Where is the DJIA Headed?

February 23rd, 2016

There has been lots of talk about a correction in the Dow lately, and not just the talk that’s always buzzing around with the bears.  We’ve definitely seen the DOW lose some steam, but after a solid run of 7000 points this is to be expected.  Yes, it has faltered, and is hanging around a scary 16K level, but is this really a problem?


The way we see it, its still a bull market, just a cautious entry point.  The Dow could drop another 3500 points and we would probably try a bottom fishing approach (depending how quickly it dropped, or if pushed by HFT trading strategies etc).   However, that being said, we don’t really like the Dow here for anything other than a possible range play, and we would seriously consider shorting anything weak on the off chance the Dow breaks downward for a real test.



Is The Big Blue Sea The Place To Be? Stock Symbol: IBM

June 11th, 2015

International Business Machines Corporation
1 New Orchard Road
Armonk, NY 10504
United States – Map
Phone: 914-499-1900
Website: http://www.ibm.com


Back in October of 2014, IBM announced they were restructuring to adapt to the world of cloud computing.  Investors responded by selling it down to 2011 levels.  This wasn’t great for Warren Buffet (who lost around a billion dollars in book value), however those who held and bought another $400 million worth in the 1st quarter of this year:


IBM Chart June 2014

As you can see, IBM pulled back a bit to its pre breakout levels of 165<.  However, because the market did this at the same time, and we are in a “Pushers” market (low volatility means pushers time horizons expand), we are not that worried.  That being said, IBM have been a bit of a headache on the intra day trading side, possibly due to HFT software, so be careful if that’s your game.

Like Buffet, we feel IBM is a good long term hold.  We were buyers when it crossed 165 the first time, and we’d be holders here if we were long.  We expect the stock to hit 180 before it hits 160 and also expect all time highs before 52 week lows.  Of course the overall market with be a major factor, but we feel the same way about it.  Regardless of the fact it probably needs a healthy pullback.

Remember.  A high frequency trading profit, we don’t give advice.  We just point out opportunities.


Trade well my friends.


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Symbol: EBAY. Last Time Ebay Did This It Doubled in Price!

June 2nd, 2015

Whitman Campus
2065 Hamilton Avenue
San Jose, CA 95125
United States
Phone: 408-376-7400
Website: http://www.ebayinc.com

Is Ebay going to $120 per share? Last time it did this it doubled!

With the market reluctantly making new highs, investors are generally being rewarded this year for their fealty.  New highs usually lead to new highs except once every 20 years where nobody cares and volatility drops like it has this year.  It could be simply that not enough poor people have money to

invest, preventing a bubble from forming.  It could also be that HFT trading strategies are so efficient that nobody can move the market anymore.  It could also be because there will be two full moons in July or that everyone is depressed that Justin Beiber is retired.

That being said, we are expecting a moderate pullback in the market “At Some Point” (obviously), so any long term trade should be strong on its own.

For those of you who remember the dot bomb days, you will also remember one of the stars that held up 40 percent of its value (a big deal back then), only to be one of the first to recover and make new highs.  Once the new highs were in, the stock doubled in price.

If you look at the chart below, you will see something similar.

Ebay Daily chart June 2 all time high

  1.  The blue angled trend lines are close to parallel.
  2. The low was not retested
  3. The up angle breakouts are parallel.
  4. The all time high broke and was not really tested (still early)

With the market and the stock at all time highs, we like ebay here.

There are many ways to play it:

  1. Long with a trailing stop loss at double its ATR (Average True Range) or calculated risk reward percentage
  2. Leaps
  3. Buy and hold for trend line.
  4. Buy after trend line breaks and stock recovers
  5. Long term long with 6-11 month put options for coverage.
  6. Pyramid or average cost buying
  7. etc

Again, because the market is finicky right now we would probably be looking to accumulate a position over time, rather than all at once, but we could easily see getting 50% of our position at this point.

Anyway, that’s what we see.  What about you?

Remember.  At HFTProfit.com, we don’t give advice.  We just point out opportunity.

– Happy Trading.


Ebay In The News June 2nd 2015:

The Turtle Follower


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General Dynamics Corp (Stock Symbol: GD) is Pushing Past its 2008 Trading Levels

March 4th, 2014

Our last trading opportunity was CRM, which announced horrible profits, but still managed to hang on to the low 60s. Some of you may have noticed that once again, General Dynamics Corp (Symbol: GD) is now pushing through its all time high in 2008.  Does this mean its time to buy?  Maybe.  Lets take a look.

General Dynamics Stock Chart March 2014


The all time chart shows that this stock is familiar with splits, something most companies do only when they feel the stock will continue higher. This is a good sign.

We also see a compression pattern at $65 that may indicate the catalyst responsible for the current up swing.  We feel the break through the $100 level could warrant another stock split if the stock can maintain strength around the $125 range.

2 Year Chart for General Dynamics Stock (SYM: GD)

2 Year Stock Trading Chart for GD


Here we see a compression pattern at the $85-$90 range followed by a steep breakout.  It looks like there was strong support in the low 60s and $65 level, as well as some tough resitance below $75.   However, the stock has shown legs enough to warrant profit targets to match stop losses at $95, $85, $75, and even $65 (although, we would only use this with shares grouped into time frames.  For example, 300 shares on the daily chart, 200 shares on the weekly, and 100 on the monthly could work).

