High-Frequency Technical Trading: The Importance of Speed
February 2012
Research Paper
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This paper investigates the importance of speed for technical trading rule performance for three highly liquid ETFs listed on NASDAQ over the period January 6, 2009 up to September 30, 2009. In addition we examine the characteristics of market activity over the day and within subperiods corresponding to hours, minutes, and seconds. Speed has a clear impact on the return of technical trading rules. For strategies that yield a positive return when they experience no delay, a delay of 200 milliseconds is enough to lower performance significantly. On low volatility days this is already the case for delays larger than 50 milliseconds. In addition, the importance of speed for trading rule performance increases over time. Market activity follows a U-shape over the day with a spike at 10:00AM due to macroeconomic announcements and is characterized by periodic activity within the day, hour, minute, and second.
- G10 : General Financial Markets: General
- G20 : Financial Institutions and Services: General
- G14 : Information and Market Efficiency; Event Studies
- order
- trading
- message
- fl eeting orders
- market
- activity
- period
- speed
- trading rules
- minute
- message activity
- fl ash orders
- trade
- signal
- nasdaq
- level
- orderbook
- 500 ms
- percentage
- number
