Journal of Investment Strategies
ISSN:
2047-1246 (online)
Editor-in-chief: Ali Hirsa
On profitability and maximum tolerable latency in the high-frequency trading of a microtrend anomaly
James A. Primbs, Bogdan Mukhametkaliev, B. Ross Barmish and Sean Warnick
Need to know
- Microtrends offer profitable opportunities for zero-latency traders.
- Maximum tolerable latency for profitability is 0-40 microseconds.
- Bid-ask spread crossing impacts profitability in microtrend trading.
- Fast market access is crucial for exploiting microtrend anomalies.
Abstract
Using Nasdaq ITCH data for Dow Jones Industrial Average stocks, we characterize the potential profitability and speed required for the exploitability of a stock trend-length anomaly via a high-frequency trading, microtrend-following strategy. We find that an idealized zero-latency trader could average up to 0.77% per day on an equally weighted portfolio, and more than 3% for specific stocks. However, the results are highly latency sensitive, and by relaxing the zero-latency assumption we calculate the maximum tolerable latency under which the strategy remains profitable to be 14.6 microseconds, on average, for the equally weighted portfolio and generally between 0 and 40 microseconds for individual components.
Copyright Infopro Digital Limited. All rights reserved.
As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (point 2.4), printing is limited to a single copy.
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (clause 2.4), an Authorised User may only make one copy of the materials for their own personal use. You must also comply with the restrictions in clause 2.5.
If you would like to purchase additional rights please email info@risk.net
