Most often, the side they trade is the side opposite the majority of human traders.
From this brief description, it would appear that humans would be better off going to the casino or horse track with their money. The odds would appear to be better. Appearances can be deceiving, though. Small investors can still make money in the stock market. They may do so by reducing or eliminating the number of times they trade against AT programs. If profits are the goal of trading or investing, it would be far more productive to ride with the tide carrying 70% of market dollar volume. That would definitely beat being one of the people holding the other 30% percent, who are forced to sit on the shore, face the tide, and brace for its impact.
MHGSignals.com provides live signals based on apparent AT activity in the S&P 500. We send buy signals to your e-mail address when it appears that AT programs are buying the SPY ETF and sell signals when they appear to be selling it. Three to five nights per week, we also send out a forecast for the SPY's Open, High, Low, and Close for the next session. The forecast informs traders of what should happen; the live signals let them know what is happening.
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