In This Chapter
Discovering high frequency trading strategies
Looking at institutional algorithmic strategies
Seeing how dark pools can be gamed
Trading strategies are meant to make a trader money and to control risk at the same time. In this chapter I share some of the most common automated trading strategies used today. Many of these strategies aren’t new; they’re simply tried-and-tested ones that have been speeded up by computers and fast data feeds. For those trying to trade manually without the help of a computer algorithm, the old strategies have become redundant because no human can keep up or react manually to the speed of an algorithm.
Automated trading strategies fall into two categories. First you have those that are used by institutions and large investors to place orders that have minimal price impact on the stock or index they’re trying to buy or sell. Then you have the strategies used by high frequency traders and market makers to trade in and out of stocks quickly. In this chapter I cover both categories.
Market making is the process of providing simultaneously a bid and an offer on a trading exchange. A ...