We of course expect that there will be some very close term shorting, but we do not feel there is a real swing trade on the short side here that makes any sense.

A stop loss at $93 something gives us 20% wiggle room on a stock that has shown the momentum potential to double itself in a 12 month period.


We like the long here, but remember, at HFT trading profit we do not give advice, we merely point out trading opportunities.


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CRM – Could SalesForce.com Double in Price Again?

February 20th, 2014

Since its 4-1 stock split back on April 17th 2013, Salesforce.com (symbol: CRM) has seen a 50% gain in its share price.

salesforce.com, inc. provides enterprise cloud computing solutions to a profusion of different businesses and industries across the globe. Their services include Sales Cloud, a system that facilitates businesses in the expansion of their sales pipelines, closing deals, improving sales productivity, and in gaining business insights; Marketing Cloud for its customers to listen to conversations taking place on public social networks, such as Facebook, Twitter, and blogs; and Salesforce Platform, which enables its customers, independent software vendors, and third-party developers to develop applications in many different programming languages like Java and Ruby. CRM also offers professional services that include consulting, deployment, and training services to its customers that facilitate the adoption of its social and mobile cloud solutions. salesforce.com, inc. sells and markets its services on subscription basis primarily through its direct sales force comprising telemarketing, global consulting firms, systems integrators, and regional partners. The company was founded in 1999 and is headquartered in San Francisco, California.

Salesforce.com, Inc
The Landmark @ One Market
Suite 300
San Francisco, CA 94105
United States – Map
Phone: 415-901-7000
Fax: 415-901-7040
Website: http://www.salesforce.com
Investor Relations: by phone +1-415-536-6250 or by email investor@salesforce.com

CRM 5 year chart

There appears to be support at the $43 level, and after a 50% increase, we would be looking for a pull back before entering, even if it was just at the $55 area.  Because of this, we see any long term play as something that should be accumulated gradually.  We do not see a valid short play on the 5 year chart, although that doesn’t mean there isn’t one.

crm chart bullish 1 year

The 1 year chart shows some trend line support as well as a level at the $52 area.  With a stop loss below $50 we would need and exit above $89 to make a sound trade.  However, there is a potential short if the stock breaks its trendline, but we would prefer to look at a shorter time frame for this, as the stock has been very bullish for some time.

CRM-1 month chart bullish

The 1 Month Chart also seems bullish, and we would be looking here for a sign for a quick short or pullback for long entry if the trendline breaks.  The stock is hitting its all time highs at the same time as the overall market.  However, it has also shown strength in the face of market weakness, which is alway a bullish sign.   That being said, we generally prefer to wait for a pullback before entering or gradually accumulate shares by trading across different time lines.  Eitherway, please know we do not offer advice, we simply point out opportunities that may fit in to your own trading strategies.

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Remarks before Trader Forum 2014 Equity Trading Summit

February 18th, 2014

Remarks before Trader Forum 2014 Equity Trading Summit

Commissioner Kara M. Stein

Grand Hyatt, New York City

Feb. 6, 2014

I am joining you today to speak about something we all care deeply about: our capital markets.  Just a few miles south of here, over two hundred years ago, a collection of traders and financiers came together to lay the foundation for what became the crown jewel of American capitalism.  The Buttonwood Agreement, which led to the formation of the New York Stock Exchange, helped forge a new era of economic growth for a young country, and gave birth to New York City as the world’s financial center.

Since then, the markets have grown quite a bit, and have come to cover nearly every corner of the planet.  Today, global market capitalization is about 64 trillion dollars.[1]  Yet, the capital markets today serve the same purpose they did then: matching businesses in need of capital with investors in need of returns.  That might be the only thing that hasn’t changed since 1792.

As technology has transformed the way people socialize, it has also transformed the way people do business—including trade.  The sounds of equities trading are no longer the frantic cries and gestures of traders on the floor of the New York Stock Exchange, but rather the whir of servers stacked in windowless storage data rooms of non-descript buildings miles outside of the city.  Orders are placed and executed in millionths of a second, taking away direct human interaction, and some argue, human control.

But this evolution was not just driven by advances in technology.  It was driven by competition.  Many of you buy and sell stocks for some of the largest asset managers in the world.  You have to participate in the market on a daily basis.  You are acutely aware of the simple fact that it has always been an advantage to know when a large trader may need to buy or sell a large position before that order is filled.  You have to guard against brokers, and other market participants, from learning of your intentions before your trades are done.  Your execution quality, and your jobs, depend upon it.

The nature of the markets requires that those in the middle, like the old specialists, hold a special position of trust and confidence.  This role requires them to know who wanted to trade and how much.  Unfortunately, too often, they abused their positions.

Over the years, pleas for fairer competition and safer trading spaces for institutional and other investors ultimately led the Commission to adopt Regulation NMS.  The results have been dramatic.  Just a few years ago, the NYSE and Nasdaq dominated the US marketplace.

