The most important rule is to play great defense, not great offense. Everyday I assume every position I have is wrong. I know where my stop risk points are going to be. I do that so I can define my maximum drawdown. Hopefully, I spend the rest of the day enjoying positions that are going in my direction. If they are going against me, then I have a game plan for getting out.
Stock exchanges say that more than half of all trades are now executed by just a handful of high-frequency traders, who use rapid-fire computers to essentially force slower investors to give up profits, then disappear before anyone knows what happened.
The United States has the most sophisticated financial markets in the world, which does not leave much room to maneuver. But it also offers investors the greatest access to information and the ability to execute trades quickly and efficiently. So it is a mixed bag of opportunity.
On the New York Stock Exchange, all buy and sell orders are routed through a single 'specialist,' guaranteeing that most small trades can be matched directly. But most larger trades are delivered to the specialist on the floor of the exchange by human brokers, a system that big investors view as increasingly inefficient.
All of a sudden the market is all about algos and routers.
In financial services, the front end of the world operates at super-high speeds: comparative advantages are measured in fractions of nanoseconds. And yet back end processes - the amount of time you have to wait when you sell a stock before cash hits your account - can take days.
You take the noise and put it in data information knowledge, and you get insight from that knowledge. How to execute the trade, the timing, sizing, long, short, and then you risk manage it.
Another misconception is that an order is canceled when you hit 'cancel' on your computer. But, the fact is it's canceled only when the market gets the cancellation.
