Most real electronic trading firms are putting those algorithms in hardware.
Source: Have worked in HFT the past 10 years.
His point was trying to bet against a momentum trade or some other scenario was foolish. He watched time and again. There were opportunities to get with the crowd, or be on the wrong side.
A friend who works in quant finance said something along the lines of "if a trader can identify a mom-and-pop investor, it's like taking candy from a baby" in terms of making an easy profit.
Sure HFT guys are faster than you to get short term signals and make money on the micro scale - but even ignoring that way too many people are thinking they're beating the market and they really really aren't.
But that's a great point that any kind of active trading strategy needs to be compared against the right index. I think this holds true for pension/sovereign funds which invest in multiple hedge funds as well - comparing to the overall market performance may be less relevant than comparing to sector-weighted market performance, for example.
OT question: how would I get into acquiring market data to try my own backtesting strategies ? Is there anyway to "get in" without putting up $5k + for the data ? I'm not green to this, I worked at a prop shop for a year writing market feed handlers. I know the dangers of overfitting data and how hard it is to make money (so I'm not deluded by a fantasy). I want to start out just for fun doing backtesting and see if I can scrape out a (paper) profit, but accessing historical data seems to be the hard part. I dont think online services that offer this would work for me because I want to use intraday data and replay many times with different parameters. I want access to "the whole firehose" if you will.
Some exchanges offer free historical data, for instance BM&F BOVESPA[2], trading in some markets (such as Brasil and China) is often difficult if you are a foreigner.
[2] http://www.bmfbovespa.com.br/en_us/services/market-data/hist...
SHUT UP AND TAKE MY MONEY!
This is not about High Frequency Trading, but about machine learning applied to the stock market.
What do you think their 100k cpu jobs are doing? Machine learning and quantative analysis, what else?
This is not about exploiting a privileged access to market conditions (as in the sub millisecond access HFT firms have) in order to gain an advantage.
This is about using machine learning to predict future (as in hours/days) moves on the market and take advantage of them.
Speed is nice, but smarts are better. "Machine Learning" is the new buzzword for a way to mathematically deducing future outcomes based on data science and quantitative analysis. That is a grotesque simplifications and there are specific ways of approaching this (Tensorflow/Keras from Google, Torch from Facebook, etc). This could be nanoseconds in the futures, it could be hours, or even weeks / months. And this is the part you're failing to understand by trying to assume (incorrectly) that all HFT is made up of is bid sniping and latency arbitrage (often referred to as front running). It isn't really that privileged access if you yourself can pay any exchange, such as NYSE, for a feed to your house.
TL;DNR: Your understanding of electronic / HFT trading is wrong. If you try to understand it first, you'll realize your statements bear absolutely no basis whatsoever in facts. Facts are that Electronic Trading firms have been using machine learning literally since the invention of machine learning and quantitative analysis to make money. A new firm trying to do this can simply join the club.
Electronic trading as opposed to what?
And even if I call my broker, and he clicks somewhere to enter the order, it's still executed by some HFT agent somewhere. And the same applies to low frequency strategies, I guess (why bother with the execution details, just use a broker).
TL;DNR: You keep ignoring both the point of the comments and the point of the TFA. This is about market prediction, not technical exploitation of a privileged access to market.
anyone can buy co-located rack space.
If you buy a co-located rack space you are using a PRIVILEGED CONNECTION to the market that and taking advantage of that using some algorithm: That's High Frequency Trading.
The all point of TFA and the comments was the OPPOSITE: To be in a NON PRIVILEGED position (as in, the same access time to market transactions as the median of the access time to market of EVERYONE ELSE) and to use machine learning to predict market moves in a long enough term so that the market access time was irrelevant.
Do you understand the complete difference between the two scenarios now?