Do companies that do high-frequency and algorithmic trading actually operate in pursuit of complex mathematical strategies or simply technical analysis?

Wicked! Wicked! Little Little Dream's English is too lame, the boss recommended a post to discuss the topic, seeing that there is nutrition so it was cut off, even the original was put up, throwing the cherry.

Do HFT and algorithmic trading firms actually pursue complex mathematical strategies or just simple stuff like technical analysis?

Do companies that do high-frequency and algorithmic trading actually operate in pursuit of complex mathematical strategies or simply technical analysis?

- The original address -

Answerer: Joseph Wang, Ex-VP Quant - Investment Bank of Hong Kong, who is also a member of the board of directors.

Generally, the algorithms that HFT firms are pretty simple. However, there are two catches

• Generally, the algorithms of high-frequency trading companies are simple and flexible, however, this is noteworthy in two places.

1. the important thing is usually not the mathematical complexity but speed. “buy low/sell high” is the algorithm. Simple, except that you want to receive the data, do the calculation and send the order in 10 milliseconds.

• It's usually not the mathematical complexity that matters, but the speed. Buy low/sell high is the calculation rule, simply put, it takes less than 10 milliseconds to process, compute and send orders unless you want to receive data.

2. a lot of the relatively complex mathematics has to do with backtesting. OK. “buy low/sell high” simple. Now run that algorithm over a stock over the last five years so you see how much money you make. Not so simple, but still not too hard. OK, now run that algorithm over all of the stocks in the NYSE so that you can see which stocks that algo works on. OK, now come up with a statistical argument to see that you aren’t really just seeing patterns that aren’t there.

• It's easy to buy low/buy high. Now, over the last five years, run this algorithm on a single stock so you can see how much money you made from it. It's not that simple, but it's still not that hard. Well, run this algorithm on all the stocks on the NYSE now so you can see those stocks where the algorithm works.

So it’s simple, but complex at the same time.

• So it's simple, but also complicated.

The other thing is that “technical analysis” is to “algo trading” what “astrology” is to “astronomy.” The thing that makes algo traders professionals is “backtesting.” A professional algo trader will test their algorithm against old data to see how much their algo would have made, and they use hard numbers to see whether or not they are seeing patterns that aren’t there. Also every professional algo trader I’ve met understand the market microstructure to insane detail so when there is a strategy that works, they can tell you why it works.

• Also, analytics is like astrology is like astronomy. There's also a more professional thing that makes algorithmic traders stand out, which is backtesting. A professional algorithmic trader will test their algorithm program on old data to see how much money they're going to make, and they'll use precise numerical indicators to see if the patterns they're looking for exist.

People that call themselves “technical analysts” are just like people that read horoscopes in the newspapers. They don’t check to see if they made money in the past, and they also don’t think about why “it works.”

• Translated: People always refer to themselves as tech analysts, just like people read the chart of the zodiac in the newspaper, they don't check whether they have made money in the past, and they never think about why it works like this.

The translation level is limited, welcome to discuss~~