Today, counting the options markets, there are 16 registered securities exchanges, dozens of so-called “dark pools,” and hundreds of broker-dealer internalizers.[2]

While the birth, and growth, of crossing networks and internalizers had started years earlier, the Commission’s implementation of Regulation NMS seems to have provided the single largest impetus for change.  In 2005, the year Regulation NMS was adopted, nearly 80 percent of all trading volume in NYSE-listed stocks was done on the exchange.[3]  Four years later, that number had fallen to 25 percent.[4]  At the same time, trades executed in dark venues may now comprise over a third of a day’s trading volume.[5]

Clearly, market participants like you wanted competition, and you responded to the brave new world by sending your orders to a multitude of rapidly proliferating trading venues.  Each of these pools of liquidity, whether lit or dark, has come to play a role in the new national market system.  These execution venues compete in a variety of ways.  Of course, exchanges compete for listings.  But execution venues also compete on:

  • quantity and speed of information they provide about their order book;
  • fees;
  • the amount of information they make available;
  • the ways that traders can submit orders; and
  • any number of other variables.

At the same time, traders and trading strategies have evolved.  For over a decade, computers have scanned public information and placed orders based on pre-programed criteria.  While front-running used to occur over periods of minutes, hours, or even days, a well-positioned computer may now be able to process information and place orders in just milliseconds.

What isn’t entirely clear is the impact of all these different variables on the equities market as a whole.  While our capital markets have dramatically changed, we need to make sure that we do not lose sight of perhaps our most important and critical objectives:  robust, fair, and efficient capital markets.

With these objectives in mind, I want to focus you on a few questions that I think we should all be thinking about.

How do we make our equities markets more robust?  Today, we have more stocks available for trading at more venues at tighter spreads than ever before.  That said, volumes have remained largely off their pre-crisis highs, and have also fluctuated dramatically.

Our markets also face significant challenges.   They experience disruptions, including what some have called “mini flash crashes.”  Individual stocks at times gyrate wildly within fractions of a second, only to reset moments later.  One might mistakenly think that these shocks would occur in just thinly traded stocks.  The truth is far from it.  Last October, Walmart’s stock fell 5 percent in one second, with trades being executed in at least a dozen venues, before rebounding.  That followed Google’s mini-crash in April.[6]  These are some of the most heavily traded stocks in the world.  While these sharp movements may wreak havoc on the few unlucky investors with outstanding stop-loss orders, so far, they seem to be generally dismissed as inconvenient computer glitches or unwise traders.

We should not be so easily assuaged.  Rather, we should look at these mini crashes as pieces of a puzzle; symptoms of something larger.  What happens if, instead of a single issuer, the equity that is subject to a crash is a broad index?  On May 6, 2010, we all found out.  The Flash Crash was a seminal event for many of us.  It was a wake-up call to investors, regulators, and policy makers.  In just a few minutes, the markets demonstrated to the world how interconnected, complex, fragile, and fast they may be.  On a day already filled with fears of a European debt crisis, one relatively small, simple event triggered a cascade of steep price declines in interrelated products, traded at multiple venues, overseen by multiple regulators.[7]

One trader’s algorithm combined with selling pressures by high frequency traders and others pushed E-mini futures prices sharply down, which ultimately brought down the SPY, which in turn ultimately brought down individual stocks and ETFs, even as the E-mini futures and SPY were beginning to recover.[8]  When all was said and done, over the course of 20 minutes, 2 billion shares were traded for over 56 billion dollars.[9]  During that same time, 20,000 trades were executed at prices that were more than 60 percent away from their prices at the start of the twenty minutes.[10]  And then, almost as quickly as it started, it was over.  The futures markets reset and then the equities and options markets eventually followed suit.[11]

In the aftermath, we’ve learned quite a bit.  We learned that even the most heavily traded futures and equities products in the world were susceptible to computer-driven crashes.  We learned that the connections between the futures and equities markets were direct enough so that safety features in one market should be coordinated with those in the others.

There can be no doubt now that the markets, and their regulators, need to coordinate.  We learned that the Commission did not have easy access to the data it needed to quickly and effectively analyze and understand the event.  And we learned just how much investors’ confidence may be shaken by dramatic price swings, even if they are quickly corrected.

Clearly, we need to make sure that our markets can withstand computerized trading glitches, whether they arise from a Kansas City-based institutional investor seeking to sell E-mini futures, a wholesale market maker that had a problematic software installation, or a Wall Street bank with a malfunctioning options program.  One trader’s computer system should not be able to bring our capital markets to their knees.  By the same token, if one execution venue’s data system sends out bad data, another venue shouldn’t crash.

There has always been an emphasis on system reliability.  Some have focused on the fact that our trading venues may operate smoothly over 99 percent of the time.  That is obviously important.  But resiliency should also be important.  How do these systems respond when impacted by something that has never happened before.  Our market participants –  traders, venues, clearing firms and others – need to anticipate, and plan reactions to, the unexpected.

