Frenetic Trading
March 13, 2012 - Technical Trading
How fast must traders move to operate efficiently in the high-frequency arena? In their February 2012 paper entitled “High-Frequency Technical Trading: The Importance of Speed”, Martin Scholtus and Dick van Dijk investigate execution speed sensitivity of technical trading rule performance for three highly liquid exchange-traded funds (ETF). They consider 27,424 variations of five price-based and two volume-based types of trading rules: moving average; filter; support and resistance; channel break-outs; price momentum; on-balance volume average; and, volume momentum. The baseline analysis constructs new signals every 60 seconds. They measure impact of eight execution delays (10, 20, 50, 100, 200, 500 and 1,000 milliseconds) on profitability relative to instantaneous execution. Trading frictions include bid-ask spread and impact of trading, but not transaction fees. They also measure typical levels of market activity over intervals of one day, one hour, one minute and one second. Using complete order information for SPY, QQQQ and IWM with millisecond timestamp accuracy during normal trading hours for January-September 2009, they find that: Keep Reading