High frequency algorithms distort tape and graphics setups

On the street they say, that day traders are disappointed. The rules of the game have changed. Most of the most likely charting setups between important levels have become driven by high frequency algorithms.. If you are active intraday trader, reading this, I guarantee, you became a victim of that, what i call screw job program. Let me explain.

The most likely trade for a well-capitalized algorithm is, where emotional order flow is guaranteed. By emotional, I mean order flow, who leave positions, where traders just want to get out – our stop orders.

Consider all the most likely games:

• flags on strong / weak stocks after the move
• consolidation
• support / resistance near important levels

We all trade them. We are increasing the volume, when the game is developing in our favor and we trade them in exactly the same way, when the game is against us. We are exiting the promotion, when we assume, that we are wrong (especially, when we have volume).

Let me give an example of a common screw job program. Share grows after opening, rolls back very little and begins to consolidate near the high of the day in a narrow range for a significant period of time. You can see significant buy-interest on bids, the purchase is clear. The stock has been consolidating for so long, what VWAP and the moving averages are starting to catch up with the price movement. You see tremendous opportunities for “loading ship” with little risk in consolidation, counting on another upward movement.

The stock takes over from the consolidation with volumes and you add to your position. You know, that you are in the driver's seat. Then out of nowhere there is a lot of interest for sale, the bottom of the consolidation breaks through and you are out of the game. Later 15 minutes the action makes new hai, but already without you. Talk about, that became bitten by the market. Sounds familiar?

Review these charts BAX stock to illustrate my above point of view. One shows intraday price movement on a 3 minute chart, while the 15 minute and 60 minute charts give us information on the rising game.

I know, that was a victim of these algorithms at least 30 once last month. But later I began to understand their nonsense and made some adjustments..

1. Increase stop loss in position
2. Trading with a smaller volume while watching a screw job, then adding to the position, when the stock returns above the level.
3. Be quick and calm in your setup, wait for the screw job and then add, while the screw job is in action. Then stay in position while, how the panic subsides.
4. Trade more premarket or after hours, there are very few or no algorithms.

Doctor Brett Steenbarger once told me: turn frustration into opportunity. Following the above steps helped me tremendously. Obviously, that algorithms have a number of certain advantages, but trader, which adapts, will always be ahead. Good luck trading!