Chapter 2. New Directions in Automated Trading

Key Concepts

• High-performance computing systems capable of identifying and trading subtle market inefficiencies have come into widespread use in the financial community. These systems react to changing market conditions at the tick level.

• The combined activities of automated high-performance trading systems extinguish market inefficiencies almost immediately. Private investors using off-the-shelf software cannot react quickly enough to compete in this environment.

• Statistical analysis of minute-by-minute price changes supports these assertions. Studies reveal that large price changes do not result in persistent trends—even at the single-minute level. Stated differently, the recent price ...

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