Firms with direct access to the markets and execution venues should be required to have detailed procedures for testing their systems to ensure that they don’t cause market failures.  Systems should be reliable, so that anticipated failures are rare.  Testing should be thorough.  Data should be verified.  But systems must also be resilient, so that they can adapt and respond to challenges.  Seamless backup systems should be established.  Firewalls and trading limits should be clearly defined and coordinated across markets.

A comprehensive review of critical market infrastructure, with a focus on points of failure, like the securities information processor, is essential.  The Commission must work with traders, brokers, exchanges, off-exchange execution venues, our fellow regulators, and others to better identify and address areas of risk.  The greatest capital markets in the world should be more than capable of protecting against and minimizing the damage inflicted by a bad trading algorithm, an unexpected stream of data, a hardware failure, or a determined hacker.

How do we make our markets fairer?  The answer often depends on whom you ask.  For retail customers, they receive confirmations that their orders have been filled within seconds.  What most of them don’t know is that their orders likely never went to a stock exchange.  Rather, the orders were probably sold by their broker to a sophisticated trader who paid for the privilege of taking the other side.

These retail customers are ostensibly better off because they got a fraction of a penny in price improvement from the National Best Bid and Offer (“NBBO”) price.  But, is a fraction of a penny per share enough of a price improvement to be meaningful?  Does it matter if the price improvement is measured against a NBBO, which might be stale by the time the trade is executed?  Would retail investors actually be better off if their trades were routed to the public execution venues?  Would that improve the quality of their executions or the value of the NBBO for the entire marketplace?  Some individual transaction costs may be cheaper, but what about others?  What about implied transaction costs?

For institutional traders, the questions get even more complex.  Institutional traders seeking to keep their trading costs low now have to scan dozens of execution venues in search of liquidity, and are increasingly at the mercy of broker-provided, smart order routers to slice, dice, and feed out their orders into the marketplace.  Do these routers send orders to the venues that are most likely to get them filled?  Or do they send the orders to the venues that have the lowest cost for the broker, even if it might not get the order filled, or get the best price?[12]  When will an institutional broker commit capital to take the other side of an order?  Will an institutional investor’s order be seen by third parties, who may trade ahead of it, or otherwise take advantage of that information?  How should a trader measure execution quality?

Unfortunately, these questions are difficult to answer, in large part, due to a lack of available comprehensive data.  The Consolidated Audit Trail (or “CAT”) is intended to help fill that void.  In the meantime, the Commission last fall unveiled the Market Information Data Analytics System (fondly known as “MIDAS”), which is intended to help answer some of these questions.  The MIDAS system captures vast amounts of market data from the consolidated tapes and proprietary data feeds, and has already been used to help study how odd lot trading transparency may impact their use.[13]  MIDAS collects over one billion records a day, and can help the Commission and the public better understand trends and market events.[14]

But we need the deeper information that only the CAT will provide.  And we also need help in getting it up and running as soon as possible.  All market participants should be involved in helping to develop the CAT—it is not, nor should it be, the exclusive province of the Commission and the SROs.  And we must also move quickly.  Until regulators, buy-side traders, brokers, consultants, and the academic community can pore over the data, we simply don’t know what we’re missing.

Another important question we should continuously ask ourselves is how can we make our markets more efficient.  As trading has become more automated, overall execution costs and nominal spreads have narrowed.  However, a growing body of research on datasets, both here and abroad, suggests that some of these potential efficiency gains may be overstated, plateauing, or even reversing.  For example, one study recently found that, when controlling for information asymmetry, increases in market share for dark pools’ non-block trading corresponds with increased market-wide transaction costs.[15]  On the flip side, other studies suggest that dark pool activity may be associated with narrower spreads, greater market depth, and lower volatility.[16]

From a trader’s perspective, is it efficient to have to check dozens of pools of liquidity in order to execute a trade?  What are the costs and benefits of monitoring and accessing these multiple pools?  Does an institutional trader risk tipping off other market participants by just seeking to access these venues?  Finally, does the complexity unnecessarily increase traders’ reliance on brokerage firms or consultants?

Again, good data and careful analysis is critical to answering these questions, which brings me back to the CAT.  We need to get it up and running as soon as possible.

As you may have guessed, I believe we should develop policy from the facts.  We should be gathering as much data as we can, and if we think an alternative approach should be considered, we should test and evaluate it.

For example, we should explore how the maker-taker pricing model impacts liquidity and execution quality.  Does the current rebate system incentivize or penalize investors?  I have heard from many investors, and even exchanges, who are worried about the incentives embedded in the current system, and if there are proposals to explore alternative approaches, we should consider them.  We should try to understand the various order types. Why would one exchange need 80-plus order types?  What is the purpose for each?  How do these order types interact with others, and how do they impact market liquidity and functioning?  We should be willing to re-examine the roles of these order types in the market.

We also need to gather data to better understand the impacts of different types of trading strategies on the markets.  Do high frequency traders add meaningful liquidity to the markets, or not?  Do high frequency trading strategies impact volatility?  If so, how?  We need to look at market maker privileges and burdens.

In each of these areas, we should be driven by the relentless pursuit of more robust, fair, and efficient markets.  And if we can make modest reforms that improve the markets now, we should consider them.

