I think, most of you have heard about High-Frequency Trading or HFT. During the last ten years, it has gained popularity thanks to being high-tech and somewhat mysterious. In this article, we are going to speak about the essence of HFT, its history, its development, its principles and the part it plays on the modern financial markets, as well as about its types and strategies and its perspectives.
The appearance of HFT
In order to understand the events that led to the appearance of HFT, we should know how the trading process worked in the times of the introduction and flourishing of computer technologies in the 1970-80s. In short, the things went on like this:
Sales managers of broker companies sold stocks to their clients by phone.
If the client agreed on the trade, he gave his order orally by phone, again. The noise in the halls and on the platforms quite often was an obstacle to executing the client's order exactly, which was a problem for both sides of the trade. The lack of exactness in trade execution and, hence, unnecessary spendings was one of the first reasons to develop the technology.
A large broker could execute an order on their own or wait for a rather large block of orders to be executed at one price. It was also a problem because for a small client the prices were always worse than for a large one.
Then, exchange experts processed the order. At this stage, those experts closed trades for a fee, manipulating order prices, and added up to the client's expenses.
In the end, the broker notified the client about the execution of the order and charged their commission fee.
At present, the process of broker-client work looks as follows:
The client analyzes the market situation, sends an order (a pending or a market one) via the electronic network, and almost immediately the order gets to the broker's server.
The order executes automatically on the trading platform, which is confirmed — again, automatically.
The broker automatically sends the confirmation of the trade to the client, charging a modest commission fee for their services.
Trading Strategies That Were a Revolution: Three Strategies of Linda Raschke
Author: Igor Sayadov
It is generally accepted that there are much fewer women in trading than men, but this does not mean at all that their influence on the trading establishment is a bit less. In this series of posts we will introduce you to the bright representatives of financial markets, whose activities have not gone unnoticed. And the first one will be Linda Raschke.
Who is Linda Raschke?
Linda Bradford Raschke is a famous and talented trader. She was born in the USA in 1959. She has been trading for over 35 years. For the start, she used to help her father when she was young. Then, she worked at the exchange. And in 1992, she founded her own company LBR Group. In 1993, she extended her horizons and started managing investor money. In 2002, she founded a hedge fund that, according to Barclays Hedge, became the 17th out of 450 active funds.
Mostly, Linda Raschke traded S&P 500 futures and successfully applied her own trading systems on the currency and commodity markets.
As a rule, her positions are short-term, no more than 10-15 minutes. A position holding for up to several weeks is more of an exclusion.
She used to carry out 3-4 trades a day. In 2015, she finished her career as an active trader and took up delivering lectures and organizing workshops for analysts and market makers.
Linda Raschke is the author of several books, such as:
"Street Smarts. High Probability Short-Term Trading Strategies" (co-authored by L.Connors);
The 80-20 trading strategy
This Raschke's strategy does not require any indicator; it is short-term, intraday, based on the idea of the false breakaway of a range.
At the basis of this strategy lies the formation of a specific intraday candlestick. Particularly, a candlestick with a long body and short shadows. If the body takes up 80% or more of the candlestick, while the shadows constitute 20% or less, such a candlestick is considered to signal next day trades. Raschke noticed that, in such a case, a reversal of the market is highly probable the next day. Such a candlestick was named momentum candlestick...
EURUSD has completed the first descending wave along with the correction at 1.1042; right now, it is consolidating around 1.1030. Possibly, the pair may fall towards 1.1031 and then grow to return to 1.1030. If later the price fall and breaks this range to the downside, the market may resume trading downwards to break 1.0998. After that, the instrument may continue moving inside the downtrend with the predicted target at 1.0955.