Algo Trading vs Manual Trading – #9 by jarrettff – General – Trading Q&A by Zerodha

How can one compete with existing trading by Algos and HFT? :

We are talking about trade.

The question relates to the situation of the individual trader in a market where Algo trading (Algo-Driven Software Trading) and HFT (High Frequency Trading) are the current trend and may become the usual way of trading.

The first point is that the market does not differentiate between traders. Everyone has equal opportunities to make or lose money.

Trading in the stock market is like trading in anything else.

You can make a profit when you sell something at a higher price than you bought it for.

It doesn’t matter if it’s stock in a company or just potatoes and onions.

Large traders need large volumes for their trades.

An individual trader can be part of the same market unnoticed.

In other trading areas, individual traders have been competing against top traders for decades now and have been successful.

The example can be seen from retail trade.

We have the example of supermarkets such as BIG Bazar and D-Mart. More and many more in India.

They are in the retail business.
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This is a carefully stocked D-Mart store.

It needs a large number of sales and a large volume of sales to make any kind of profit.

This model is similar to high-frequency trading in the stock market where large volumes are traded with smaller margins frequently.

Now compare it to this little grocery store.
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These stores also do business and earn money regularly.

They have their own advantages.

They know their customers, are located close to them and sometimes sell on credit. People don’t go to supermarkets to buy bread and eggs on a daily basis. This is where these stores have an advantage.

These institutions are similar to a single trader in the stock market.

It operates at low volumes but is still profitable.

An individual trader does not need huge volumes. For his/her trades, decent stock sizes are sufficient.

Like there is enough retail business for big chains and convenience stores to co-exist, there is enough room in the stock market for both the large ALGO/HFT traders as well as the individual trader.

The second point is that there is no need to compete.

Both can be profitable without competing with each other.

And both can lose money.

The risks and rewards of the markets are the same for every type of trader.

We may read ALGO or HFT trading success stories, but believe me, they earn similar profit or loss as a single trader.

The individual trader should blame themselves in the event of a loss, and the algorithm trader should blame the algorithm.

I have known algorithm traders who didn’t make a single rupee profit when the markets gained nearly 20% in the last year.

I have also seen them lose money even while selling NIFTY on a day when NIFTY is down about 100 pips.

They hide behind the excuse that the algorithm does not provide for this or that possibility now.

The individual trader does not have this luxury.

It’s better to admit failure and look for the next trade set up.

to summarize:

HFT / Algo Trading is just another way to trade.

It only works in bulk.

An individual trader can participate in both high volume as well as low volume trades.

The risks, rewards and trade management are similar.

Let’s stay focused.

Our goal in trading is to earn profits through careful trading. It can be done in any way.

Like traveling to a destination by driving a car.
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Which car will take you there?

The largest is HFT.

The smallest is the individual trader.

Both can coexist. Both can succeed.

Trading is about the trader. You don’t have to worry about competitors because they don’t actually compete. They are just travelers with a bigger car.

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