One example might be a tick size pilot.  Some have argued that, for micro and small cap stocks, often penny-wide spreads may be reducing trading profits for brokers so significantly that they are unwilling to provide research coverage and market making services in those stocks.  Supporters argue that widening displayed spreads may restore trading profits for firms, which would incentivize them to enhance research coverage and market making in stocks of micro and small cap issuers.  Others argue that there is likely to be no appreciable connection between the tick size and the amount of research coverage or market making in these issuers.  The Commission would benefit from hearing your thoughts on whether and how a tick pilot program might be helpful in answering a number of questions.  A carefully-constructed tick size pilot program might help inform this debate.  But a poorly-constructed one could easily harm investors and the markets.

I will be working with my fellow Commissioners in considering the merits of proceeding with such a program, and ensuring that if we do proceed, we maximize its utility while minimizing its costs and risks to investors.

I also want to take a moment to assess the role of the self-regulatory organizations.  In a world where trading occurred predominantly on one or two venues, it made sense for those venues to have primary regulatory oversight over trading.  But, in a world where trading occurs in hundreds of places, which are for-profit enterprises, the exchange-based SRO model warrants significant reconsideration.

Does it make sense for firms registered with the SEC as exchanges to bear the bulk of the costs to oversee a market that is much larger than their respective portions?  Who should be determining and enforcing listing standards?  How should we rationalize the discrepancies in regulatory treatment between a dark pool and an exchange, given that they are expected to perform the same generalized function: serving as a place to match buyers and sellers?

And we must better understand and clarify the role of the FINRA, which has taken on more and more regulatory functions.  In recent years, through private contracts, FINRA has come to run many critical market surveillance functions, from monitoring for insider trading, to looking for cross-market manipulations.  While this may be one way to deal with increasing market complexity, it arguably has also created new challenges: including how to effectively oversee a very important, but private regulator.  We need to be thinking about the interactions between FINRA and its customers, other market participants, the Commission, and regulators and participants in related markets.

We at the Commission clearly have a lot of work to do.  Technology and competitive pressures have already moved our markets well past our relatively new regulatory regime.  A short time ago, an executive from a foreign exchange told me that he turns over his entire technology operation every two years.  In a world where a few millionths of a second can mean the difference between a good execution and a bad one, we need to make sure our rule structure and our surveillance apparatus can keep up.  In order for the US to remain the home of the premier capital markets in the world, we must relentlessly strive to keep them the most robust, fair, and efficient in the world.

That will require constant evaluation by both market participants and regulators, working together, in the midst of constant change.  I think we have a Commission that is eager to take on this task.

I know I am, and I hope you will help me.

3 Potential Problems with High Frequency Trading Firms and Their HFT Software Algos

February 3rd, 2014

Trading scenarios posed by Commissioner O’Malia at the May 16, 2013 open meeting during the presentation on Anti-disruptive Practices Authority – Interpretive Guidance and Policy Statement


There is a lot of controversy regarding high frequency trading software, and hft models. Like any new technology, good or bad comes down to how it is used. So what are some frequency complaints about how high frequency trading algos can be misused?

What: A HFT strategy that rapidly sends and cancels the same order many times to create the (false) appearance of liquidity.
How: The real resting market is 7 bid at 9 offer. A high speed strategy sends an 8 offer for the shortest amount of time possible and then cancels it as quickly as possible. If nothing happens, it sends the same offer again and then cancels it. The 8 offer is rapidly offered and canceled so many times that it appears to the world that the real resting market is 7 bid at 8.
Why: Increases chances to make certain trades, in this case trying to sell 9s. If someone sees the 7 bid at 8 market and places an order to buy “at the market” price, they end up paying 9. Additionally, if someone puts in an 8 bid, the strategy stops sending the 8 offers and the new real market is now 8 bid at 9. This is a desirable outcome for anyone who is trying to sell 9s.
Priority Positioning (or Laddering)
What: A HFT strategy for highly liquid markets. Extracts profits from a market by using speed to gain superior positioning. This strategy adds very little or no benefit to (or even harms) the market place, as it seeks to intercept trading that would otherwise take place and extract profits from the system without participating in the transference of risk.
How: A highly liquid futures market is 3 bid at 4. A HFT strategy joins the 3 bid and/or the 4 offer. The high speed strategy may also “ladder” the book with 2 bids, 1 bids, etc. and/or 5 offers, 6 offers, etc. The overall goal of this HFT strategy is to get their bids and/or offers to eventually be at the top of the book (to be first in line), with other market participants on the same bids and/or offers, but behind them in priority.
Why: With a high speed system, a HFT strategy can rest at the top of the book and hope to scalp a profit by buying on the bid and selling on the offer. It can then reload and do this all day long. And, if the strategy makes a trade but it seems unlikely that it will be able to scalp it for a profit, it simply gets out of the trade for a scratch by trading with orders behind it in the queue.
What: A HFT strategy that relies on ultra high speeds to observe a trade take place in the marketplace (that they took no part in), so as to rush and buy or sell the underlying stock or future in front of the anticipated forthcoming hedge orders.
How: The market for some E-mini S&P500 call option is 3 bid at 4, 1000 up. A HFT firm is not on either side of the market but is monitoring it closely. A customer then sends an order to sell 1000 calls at 3 and the trade takes place. The HFT strategy, having nothing to do with this trade, uses its high speed data to observe the trade taking place and races and sells a bunch of E-mini futures in front of any of the call buyers can sell (hedge) any of their required futures.
Why: In addition to front-running the market by selling futures ahead of anticipated hedging sell orders, the HFT strategy will typically simultaneously also place bids in the futures market at a slightly lower price, often resulting in an immediate scalp as the hedging sell orders get filled by the HFT bids at lower prices.

