Tracking Algotraders - Part I

Ten years ago, high-frequency trading used to account for only 30% of world stock-market transactions. Today, it represents 65% and, tomorrow, this share will probably exceed 85%. In other words, highly sophisticated robots and a speed beyond human understanding are taking control of the prices of virtually all financial products in the short term.

Not only their intervention is measured in nanoseconds but their financial capacity exceeds by far that of 99% of traders and fund managers. Therefore, the only way to make winning trades is to be able to read their intention and to follow the movement they generate while absolutely sticking to a rule: always be WITH them, never AGAINST them.

It is true that this may seem unfair. And many complain that this is a losing battle ... but continue to trade in the same way…and to lose fortunes in the same way.

The rules have changed today. We are facing an opponent which never panics, has no emotions and which, in the blink of an eye, can analyze order-books of a thousand of different markets and make more than 20,000 instructions with an execution order which takes into account how the executed volume has evolved as well as what has just showed in the order book. This is a completely different world!

Another blink of an eye is sufficient for our adversary to scan the series of all trades executed with the main mathematical models (Markov, Arima etc.) and decide which false trail to give its competitors.

The majority of traders are far from imagining how fast and powerful algorithms have become at executing orders today. One thing is certain:

The glory of technical and chart analysis is now a thing of the past. Traditional patterns (the head-and-shoulder, the ascending triangle, oscillators, moving averages, etc.) no longer offer probabilistic advantages. What is even worse, they are increasingly turning into false leads.

Eliott waves and other Gann angles no longer constitute interesting marks.

In short, the rules have changed and those who do not adapt will daily hand their money over to these war machines. They will keep repeating that there is no logic in markets, that the markets "should" correct, that the euro can only go down or that it's only a matter of time.

I am always astounded to see bankers and managers of major Swiss banks trade like in the good old days, over the phone!

All those who refuse to recognize this fact will lose money:

Today and tomorrow’s trading consists in reading order-books on the very short term…analyzing what is happening in the executed volumes on the bid and on the ask side, detecting the volumes that have not been executed but which have been used to support the strategy of algotraders.

Yes, it is still possible to regularly earn money in trading. You only need and have to build a method which takes into account the different strategies of algotraders. Once you have defined this method, be disciplined and patient enough to apply it strictly!