Microseconds are changing the fortunes of Traders

Concept and origin of algorithmic trading

Algorithmic trading is the use of advanced mathematical concepts along with advanced technological tools to program and automate trading strategies which get initiated on some pre-defined parameters. This genre of trading may have originated way back in late 1990s when the US financial markets became fully electronically executable. But this concept came to light and gained momentum when a team of IBM researchers showcased a research paper in 2001, highlighting the experimental evidence that some algorithmic strategies could consistently outperform human traders.

This research paper sowed seeds for rampant growth of algorithmic trading especially High Frequency Trading (HFT). HFT is a type of algorithmic trading in which trades are carried out for very small time frames, from few seconds to fraction of seconds in some cases. HFT strategies assess and interpret large volumes of data in seconds or less than a second which is beyond the capabilitiesof human traders. It is estimated that by end of 2010, HFT accounted for almost 60-70 percent of total equity volumes in the US, followed by 30-40 percent in Europe and 5-10 percent in Asia. In terms of execution, HFTs have been reduced to as low as microseconds by the end of 2010.

1 Second – 1000 Milliseconds

1 Millisecond – 1000 Microseconds

Algorithmic Trading

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The Wolf of Wall Street – Are penny stocks really profitable?

The Wolf of Wall Street – Are penny stocks really profitable?

Amidst the lavish lifestyle, beautiful women and drugs, the movie ‘The Wolf of Wall Street’ shows us the unadulterated truth about the financial world and at the same time gives us some useful life lessons.

Penny Stocks

Be it a handy tip given by Jordan Belford’s mentor about enticing the client to reinvest, keeping his profit notional, while they the brokers would take home cold hard cash or misusing Steve Madden’s IPO by utilizing rat holes to make illegal profit.

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Use Fundamental Analysis to Select Right Stocks  

Fundamental Analysis is a stock valuation methodology of evaluating securities intrinsic value by examining related economic, financial and other qualitative and quantitative factors. The fundamental data that is analysed not only takes into account the financial information of the company, but also the non-financial information forms a part. The non-financial information includes growth estimates, demand for products, industry comparisons, economy-wide changes, changes in government policies, etc.

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Head & Shoulders: Bear Charms, Bulls Ordeal

Head and Shoulders Chart Pattern

Head and shoulders is the most popular and reliable reversal pattern. The pattern forms by two upswing moves (shoulders) separated by one large upswing move (head). The two upswing moves need not be of same size.

The support line joining previous two swing lows is known as “neckline”. This neckline is critical in the development and confirmation of “head and shoulder” pattern. The neckline can either be horizontal or slanting.

Head and Shoulders Chart Pattern

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Can Markets can remain irrational longer than one can remain solvent?

Even John Maynard Keynes could not have testified that his quote would become so true in the contemporary financial markets. The above quote is as true today as when it was first said over 70 years ago by john Maynard Keynes – who fancied himself an investor in the markets but burnt his fingers on more than one occasion. It all started with his trading bets in currencies like the US dollar and Deutschemark. Given his research on various economies, Keynes had bet on dollar appreciation and deutschmark depreciation. In a short span, his net positions yielded him good profits. However, to his dismay the profits got eroded and his account incurred huge losses when deutschemark began a three month prolonged appreciation rally which eventually gave birth to this quote.

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Price to sales ratio Vs. Price earnings ratio

Market participants frequently talks about Price earnings ratio famously referred as “PE ratio”. However, there are times when Price to sales ratio known as “PS ratio” becomes more important and relevant. Sometimes market is willing to focus on earnings (PE ratio) and other times sales (PS ratio) becomes more important. Here are some key differences between these two ratios/terminologies:

PE Vs PS

Now, readers should have good understanding of these ratios and when to use them. However, readers should understand that without comparing the PE or PS of a company with, say, its history, its sector or the market as a whole, the ratios could be misinterpreted or rendered utterly meaningless.

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