How to make money from trading?
Everybody knows the quotation which says, “95% of traders lose money in the long term”. But this is wrong, the correct quotation according to Andrei Kirilenko’s research paper is, “99% of traders lose money in the long term”.
The strategy, for retail traders on how to make money in the long term, can be defined in four steps:
- Determining the categories of traders in your market.
- Determining which category of traders is controlling your market every day.
- Studying the traders who control your market by gathering all information about them.
- Trying to identify and follow this category of traders in the order book of the market.
Indeed, it’s quite hard to achieve these steps, yet it is not impossible. if you want to be with the 1% of traders who can make money in any market in the long term, you need to apply the steps mentioned above.
Part 3, on the other hand, will be focused on High Frequency trading, especially aggressive HFTs.
Who are the aggressive HFTs that consistently make profits trading the E-mini?
The first thing which comes to your mind, when you hear the term “high frequency trading” is multibillion firms. Thus, it is logically impossible to win against them.
What is High frequency trading?
HFT is a type of algorithmic trading that uses an automated platform with a supercomputer to trade a very large number of orders at Nano-second speed level.
HFT can analyze the order flow of multiple markets with different exchanges in real time all over the world.
HFTs – compared to floor traders- are the quickest traders to access markets and make trades.
Shall we focus on aggressive HFTs that control the E-mini S&P 500?
Here are some points revealed by Andrei Kirilenko in some of his research papers:
- Aggressive HFTs generate profits in the short and medium run from all the traders in the market.
- Aggressive HFTs are liquidity takers, meaning that they use most of the time markets orders to enter and exit the market.
- Aggressive HFTs make profits by identifying patterns in the order flow; which allows them to anticipate and take action before other traders.
In order to make profits from the markets, we must identify the order flow of those aggressive HFTs in the order book and follow them.
It sounds simple, but in reality it is very hard, though not impossible.
In the next part of this article on how to make money trading, I will show you what you need to identify the order flow of Aggressive HFTs. (click here)
What do you think about the High Frequency Traders? Write your opinion in the comment section.