Chapter 11

Understanding Key High Frequency Trading Strategies

In This Chapter

arrow Focusing on pennies, one at a time

arrow Pinging for information

arrow Playing the game to gain market intelligence

High frequency trading (HFT) is impossible without a strategy that can be programmed into a computer algorithm. This chapter looks at some of the trading strategies used by high frequency traders. Some of the strategies follow age-old trading strategies, but computer algorithms have made it possible to do them in a split second compared to what human traders what have taken much longer. Some strategies are possible only with modern technology and are unique to HFT. Some strategies are based on economic and macro news flow, whereas others are based on order book flow. Despite their differences, what they have in common is that they all use algorithmic trading programs to execute trades.

Scalping for Your Pennies

Although scalping takes place in the securities markets, the term doesn’t refer to scalping the heads of traders (as much as some people would like to do that). Scalping in securities happens on the trading screens and the order books of the exchanges and dark pools. In terms of a HFT strategy, ...

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