How To Build An Intraday Trading System

20 years ago, before markets became completely computerised, traders worked off the floor and markets were slower and less efficient. In those days, intraday trading systems could take advantage of those inefficiencies to find a profitable edge. It wasn't easy but it was a lot easier than it is now.

Today, markets are controlled by computers and algorithms. HFT (high frequency trading) contributes to at least 40% of market transactions in some markets and even more in some other markets. Non-HFT algorithms make up a big percentage of the rest.

And the dominant players in HFT and algorithmic trading are big hedge funds and institutions; companies like Goldman Sachs that have huge pools of wealth and resources. Competing against these financial giants for the most part is foolhardy.

Teeing off with Norman

It's like Howard Bandy once said: "trading against Goldman Sachs is like going for a round of golf with Greg Norman. You're never going to win so there's no point in trying." Or something like that.

Consider also, that there are very few examples of anyone even being able to beat the market on an intraday timeframe. And even fewer who have been able to do so with a system.

Still not convinced?

So it's clear that intraday trading is not for the faint of heart and I should know as I spent almost a year trying to time the markets every day in a professional setting.

Even for professionals, intraday trading is supremely difficult and expensive. When I worked as a day trader, we may have had direct access to the market but we also had to pay £150 a day in desk fees, which very quickly mounts up unless you are trading very large size.

But what if you want to ignore these warnings and you're still determined to build an intraday trading system?

I can only wish you the best of luck and suggest the following pointers that come from my own trading experience:

- Avoid forex, there appear to be more inefficiencies in individual stocks and futures.

- Think outside the box. For example, look into social trading, look at the smaller markets that the banks aren't as interested in.

- You can override the system. Longer term systems may not benefit from overriding but there are studies to suggest that humans and machines perform better when working in unison. In fact, in the short-term, discretionary trading usually does better than system trading.

- Conquer the psychological side so as to avoid gambling and emotional stress.

- Understand how to analyse your system so you know when it's stopped working.

Master some of those rules and you'll have a much better chance of making money from an intraday trading system.

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