How High frequency trading is changing Wall Street

Can you imagine that computers process new information in a matter of milliseconds and act accordingly. So whatever you do on a certain news you are alreday too late. They are run by algorithms and they are fast and accurate. Valuations dont matter anymore in Wall Street, it seems market as no day to day memories of price action.

Its all about the price action, just remeber the Flash crash. Because of one algorithm mistake we had significant dropdown in prices. Computers already exit positions when you even process information and make your move. Yes you can participate in the market on long term basis, but what about on intrading day basis.

 What is Wall Street changing to?

Lessons learned - part two

Here is the second part of lessons:

1. Training, training, training - nobody has become professional with a lot of training. This goes for trading as well. You can read hundreds of books but that still doesnt make you a professional trader not even a begginer. Yes books are important but practice is as well.

2. Pattern recognition - in time you will be able to recognize patterns and act in accordance to this patterns.

3. Markets evolve - markets change all the time. You have to learn all the time in order to stay in touch with the markets otherwise time and change will put you out of business.

4. Emotional stability - you be prepared for drawdowns and not become emotional instable. Every path has its ups and downs.

5. Finding your type of market - some markets are more volatile than others, as it goes for the stocks. You must find how much action suits you.

Lessons learned - part one

I want to write about some important lessons i learned recently. I hope it helps you as well.

1. Emotions affects trading - You woulnt believe how much emotion effect trading. If you are in a bad mood this will effect your trading wheater you like it or not. So first clear your head and put in order your emotions.

2. Consecutive losses - even the best traders have experienced a time of consecutive losses. They will impact your trading and your emotions. This will happen more often that you are prepared for. Be ready

3. Too much winnings - will disrupt your emotions. Trader often feel overconfident and cocky. This is the time they are not on the edge all the time and sooner or later mistakes occur. Dont become overconfident if you are have a winnin streak.

4. Position sizing - one way to hurst your trading is position sizing. Too large positions hurt your portfolio and hurt your emotions. This can trigger exaggerated emotional swings in either way.

Using stop losses

Did you know that almost 90 % of all trading is done by automatic trading which is done by computers using algorithms. Only 10 % of trading is manual. All the big firms like Goldman Sacks have algorithms that have an ability to learn when market changes. They are capable of moving stock or ETF in one direction if they wish, because of the funds that they have. Can you imagine all that power?

I noticed in recent moves in the market, that algorithms tend to push index or stock over resistance to trigger stop losses of short sellers. And this happens all the time. Conditions in market have really changed. Do you remember flash crash? Flash crash is obvious example of electronic trading combined with a lot of funds backing up this algorithms. They can do a lot of damage as you can see from flash crash example. There are also examples of resistance broken only to trigger stop loses and then comes back under resistance. This play back and forth is very frustrating for traders. Maybe the best answer is not to put stop loss just above resistance, because of the poped stops.