Black box and high frequency trading

[Bonniebill]

Hello,
I am completely new to trading and have no previous training. I am interested about trading the stocks and investing because I want to transition out of my career as a massage therapist and invest my money more wisely.

I have been researching a lot about day trading and have met a day trader who claimed to continuously profit an average of $600 a day.

I'm not sure if he has a black box system, but I am also aware that there are a lot of these so called super computers and preprogrammed algortithms that already exist.

My question is if they do how much of an impact does that have on regular retail trader? And how would someone go about creating these high frequency algorithms?

Please help.

 

[J_C_Anderson]

It moslty depends on the timeframes you prefer. If you are swing/mid-term traders, such algos are nothing for you. But you`ve mentioned about daytrading, so it will be important for you to understand how it all works.
First of all you should understand that there are two types of HFTs. First of them just used by large institutional players to operate with large positions. If you know how they operate, you can use it for your benefit.
Other HFTs the knowledge of popular strategies to act against traders with short stops. That is why it is important to be aware of using well-known strategies everyone is speaking about.
The main rule is the following - the longer period you use to hold the position, the less impact HFT will have on your trading. That is why HFTs are mostly dangerous for scalpers.

 

[Panic!]

Other HFTs the knowledge of popular strategies to act against traders with short stops. That is why it is important to be aware of using well-known strategies everyone is speaking about.

Do you have a source for this? I can't imagine large HFT players worrying about retail stops.

 

[J_C_Anderson]

This was mentioned in several articles published by chief traders from prop-trading companies, specializing in daytrading. They call it "getting the passangers out" meaning that large institutional player will create a price spike in the opposite direction to get rid of short term small players with the short stops to get "pure" movement.
My own experience confirms this idea: such things could occur when after relatively long consoliation the price makes a spike down to the nearest support level and then immeiately starts moving up. Unfortunately, I have no screenshots, but I`ve seen such situations. Most of the time they take place after long consolidation and very rare - at the "end" of the well-known and popular patterns.

 

[Panic!]

It just seems really far fetched to me, for a couple of reasons:

1. It assumes that the number of retail traders having stops at the same level (or close enough to it) is large enough that it is worthwhile for institutional players to target.
2. It assumes they have acces to this information. How would they get this? Do they pay brokers to get this, or do they just look at charts and guess where they think retail traders have their stops?
3. It is illegal. Any sort of buying/selling which aims to get the price to a certain level with the attempt to influence the behaviour of other participants is considered market manipulation.