The markets change. Edges in markets disappear. Trends change. The participants change. The levels of volatility and risk change. As traders we have to adapt to stay in the game. One thing thats affecting the markets right now is HFT algos. Average daily volume has skyrocketed 164 percent since 2005, according to NYSE data. Up to 73 percent of this volume is handled by algorithmic trading programs. These algos might not change the destination but they do change the path.
Think about it. We track volume to see the footprints of larger traders. But with the new algos these guys are executing in fractions and they aren´t just sitting in the orderbook waiting to get hit. Then we have the pure HFT systems that are trading on their own, messing up the volme readings. We might se big volume coming in on a breakout and think we got confirmation when it´s just algos playing for ticks.
So when up to half of all stock market volume consists of these algorithmic trades, I make it my business trying to learn as much as I can on how they operate. I recently read an very interesting article on HFT by the propfirm SMB and yesterday they had a clip on StockTwitsTV talking about it.
SMB University Live with SMB Capital (01/10/10) StockTwits TV
