High-Frequency Technical Trading: The Importance of Speed

Tinbergen Institute Discussion Paper 12-018/4

63 Pages Posted: 2 Mar 2012  

Martin L. Scholtus

Erasmus University Rotterdam - Erasmus School of Economics - Econometric Institute; Tinbergen Institute

Dick J. C. van Dijk

Erasmus University Rotterdam - Erasmus School of Economics - Econometric Institute; ERIM

Date Written: February 28, 2012

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.

Keywords: technical trading, high-frequency trading, latency costs, trading speed, market activity

JEL Classification: G10, G14, G20

Suggested Citation

Scholtus, Martin L. and van Dijk, Dick J. C., High-Frequency Technical Trading: The Importance of Speed (February 28, 2012). Tinbergen Institute Discussion Paper 12-018/4. Available at SSRN: https://ssrn.com/abstract=2013789 or http://dx.doi.org/10.2139/ssrn.2013789

Martin Laurens Scholtus (Contact Author)

Erasmus University Rotterdam - Erasmus School of Economics - Econometric Institute ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Tinbergen Institute ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Dick J.C. Van Dijk

Erasmus University Rotterdam - Erasmus School of Economics - Econometric Institute

P.O. Box 1738
3000 DR Rotterdam
Netherlands

ERIM ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands
+31 10 408 1263 (Phone)
+31 10 4089162 (Fax)

HOME PAGE: http://people.few.eur.nl/djvandijk

Paper statistics

Downloads
1,139
Rank
13,939
Abstract Views
4,607