Night Trading and High Frequency Trading Robots


One of the best reasons for night trading is that investors who are using a trading system, with accompanying technical analysis trading strategies, will not run into as many high frequency trading robots (HFT).

What is an HFT?

Wikipedia defines high frequency trading as "execution of computerized trading strategies characterized by brief position-holding periods, in many cases taking advantage from microstructure inefficiencies. In high-frequency trading, programs analyze market data to capture trading opportunities that may open up for only a fraction of a second."

If you are a technical analysis trader, the worst thing that can happen is that you are following your trading strategies, keeping to your overall trading plan, and you suddenly get stopped out by an HFT. You have moving averages, MACD, stochastics, all telling you the exact direction of the Market, everything looks great, then boom...the Market breaks out and goes in the opposite direction. Today, exchanges admit that 70% of trades executed are from HFT's. Will that change? It is very unlikely. HFT's have co-located their computers inside the exchanges, paying huge sums for that privilege. This is low-latency on steriods.

Say you are an individual day trader, using your desktop trading platform. You see a hot potential opportunity to enter a position (long or short). You click enter on your trading platform. At that point, the trade goes from your desktop to the exchange via the internet. This may take several hops. A hop is one intermediate connection in a group of connections that link two network devices. For trading, your request to enter a position goes through a number of routers before it can arrive at its final destination, namely the exchange (NYSE, CME, etc.). Each time the request is forwarded to the next router, that is one hop. The more hops, the longer it takes for your request to go from your trading platform to the exchange.

Now imagine that you have co-located your computer inside the exchange. There are no hops. In fact your computer is probably hard wired to the exchange's execution platform, so your request to enter a position won't be going over the internet at all. Wouldn't that be a huge advantage to getting into and out of a position in seconds...the same seconds it takes for your desktop trading platform request to even arrive at the exchange. And if 70% of trading is now HFT based, that gives them a completely unfair advantage over the day trader, and often (a very long trading day for the smaller investor).

The more you can avoid HFT activities, the better. Night trading has far less HFT interference. You will see that with night trading, technical analysis, your trading system, and your trading strategies perform that much cleaner, without as many strange breakouts in the opposite direction.

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