20
years ago, before markets became completely computerized, traders worked off
the floor and markets were slower and less efficient. In those days, intraday
trading systems could take advantage of those inefficiencies to find a
profitable edge. It wasn't easy but it was a lot easier than it is now.
Today,
markets are controlled by computers and algorithms. HFT (high frequency
trading) contributes to at least 40% of market transactions in some markets and
even more in some other markets. Non-HFT algorithms make up a big percentage of
the rest.
And
the dominant players in HFT and algorithmic trading are big hedge funds and
institutions; companies like Goldman Sachs that has huge pools of wealth and
resources. Competing against these financial giants for the most part is
foolhardy.
Teeing
off with Norman
It's
like Howard Bandy once said: "trading against Goldman Sachs is like going
for a round of golf with Greg Norman. You're never going to win so there's no
point in trying." Or something like that.
Consider
also, that there are very few examples of anyone even being able to beat the
market on an intraday timeframe. And even fewer who have been able to do so
with a system.
Still
not convinced?
So
it's clear that intraday trading is not for the faint of heart and I should
know as I spent almost a year trying to time the markets every day in a
professional setting.
Even
for professionals, intraday trading is supremely difficult and expensive. When
I worked as a day trader, we may have had direct access to the market but we
also had to pay £150 a day in desk fees, which very quickly mounts up unless
you are trading very large size.
But
what if you want to ignore these warnings and you're still determined to build
an intraday trading system?
I
can only wish you the best of luck and suggest the following pointers that come
from my own trading experience:
-
Avoid forex, there appear to be more inefficiencies in individual stocks and
futures.
-
Think outside the box. For example, look into social trading, look at the
smaller markets that the banks aren't as interested in.
-
You can override the system. Longer term systems may not benefit from
overriding but there are studies to suggest that humans and machines perform
better when working in unison. In fact, in the short-term, discretionary
trading usually does better than system trading.
-
Conquer the psychological side so as to avoid gambling and emotional stress.
-
Understand how to analyze your system so you know when it's stopped working.
Master
some of those rules and you'll have a much better chance of making money from
an intraday trading system.
