4 Strategies for Beating High Frequency Trading
No doubt, when lay people think of the stock market, they think only that you will lose all your money. But, if they were experts in the field, they would only be thinking of the ways in which you can profit from investing in the stock market.
For one, there are companies that have been successful for decades and are household names. Like Procter & Gamble (PG), Johnson & Johnson (JNJ) and General Dynamics (GD). And, these stocks offer a reasonable quarterly dividend.
So, you can build on your wealth. And, a lot of brokerage firms offer DRIPs so you can take your dividend earnings and re-invest in more shares of that stock.
So, investing in a few blue chips stocks with good dividends is a sure way to wealth building. And it’s the value investing, buy-and-hold strategies that will beat High Frequency Trading (HFT).
4 Strategies to Fight HFT
Let’s get right into it:
- 1. Long Term Investing
By investing long term, you’re not allowing HFT to beat you in the short term. And, it’s really hard to beat algorithmic trading when their transactions are too fast for you. And, if you decide day trade or swing trade for short term gains, you’ll have a hard time to beat that kind of system that is rigged against you.
Buy and Hold investing is the only way to go to fight HFT algorithmic trading. It’s just too hard to fight against super computers that will predict your every move.
- 2. Buy The Dip
One secondary strategy would be to take advantage of a dip possibly caused by HFT, because when you try to take advantage of an uptrend, HFT will create a pump and dump scenario and in the short term you’ll lose money. And this is why a buy and hold strategy is better. But, if you can read the charts and see where HFT has created a dip in the stock price, then you can take advantage of the dip if read correctly. This is still somewhat risky because the stock price could still be downtrending.
- 3. Buy Dividend Stocks with a Decent Annual Yield
This strategy actually goes hand-in-hand with number 1. Buy and hold blue chips with great dividend returns, and build your wealth on the quarterly dividends of the stock. This way, even if the stock plummets, you will still have the dividends coming to you.
- 4. Use a Cost Averaging Strategy
Instead of buying a block (100 shares) of stock at one given time, a good strategy is to cost average, or buy 25 shares for each quarter. This way, if the stock is known to plummet during certain times of the year, you’ll be able to take advantage of that and buy at a lower price. As stock prices tend to fluctuate in any given year. Of course, this might not work for stocks uptrending in a given year.
But if a stock has a great dividend yield, it might be beneficial to take advantage of cost averaging if the stock fluctuates greatly.
I hope these strategy ideas help. They are nothing new, but it’s good to commit these strategies to memory when it comes to investing in stocks for wealth building.