How does High Frequency Trading Affect Forex Price Action Traders?

High frequency trading is the use of sophisticated computers and technical systems to place trades on markets including the Forex markets. High frequency systems are able to trade many positions at speeds far superior to that of a human or retail trader.

High frequency trading is only a small percentage of the Forex liquidity at the present time however the volume of contracts being traded is increasing all the time. The mathematic equations that go into forming the high frequency trading systems allow the system to trade many different positions and profit by very small moves in the market.

Trade times with high frequency trading are normally anywhere from seconds to minutes. Because the whole system is based on mathematical probabilities the trades are placed with no thought to other information including the fundamentals or Support and Resistance.

The effects of high frequency trading are very real and as volume of high frequency trading increases so will the effect on the market. The main threat of high frequency trades is to retail Traders trying to trade with the small time frames. Because high frequency trading is extremely quick, the systems can be in and out of a trade before a retail Trader has even made up their mind whether to place a trade. If the retail Trader does enter the trade, they face risking being whip sawed out by the high frequency system trading large volumes and exiting in the blink of an eye.

The Traders, who trade solid and obvious price action setups of a 4 hour time frame and above, are much less likely to be affected by high frequency trading as the small and quick moves that occur will not be substantial moves compared to the smaller time frames such as 5 and 10 minute charts.

The answer to combat the threat that is high frequency trading is to:- 

1. Find a solid method to trade the market such as Price Action trading,

2. Trade longer term time frames such as daily and weekly charts,

3. Exercise solid money management techniques to never over capitalise on any one trade.


Finding a solid method such as Price Action to trade

Trading with a solid Price Action method will give a Trader a much higher chance of success in the Forex markets. Price Action gives Traders obvious hints as to which way the market wants to go. Learning and perfecting the art that is Price Action trading is learning a method that has stood the test of time. Many other Forex systems and fads become unprofitable as markets change. Reading charts and trading with Price Action will always be around as long as Traders have access to charts!


Trade longer term time frames such as daily and weekly charts

High frequency Traders profit by trading extremely small and quick moves. These moves tend to be highly erratic and fast but only normally equate to no more than 10 pips. If Traders are trading small time frames such as 5 and 10 minute they are likely to be whipsawed out due to being on the wrong side of these quick moves.

Trading longer time frames preferably on the daily chart and above allows Traders to block out all the market noise. Whilst Traders on the small time frame charts are being knocked out, the Traders on the longer timeframes don’t even notice the moves high frequency trading creates.

High frequency trading does not create large moves that will continue and form trends. The Traders that trade with the overall daily trend in their favour on longer timeframes will not even notice the effect of high frequency trading let alone be whip sawed out by the tiny moves it creates.


Exercise solid Money Management techniques to never over capitalise on any one trade.

No trade is ever guaranteed to be a winning trade. No matter how good the setups are we never know until it is completed, whether it is a winner or a loser. We must never risk too much on any one trade. Even though a trade may look like an A++ trade risking more than what is in our plan is a sure fire way to blow an account.

Sometimes taking on too much risk can work out for us. It’s the same as gambling. Sometimes you win big, but eventually risking too much and trading without a solid Money Management plan will come back haunt us!

Trading Forex is not gambling. The professional Traders are the Traders that treat Forex like the business that it is.

I hope you have enjoyed this article. For more information on anything forex or Price Action trading please visit: Forex School Online.

Safe trading,

Johnathon