The bison is near extinct as a species because a new predator moved into its living space. The bison herds had no way to adapt fast enough to avoid near extinction.
Ordinary securities traders are, as a result of high frequency traders, in the same shape the bison herds were in when the white man started killing them off. I am including hedge funds and anyone else who trades and doesn’t hold securities long term.
High frequency traders may or may not be profitable themselves but cause losses to others by distorting the market in ways that have nothing to do with supply and demand.
High frequency traders have several advantages in their operations. Firstly they are above the law in every sense of the word. They do not have to obey laws that regular traders are subject to. Their persuasive powers are enormous. They have the vast majority believing their activities are innocuous and no effect on securities prices.
Traders could adapt and the high frequency would have no advantage at all. So, why do traders fail to adapt? Mostly, they are stupid. The time honored sacrament of placing stops is a guarantee of losing money, especially where short sales are concerned. A trader is short, so he covers immediately when the short goes against him. Good money management you say? High frequency trading algorithms game the time honored technical analysis dogma. There is no money to be made trading this way in the current area.
The answer for the individual is to lengthen the time frame he trades in, and to trade without stops. It is generally considered un-trader like to holler foul. Never mind the stigma of being called a wimp. Besides, nothing needs to be said.
One time a professional poker player said, he just doesn’t play in a game if the thinks someone is cheating. He finds another game. He knows there is no way to win if other player can manipulate the outcome of the game. Change games by working in a different time frame and lose the now outdated technical analysis dogma.
I am short a portfolio of stocks because I think a big play is coming to the downside. I could be wrong and if I am I will get the loss I deserve. But, I do have a chance to make a profit as does a bull who takes the opposite side. There is no point in using an approach that makes gains impossible by virtue of serving a food for a predator.