Rules for High Frequency Trading

Earlier today we saw a tweet from Kas referencing some trading rules originally from William Eng. We think they are very sensible rules for individual traders to follow, but it struck us as interesting just how many of the rules go completely opposite to the logic of successful algorithmic trading strategies. There was some overlap. There is also some debate as to whether algorithms have emotions and thus can have a “human-side”. Nevertheless, we felt the need to update the rules for high frequency traders just a bit:

Modifying the rules a bit for HFT

Modifying the rules a bit for HFT

Most HFT strategies have a small edge, e.g. the probability of success of each trade might be 53%. In that situation there is one way to make money: trade constantly. If you are not getting enough trades you need to make adjustments to get more trades even if that means taking slightly lower probability trades. In a zero sum game, you should make break-even trades just so your competition can’t. Plus you will look like a hero to the exchange. Volume TALKS.

edit: this post is rooted in jest but mostly reflects reality at a lot of algo desks

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