If you trade throughout the day then more likely than not an HFT program has cost you money.  They create volatility at will and to their own advantage. 

 

But once you monitor for them, you can turn the volatility they create to your advantage.

 

Price behaviors caused by HFT's are predictable and have repeating patterns.

 

By monitoring for program bursts and their size, you can then trade with or against the price spike caused by the program and take advantage of a price swing that otherwise may have confused your perception of the trend.

 

On SPY for example, a typical 125 share algo spike identified by HFT Alert  (shown on the left) will move price .20 to .30 cents.  A  200 share algo spike will move price .40 to .50 cents and have enough strength to push through a support or resistance level.

 

When a large HFT program hits, price moves are generated within the very first instant of the program.  A .20 cent move occurs virtually instantly because the HFT has swept all limit orders over a range in price, typically .20-.25 cents.  Two sequential  HFT bursts can move price .40-.50 cents, sweeping all limits through that range instantly.

 

The typical 125 share HFT spike that moved SPY .20 cents reverses at least half the move within the next few price bars (1 minute timescale), so you can fade these moves.  These bars reverse because there are no more limit orders in the price range of the spike, so there's a price vacuum and without buying pressure, price will always fall back into the range.

 

The typical 200+ share algo spike moves price .40-.50 cents and can break support and resistance levels.

Some Basics

 

HFT's

 

All HFT's are algorithmic trading systems but not all algos are HFT's.  They each affect price differently.  HFT Alert will enable you to distinguish between the two and take advantage of the type of price swing each generates.

 

HFT’s are collocated at the exchange.  They get the prices before anyone else does.  Through a process called quote stuffing, they can slow the tape, furthering their time advantage. 

 

HFT’s are typically market making algorithms, so by definition they are not position traders.  These systems front run the tape and create a spread through latency.  You often see these systems turn on at lows and highs rather than in the middle of price ranges.  They don't care where price may go in the future, they are more interested in running price through a range of prices triggering as many limit orders as there are in that range.  The more there is potential volume at a level, the more likely you'll see HFT's strike at those levels.

 

HFT's are identified as a 150+ share spike accompanied by quote rates in excess of 450 stocks (shown at right).

 

Large price swings caused by HFT's as described here typically reverse half the move within the next few minutes following the spike.

 

Large HFT spikes often define the low and high of the day.

 

The last hour of any trading day is dominated by HFT programs.  Once you spend some time watching them, you'll discover the last hour might very well be the best time to take advantage of price behaviors using HFT Alert.

 

 

 

 

 

 

 

Algorithmic Trading Systems:

 

Unlike HFT's, Algos are typically position traders.  Just about any strategy you can imagine or have ever used can be programmed into a computer to execute.  Does this guarantee profits?  No, it guarantees that the trade executions will be carried out and not be subject to a human's second guessing.

 

Most algos trade very simple strategies and for very small profits when focused on SPY or other high volume ETF’s.  These systems trade for pennies and trade repeatedly throughout the day to accumulate profits.

 

Range trading algos also utilize simplistic strategies.  Best visualized on 1 minute time periods,  these algos buy into lows and sell into highs for the most recent range viewed on a 1 minute timescale.

 

On HFT Alert, any spike below 100 shares on the upper graph (green) accompanied with a spike less than 450 shares on the lower graph (yellow) is an algo trading system and not an HFT.

 

Spike identified as algos will be contained by support and resistance levels and do not have enough power to break through to new price levels.

 

By monitoring the price levels where these spike occur, you can track whether they're buying or selling at various levels during the day. 

 

Very large algo spikes, above 300 stocks and quote rates below 450 are evidence of large institutional buy or sell programs.