I am especially interested in specific answers or opinions about the following questions:
• Does a day trader equal to a discretionary trader? (excerpt from the article: “Day traders, also known as discretionary traders…”)
• Isn’t it possible to daytrade manually and also automatically by a strategy? I assume both is perfectly possible, the real question might be why the majority of daytraders trade manually (in my interpretation manually means discretionary) instead of automating the process i.e. making it faster and more reliable / less error-prone? (Or I am wrong about that the majority of daytraders trade manually?)
• Could a HFT (High-Frequency Trader) trade manually, or this kind of trading only possible in an automated way? If the latter is the case, which also means that trading profitably in very short terms could be automated, why doesn’t the majority of daytraders also use automated systems?
Last edited by Arpad; December 18th, 2010 at 08:03 AM.
This post has been selected as an answer to the original posters question
• A daytrader is a trader who does not hold any positions overnight, but closes them out prior to the end of the session. Day traders are mostly discretionary traders.
• Day Traders trade for money and excitement. Automation is not an easy process, as some of the elements that impact trading results, cannot easily be coded.
• High frequency trading always refers to algorithmic trading. Algorithmic trading basically has two subsets
- order execution algorithms that execute large buy orders over a specified time period (objective: minimize market impact and execute a customer order against a benchmark such as VWAP)
- high frequency trading
High frequency trading refers to a lower timeframe than scalping. Positions are opened and closed within milliseconds. Even a trader with a nervous finger cannot compete with alogrithms. One of the principal problems of HFT is the question of margin-requirement. High frequency trader typically have sponsored access, that is they by-pass the typical margin checks, because this would slow down their algorithms. Some of them have even unfiltered access. This is dangerous, just imagine that one of the algorithms is flawed and does not stop buying. This can easily cause a limit move or a market, and actually this has already happened several times. Legislation will possibly make high-frequency trading more difficult, as legislators do not see any value added by this practice.
A good introduction to algorithmic trading and the market structure is the book by Barry Johnson: Algorithmic Trading and DMA.
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traders sometimes move from manual to auto beacuse it suits their personallity more - you can be a very good programer or be able to study patterns or setups but not be able to pull the trigger , you may be in a positon and get out to early or too late - computers dont do that - they do what they are programmed to do -
i am moving more and more into automated trading - i believe in it and i think it can last longer, i am not into the millseconds stuff and executions - just inot the setups and sub minute/ minute trading -
I believe you could make an argument that the bulk of HFT trades are far less than 1 second in duration, HFT means automation, it is impossible to do it any other way and it be HFT.
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I think most manual traders use some sort of automation, I consider bracket orders, trail stops, etc as a sort of automation, certainly something like NinjaTrader's ATM's is automation, and I think most Ninja users use ATM's. I've automated every part of my trading except for the decision on the entry. I trade range bars, and enter at the close of a bar, so I see my setups before the current bar ends, because with range bars, I know exactly where the bar is going to close either up or down, so I know the exact entry. When I see a setup which would be triggered by the current bar, I click a button, and my strategy does the rest by putting in my stop limit entry order, moving it accordingly if the projected bar close should change during the progress of the current bar. If the bar closes in the opposite direction, then the intended trade, then the entry order is automatically canceled. If the entry triggers and I am filled, then the NinjaTrader ATM takes over the trade management until the trade closes. So, once I see the setup and decide I want the trade, it's all automated, I can walk away.