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3 Sectors That Should Be on Your HFT Strategies Watch List

January 21st, 2014

With The S&P flirting with new all time highs, and the Dow Jones 15% above its Oct 2007 high, traders and investors alike may be asking themselves: “what’s the main cause?”  Is it an overall recovery? or is it sector limited?.   Well, the answer is almost always both.  Its rare to have all the sectors expanding and bubbling at the same time.  Instead, when one bubble collapses, another begins to expand.  Depending how many people are in the bubble (for example, the majority of people were in the housing bubble in some way) determines how great an effect the expansion or burst has on the economy.

Although there has been a big push and pull from alternative energy and their products (Tesla anyone?), one of the largest contributors to the recovery of the market has been the medical sector, specifically, biomedical and biotech pharma.

A quick look at the biomedical monthly shows that although this sector is at 52 week highs, it is still far from its all time highs in early 2004.  In fact, it last 2 previous highs were barely 50% of its all time high.  Here at 62.93, we can see that we are 2/3rds of the way to a new all time high (still a long way to go, but looking good).

biomedical sector chart for Jan 2014

On the other hand, the medical drug side of things is about 80% of the way to its all time highs with the previous two highs being 1/3rd, and 2/3rds repectivly.

MEBI Medical drugs 01-21-14

One sector that often does well after a recovery is education.  When the economy improves, both new business and new employment opportunities are created.  Not only are there new skills to be learned, but often, the demand for certain skills continues to fall, others continue to rise.  This means that even the employed are often required to learn new skills, creating a bull market for businesses in the business of education and accreditation.

Below we see an educational index:

School Educational Sector Index Chart

You’ll notice, that unlike the biomedical and pharma charts, the previous two highs are much closer to those on the S&P and Dow.  If we see a new high on the S&P, it only makes sense that the companies that make up this index should see a boon in profits.

Here is a chart of 2 of the leaders we are looking at in the educational sector:

Tal Education Group.  Stock Symbol (XRS)

Tal Education Jan 20th

Tal Education Group (XRS) is above its all time high of 17.80 in 2010, and well on its way up a steep uptrend.  We generally do not take stock that move like this, but the upward momentum and increase in volume has our curiosity peaked.  We will be looking for a pull back, and possibly new highs a lower volume (meaning that the stock is harder to buy).  It may be tough to get it under $20, but if you are not greedy and look at this as a 5-10 year investment stock that you trade in and out of, it could be a valuable addition to one of your high frequency trading strategies.

GP Strategies Corp – Stock Symbol (GPX)

GPX Stock Chart Jan 2014


GP Strategies Corp (NYSE: GPX formerly General Physics Corporation) is a global performance improvement provider of sales and technical training, E-learning solutions, management consulting and engineering services headquartered in Columbia, Maryland.

You’ll notice that there were higher highs from the upward trendline which have now resulted in an upward move in trajectory.  This upward pressure, should breakthrough the triangle without any problem, at which point a new trendline will begin.   We will be watching this one closely hoping it stay nice, safe an predictable.


Remember at high frequency trading profit, we don’t give advice as to long, short, calls or puts.  We simply point out where you may find opportunity in the market.  Do your due diligence and check your risk reward ratio first, and then pull the trigger.



TAL Education Group XRS Scheduled to Post Earnings on Wednesday WKRB News

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A Quick Definition on What High Frequency Trading (HFT) is All About

September 30th, 2013

CFTC Technology Advisory Committee
Sub-Committee on Automated and High Frequency Trading

Working Group 1



• Joan Manley, George Pullen – CFTC
• Sean Castette – Getco LLC
• Colin Clark – NYSE Euronext
• Chris Concannon – Virtu Financial LLC
• Joseph Saluzzi – Themis Trading
• Larry Tabb –Tabb Group
• Greg Wood – Deutsche Bank Securities Inc

Key Points Regarding the HFT Definition

• Utilizes carefully chosen language that has recognized legal interpretation.
• Emphasizes a mechanical description of high frequency trading that is deliberately neutral regarding types of trading strategies and how they interact with the marketplace.
– This recognizes that there are many types of market activity that can be
potentially labeled as HFT.
– This provides the basis for a regulatory definition as opposed to a popular
definition of HFT.
– This allows for inclusion of future practice as well as current practice.
• Utilizes cumulative criteria, so that only a trading system that meets all 4 criteria can be defined as “high frequency”.
• Provides a broad basis for other working groups to build upon.
– A narrower definition of HFT may lead to regulatory arbitrage.

What is the definition of high frequency trading within the context of automated trading systems (ATS)?

