“My query is on HFT…I read an article via a link on your site recently that advises the best way to deal with HFT is not to place automatic stops since they can be taken out by sharp millisecond price changes. Conversely, if this is true, shouldn't it be advised to place automatic limits high above (or limits below when shorting) to cash in on these spikes?
“Also, are HFT spikes visible on weekly charts or is the sensitivity too low at this scale?
“All the Best,
Eoin Treacy's view Thank you for this interesting question which may be of interest to other subscribers. David posted a highly informative report on HFT in Comment of the Day on July 27th which is also relevant.
Intraday volatility has without doubt increased in the types of liquid vehicles HFT traders are most active in. This poses an additional challenge for intraday and other short-term traders. As you point out this intraday volatility will become much less observable on a weekly chart. Placing limit sell orders well above market and/or purchase orders well below the market is a viable strategy in the event that the May 6 th 2010 fiasco is repeated.
From a personal perspective, I now tend to use stops less and have adjusted by position size to cater to increased volatility.