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Modern techniques like artificial neural networks (ANN) are best used for high frequency trading for several reasons. First, they mimic human intelligence but they mostly don’t reach a human’s level of intelligence, therefore, there is no point in using those techniques on a time scale at which a human could easily be working. Their advantage comes from speed of operation and constant activity. Second, we need a lot of data to train neural networks efficiently and this amount of data will only be found in high frequency trading. Forex has all in all quite few instruments with limited relevant past data on the daily or weekly time-scale. Furthermore, High frequency trading is a type of scalping strategy where we identify noise around the true value of the instrument. This is different from long-term trading that attempts to follow meaningful movements of the instrument according to fundamental analysis.Artificial Neural networks A good time-scale to work on is the minute time-scale. This time-scale is full of noise which will be captured by the algorithm in order to sell at a local high and buy at a local low. This can be proven using a simple neural network trained to predict the f…
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Efegen avatar
Efegen 16 Apr.

Just a thought. If this system works why don't you use it in larger timeframes. So the costs will be more minimal and deviation will be less?

Victor avatar
Victor 18 Apr.

good one.. nicely written

SpecialFX avatar
SpecialFX 30 Apr.

Another very intriguing and interesting article! :) Regarding your comment about Holy Grail, no need to look for it, because it doesn't exist... well, it does, but that will be for another time... ;)

nippur72 avatar
nippur72 21 Nov.

The reason why you are able to predict "high to high" and not "close to close" IMHO is very simple: when you predict "high to high" you are not forecasting the future, but you are forecasting (partially) the past, since the High(-10 to 0) is a point back in time. It's a common pitfall that I've also experienced myself when experimenting with neural networks. As a rule of thumb, when you see hit rates easily going above 65% there is chance you are doing something wrong, e.g. forecasting the preset or the past.

olga avatar
olga 24 Nov.

You are totally right and strangely enough I had realized this before and I made the mistake again. I also found similar pitfalls when training and testing instances aren't totally separated including the period you gather information on and the period you try to predict when you use cross-validation. It’s very easy to get excited about good results and in this article, it totally happened to me. In conclusion, kudos for pointing out the flaw that destroys any interest lying in this article and I believe more and more that high-frequency trading has no solution.

orto leave comments
You will find a possible UGLY TRUTH of how with some
craftiness one can make practically any trading robot perform with such trading
results to make the best professional traders in the world green with envy.  You will understand why selling trading
robots is a potentially very profitable business. Consequently, you will be able to see
marketing campaigns for trading robots in a new light.
What proof
do we get for trading results of trading robots?
Have you ever seen a marketing promotion for a trading
robot? The promise of trading results (fantastic profits in the shortest period
of time) is head spinning.
Have you ever gone to check the web site in the
promotion? If you have you saw many charts as proof of successful trades. All
those charts could be bogus. This is why buyers of trading robots demand to see
trading results.
So trading robots promoters show trading results from
their DEMO accounts. But those could also be forged. This is why buyers of
trading robots demand to see trading results by logging into the trading
So some trading robot promoters allow you to log into
their account. And some (very few but nevertheless!) allow you to check their
LIVE trading accoun…
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RobertBric avatar

@LinnuxFX. Very often a channel forms overnight, called the Tokyo channel. It is defined by the resistance and support when the Asian market was active. At London open you have many false breakthroughs of those levels. So you need to fade the move. Backtesting and optimization will show you the best times, SL, TP and other parameters.

RobertBric avatar

@LinnuxFX. There is a known tendency for the price to oscillate around a round number (00 or 000 and sometimes even at 50) before breaking through of reversing. Find out a statistical distribution of one or the other, optimise with backtesting and go for it. Scalping, of course. Contest rules probably will not let you do this one, I guess.

kkforex avatar
kkforex 23 May

very well researched article 1+

belman avatar
belman 24 May

Nice article +1

Furian avatar
Furian 26 May

man I should read You regulary. exelent job! +1

orto leave comments
High-frequency trading (HFT) is a new sophisticated type of trading that involves supercomputer power and ultrafast algorithms, which solve the price action and the news-feed in a matter of microseconds. It arises firstly in the stock market, where a lot of algorithmic trading desks exploit the order flow inefficiencies and compete for the bid/ask spread in a broad range of actively traded stocks. In 2010 over 70% of the US equity trading volume is considered to be driven by these algorithmic strategies. But what is the situation in the forex market? Is there anything similar or not? We will discover in this paper that in forex this segment of the active trading participants grow very fast and soon will determine the rules in the whole market! The HFT firms in the forex market operate with small trade size, but very large volume of transactions. The typical period of holding the open position is very short, approximately less than five seconds and often under one second. In the forex market the HFT is a bit slower than in the equity market, because the market is decentralized and the liquidity is aggregated from all over the world, so the speed of light is t…
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ELENA_M avatar
ELENA_M 14 Oct.

enough informative, good style :)

gorozcoh avatar
gorozcoh 11 Nov.

Very interesting your article. I share your dream with respect to the HFT and your good opinion about Dukascopy.

hyperscalper avatar

Do you have strategy code to implement a strategy, which you would share?

hyperscalper avatar

I actually looked for Triangular arbitrage opportunities on the Dukascopy ECN. There ain't any, no surprise !!! :) Has to be done between "uncoupled" exchanges.

hyperscalper avatar

In my own work, I've tried to provide "High Frequency Scalping" to ordinary retail traders, which is NOT the same as classic "brute force" HFT, of course :)

orto leave comments