Draft Definition, May 2012:

High frequency trading is a form of automated trading that employs:
(a) algorithms for decision making, order initiation, generation, routing, or
execution, for each individual transaction without human direction;
(b) low-latency technology that is designed to minimize response times, including proximity and co-location services;
(c)high speed connections to markets for order entry; and
(d)high ratesof orders or quotes submitted.

However how do you quantify high rates of orders so that the definition is not too broad ?

Draft Definition, October 2012:
High frequency trading is a form of automated trading that employs:

(a)Trading algorithms for decision making, order initiation, generation, routing, or execution, for each individual transaction without human direction;
(b)low-latency technology that is designed to minimize response times, including proximity and co-location services;
(c)high speed connections to markets for order entry; and
(d)recurring high message rates (orders, quotes or cancellations) determined using one or more objective forms of measurement*,
(i) cancel-to-fillratios;
(ii) participant-to-market message ratios; or
(iii) participant-to-market trade volume ratios.

Draft Definition, October 2012 (cont):

High frequency trading is a mechanism utilized by a variety of trading
strategies [including-but not limited to-liquidity provision and statistical

* Objective forms of measurement are determined by a regulator for specific financial
instruments or classes of instruments and provide a benchmark for comparing activity that is
higher than normal. Such benchmarks should be published on a periodic basis and applied for a
specified time period following publication. These measurements should be applied to the
participant responsible for the recurring high message rates.

Rationale for Changes to Part (d)
(d) recurring high message rates (orders, quotes or cancellations) determined using one or
more objective forms of measurement*, including:
(i) cancel-to-fill ratios;
(ii) participant-to-market message ratios; or
(iii) participant-to-market trade volume ratios.

•Extended the definition to cover all messages including cancellations.
•Extended the definition to reflect that activity has to regularly recur to be considered HFT, as opposed to a one-off burst of activity.
•Extended to include how the activity can be quantified into HFT Strategies, although the definition deliberately avoids its own quantification.
• The forms of measurement chosen are intended to allow a regulator to measure activity without
direct access to the trading algorithms employed to generate the high message rates.
• After discussion and some dissent, holding periods and portfolio turnover frequency were deliberately left out of the definition.

What is HFT Flow Chart

High Frequency Trading is a form of Automated Trading

• Automated Trading:

–Covers systems employed in the decision-making, routing and/or execution of an investment or trading decision, which utilizes a range of technologies including software, hardware, and network components to facilitate efficient access to the financial markets via electronic trading platforms.

– It is important to note that the automated trading process can be initiated by
either a human or a machine making the decision which financial instrument
to buy or sell.

• HFT is a subset of Automated Trading:

– All high frequency trading is a component of automated trading.
– Not all automated trading is high frequency.

Overview of HFT Automated Trading Process

An electronic trading platform may be supplied by an exchange or Designated contract markets (DCMs), electronic crossing net
works (ECNs), alternative trading systems (ATS’s), swap execution facilities (SEFs), etc.

Components of Automated Trading:

• Automated Trading Decision
– Initiation of an order for a financial transaction by either a human or a machine.
• Automated Trading System
– A tool used to decide how the orders are executed in the market.
• Automated/Smart Order Routing
– A tool used to decide where and how to route the order (if applicable to market structure).
• Automated Execution
Electronic Trading Platform – the system that matches buyers and sellers, operated by an Exchange/Designated Contract Market, Alternate Trading System, Electronic Crossing Network, Swap Execution Facility, etc.
Automated Matching Rules – instructions for an electronic trading platform on how orders
are to be matched (including order types offering advanced functionality).
Market Data
– A key input into the automated decision making of any automated trading system.
Co-location or Proximity Services (optional)
– The ability to locate close to an electronic trading platform so as to minimize the latency in receiving market data and sending orders.

Automated Trading Systems (ATS)

• Automated Trading Systems utilize computer algorithms that have discretion over one or more of the following:
– The splitting of the order into multiple parts.
– The timing of execution.
– Whether the order adds or removes liquidity.
– The execution price of the order.
– The use of displayed or non-displayed orders.
– Routing strategies that minimize trading fees (if applicable to market structure).

• Automated Trading Systems can be deployed by the buy-side, proprietary trading firms, sell-side broker/dealers, or vendors:
– Buy-side or proprietary trading firms will often couple the decision making regarding what to trade with how to trade it.
– Sell-side firms & vendors providing automated execution systems typically provide an API or GUI for the buy
– side to enter orders.

Automated/Smart Order Routers and Market Data

• Automated/Smart Order Routing (SOR) technology is employed where market fragmentation exists.
– A routing algorithm outlines the rules used to make the routing decision.
– Rules may include routing simultaneous orders to multiple markets or routing orders through several prices levels on a single marketplace.
– Routing decisions are based on exchange, ECN or ATS characteristics such as price, liquidity, speed, fill rates, execution fees and other criteria.

• Electronic market data is pricing information provided by matching
platforms or service providers.

– Market data contains pre
– trade information as well as post
– trade information.
– Feedback loops occur with trading platforms sending acknowledgments of
order executions and cancellations back to the trading firm.
– Supplementary market data is increasingly available in the form of machine-readable news feeds.

