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If you google High Frequency Trading (HFT), you will find a few definitions. One is that big traders use high powered computers to gain advantages that retail guys like you and me do not have. I have a 2 year old computer, which is 10 thousand miles away from being high powered.

Another definition is that HFT is a scam since it uses flash orders to have hidden bids or asks exposed. If this is true, then this is a huge loophole in our system.

HFT gained its notoriety in 2008 because it was wildly successful.  But for retail foxes like you and me (look at the stock market as a jungle. Mutual funds are elpehants or lions. You and I are foxes and there are a lot of other creatures between them and us.), we certainly do not have a super computer. But we are super nimble. Thus we can have our own version of HFT.

All traders are hunters including foxes.  We hunt things that are smaller than us. But we are being hunted at the same time. By employing HFT and our nimbleness, we could rapidly get out of harm’s way and yet still have a good chance to catch our prey.  Here are  the main characteristics of HFT.

1. Very high frequency of order executions
2. Pounce on every possible moving target you perceive as your prey.
3. Run for your life the first moment the prey smells like your predator.

HFT is a strategy.  To implement your strategy, you need to have some tactics that are suitable for HFT. I recommend tape reading. Your HFT tactics should be as simple as possible. If you are using more than 3 indictors at the same time, you will have a hard time implementing this strategy because they will confuse the living thing out of you.

 
One very important point to bear in mind is that you do not have time to think in HFT. Your thinking is done when you are not trading. After a lot of practice and zillions of trades (exaggerated), it becomes an instinct.

One shortcoming of HFT is that it will rack up your commission as we can see from my monthly report in Dec 2007 below.  The commssion for that month was about 1500. But again, $6986.11 was the net profit for that month. Some people are worried about commissions.  It is understandable if all the money you make goes to your broker.  However, if your system brings home a net monthly profit of 5000 and also generates 5001 in commission, you would not stop trading just because your broker is making so much by piggybacking your hard work, right?

Click on the image to have a better view

As we can see from the report above, I took a total of 424 round trip trades that month, 271 longs and 153 shorts. The profit for that month is $6986.11,  $3459.11 from the long side and $3527 from the short side. The profit factor was 1.41, meaning that for every dollar I lost, I made 1.41 dollars.

One reason that I adopted high frequency trading is to minimize draw-downs. The other is to make the best use of my money because I was running a tiny account of 50k and I never used leverage.

I had that kind of performance throughout 2007 until I hit a big snag in Jan, 2008 and lost my touch/mojo/instinct ever since. My trading is not fundamentally flawed. However there were a few small issues I needed to fix. That is why I reduced my trading to very small positions.

I had a flat year in 2008.  But looking at the performance of my 2009, I think I am on the right track to restore my instinct.  It is a lot of work, tenacity and time.  As you can see in my case, the gap would be 2 years if I could manage a come-back in 2010. Or maybe I will need another year.

Foxes might be tiny. But they can be mean too…