I happen to like High Frequency Trading even though many in the industry are crying over their split milk. Let me illustrate what happened to me quite recently. I wanted to get a position in ROC. But I did not want to chase the market or over pay. So I do what I have been doing quite successfully for the past year or so, namely let the prices come to me.
Take a good look at what happened to ROC.
On Wednesday they seemed to have bad earnings. The market took them down for the count. And interestingly enough I got in at 15.60. As the price rebounded I was already way deep in making money. In other words while the traders duelled with each other I got my entry at a pretty good price.
This order had been placed for about 2 to 3 weeks ago. But I waited, and waited and waited since I have found more often than not in the past year that you get single chances to set your position. When the order triggered I received a message saying order complete, which stunned me because ROC was stubbornly staying out of my reach. This is not the first time that this has occurred to me, and I know this is new normal of the market and part of it is due to the algo-trading systems.
What has changed with investing is that you cannot be passive. You need to be active. You need to determine an entry point and you need to determine an exit point. In other words you need to set your limit orders. My mother who has before this year never used limit orders is amazed at the success she is having with her portfolio (she is up 90%+). She sets low prices and just waits until the order triggers.
And limit orders are not that difficult. You set them and then forget about them. Every now and then you look and ensure that you still like the order and move on. Thus while many complain about high frequency trading I say, “pour it on folks since you are giving me fantastic opportunities to buy and sell.” In this market you only get a fleeting opportunity, so make use of it!
So might ROC drop again? Maybe, but I have my limit orders ready to take advantage of another opportunity giving to me by the market! But here is the thing, if ROC drops with the market I already have my sell order to ensure that I don’t get hit with a loss, just a small profit.