Co-location and Proximity Services

• Proximity and co-location services provided by an exchange, broker or
vendor allow automated trading systems to be placed physically closer to
an electronic matching platform:

– Co-location is typically provided by an Exchange/ DCM, Alternate Trading System
or Electronic Crossing Network to allow market participants to host their systems
in the same datacenter as their electronic trading platform.
– Proximity services in a different datacenter are typically provided where co
– location is either unavailable, not practicable, or where one trading systems
needs to trade across multiple matching platforms.– Co-location with an electronic trading platform is an option that may be utilized to minimize network latency between receiving market data, decision making, and order placement.
– This is particularly important where the automated trading system relies on speed for its efficiency.

CFTC Technology Advisory Committee Sub-Committee on Automated and High Frequency Trading-Summary

• High Frequency Trading is a subset of Automated Trading.
• Any definition of HFT should acknowledge that various types of
Automated Trading can exhibit mechanical characteristics of HFT.
• However, for automated trading to be considered HFT it needs to match
the cumulative criteria that comprises the definition, including recurring
high message rates determined using one or more objective forms of
• As per the June 20th TAC meeting, the emphasis of the definition remains
intentionally mechanical and is intended to complement the following:
– Further studies into types of trading strategies that rely on the mechanics of
HFT, and;
– Further studies into abusive practices that should be highlighted through
increased surveillance and prohibited.

HFT in The News

High Frequency Trading Is It A Dark Force Against Ordinary Human Traders And Forbes

High Frequency Trading Is It A Dark Force Against Ordinary Human Traders And Forbes. High Frequency Trading HFT is the use of computer algorithms to rapidly trade stocks. Highly sophisticated proprietary strategies are programmed to move in and out of trades in timeframes as little as fractions of a second. It is a business dominated.…

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Inside Wall Street’s High-Frequency Trading Technology Arms Race. PC Magazine. On a basic level high-frequency traders use a combination of hardware and software to see how much someone else is willing to buy or sell a given security for fractions of a second before their competition does. They can then trade accordingly. It’s.…

Low-latency network switch pushes high-frequency trading limits iT News

Low-latency network switch pushes high-frequency trading limits. iT News. A British company has developed a network switch that runs applications and assembles Ethernet traffic just-in-time for the high-frequency share trading market claiming it reduces latency 25-fold. Argon Design uses the Arista Network X7124 application and more.…

New York’s Attorney General Has Declared War On Cheating High-Frequency Business Insider

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MMM – Why We Like 3M Innovation For High Frequency Trading Strategies

June 19th, 2013


3M Company
3M Center
St Paul, MN 55144
United States
Phone: 651-733-1110
Fax: 651-733-9973
Website: http://www.3m.com

Index Membership: Dow Jones Composite
Dow Industrials
Sector: Conglomerates
Industry: Conglomerates
Employees: 87,677

3M Company is an innovative and diversified technology company that offers products like: Tapes, post its, adhesives, filtration energy control, acoustic systems products, and components used in vehicles. It also has a healthcare segements that offers surgical supplies; skin health and infection prevention, dental and orthodontic, and food safety products; inhalation and transdermal drug delivery systems; and health information systems.

Its business segments include:

  • Health Care segment
  • Industrial and Transportation segment
  • Consumer and Office segment
  • Safety, Security, and Protection Services segment
  • Display and Graphics segment
  • Electro and Communications

What does this mean?  It means 3M is a pretty diversified company.  Investors have known for a long time about the diversity of this stock and how correlated it is to the market.

Although the market is often driven by individual sectors, 3M has been used as a bell weather stock for many years and is showing signs that it still is.

Right now the 3M chart looks as follows:

3m All Time Day Trading Chart

As you can see, MMM is breaking out to new highs after the correction in 2008.  It appears to be lagging the market, however this says to us that it may just be lagging in a specific industry (like bio tech)  We feel that this is a strong indication that the current new bull market may be sustainable.  Of course, we always prefer charts to test their support at least once for confirmation when exuberance is modest.

An Entry on this time frame would leave an investor with a risk reward of close to $20 downside, so this means the profit target would need to be around $150 for a chart like this on the upside.

Now Let’s Look At The 3 Month:

3m 3Month Chart with Hammer Candle

Notice the Hammer candle and support at $108.  This is a clear indication of a reversal in most day trading charting strategies.  With the rise above $112 it could allow intraday traders to take advantage of a daily up swing, as well as algos to increase the buy side of their HFT trading strategies.  We would like to see it strong above $120, but would consider a long here with a stop below $107.37.  This means for the trade to be 2-1 in risk reward (ignore frequency of profitability) we would need a profit target of at least $123.00.  There is also the short potential of shorting below 108 to get out at 104 with a very tight stop loss if the stock begins to falter.

The set up here is by no means magical, but we have always liked 3M as a way to gauge the overall market.  The best way to use these charts is to see how they fit into your other investment strategies (perhaps just as an indicator) and see if you can find a correlation.

Please remember, we do not offer advice, we just point out where there may be opportunity.

Happy Trading.


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