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High-Frequency Technical Trading: The Importance of Speed

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Author Info

  • Martin Scholtus

    ()
    (Erasmus University Rotterdam)

  • Dick van Dijk

    ()
    (Erasmus University Rotterdam)

Abstract

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.

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Bibliographic Info

Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 12-018/4.

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Date of creation: 01 Mar 2012
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Handle: RePEc:dgr:uvatin:20120018

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Web page: http://www.tinbergen.nl

Related research

Keywords: Technical Trading; High-Frequency Trading; Latency Costs; Trading Speed; Market Activity;

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References

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Cited by:
  1. Scholtus, Martin & van Dijk, Dick & Frijns, Bart, 2014. "Speed, algorithmic trading, and market quality around macroeconomic news announcements," Journal of Banking & Finance, Elsevier, vol. 38(C), pages 89-105.

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