Are high frequency traders gaming you?

“The ability to control emotions is everything in trading”.

Days with low volumes show the pice action faked by the machines' activity. How would you define a 15-tick market which is driven for at least five ticks by a number of orders big enough to shift prices up or down in a few minutes, just to immediately reverse the trend and turn it like before?
Traders don't like fake movements. These are the movements that throw them out of the market.
High frequency traders (whoever they are) aim at hitting the stops investors have in place. They send such big orders that the are able to scale the book in a few time, then reverse their positions and earn on the ticks.
How do they do this? And, is this fair?
First of all, it has to be said high frequency traders have been blamed of making use of inside information (having hints on the probable next market move and turning it to their advantage through their ultra fast systems and making – maybe a lot of – money). However, although illegality is everywhere, the reason for their “palmistry” is that they actually “see” before other people, but just a few microseconds before, and are able to exploit this little time thanks to their systems. How? They locate their servers extremely near to the exchanges' servers, the nearer they are, the faster their orders arrive on the book. This particular service (yes it is a service) is called co-location and is provided by exchanges behind a fee payment. You can imagine, this is probably a huge fee. Is this legal? Well, practically speaking, yes. High frequency trading firms rent a space and use it to do their business. Is this fair? SEC and EU regulators are trying to impose international rules on this practice so to make it accessible to whoever has the possibility to afford such a huge spending.

High frequency trading is something that cannot be stopped so easily as “traditional” traders may aim. It's a business that covers at least 70% of US trading volume, pays a lot of money, and make other entities earn money. The rejection of this practice might not be the correct approach. To have evolution, you need ideas. Use your brains in an unconventional way. As a trader said, HFTs are just another challenge traders have to face.
It may take time, but eventually they'll get used to high frequency trading, and may learn how to game it.
Think about.

Originally posted at www.77sigmatrading.com