Reflexivity in quant analytics and high frequency trading HFT
what do you guys think about the impact of HFT on market behaviour? the fact that more and smarter players are coming, how does it affect the opportunty to capture alpha. Will the opportunity vanish or shift towards a different area (longer term biais, or increase in jumps..)
This field always drw smart people. I think the participants are changing and the rules are changing. There is going to be room always for both art as well as science in this field. After all it seems many hedge funds with lots of smart people and technology are not doing so well
I strongly believe that HFT and LFT (low frequency players) can co-exist. My latest research supports that conclusion: http://bit.ly/ws9IuM , I fully agree with you!
If you trade on short time scales you don’t necessarily impact on larger scales. Hence it is obvious that HFT and LFT can coexist. However though, HFT will generally eat into the execution performance of LFT by front-running them. Thus LFT’s will pay more in execution. In order to avoid that, while hunting LF-alpha, LFT’s need to enter and exit positions by employing HFT-strats themselves.
All new market fads, eventually lead to their own downfall, before the more successful users and innovators of that fad start to prosper and it has its place in the world it exists. – This is true of many aspects of trading, forecast methods, trading systems, trends in markets. – E.g. Technical Analysis had its first wave as a fad in the early part of last century, then when everyone was doing it, it started to fail in reliability. Then it went out of fashion for a number of years, though certain innovators such as Gann, Elliott and others started to practice it in new ways, while other started to perfect the original. – Trading systems have had many cycles ibcluding Black boxes, Programmed Trading, CTA’s, Algos, HFT to name but a few, they will always have their place in one form or another, but at a certain time, each one, or the most comon ones will sufferr reflexivity. – IT and telecoms suffered reflexivity, as did Collatorlized mortgage debt, and currently sov debt….