One exciting opportunity popped up while I’m in Dublin next week. Best of all, it’s free and open to the public. If you’re in the neighborhood and would like to discuss trading in person, I’d love to meet you.

Trinity College Dublin invited me to present a graduate level seminar to MSc students in Finance and Alternative Investments on Wednesday, February 8, at 6 pm. The seminar will be hosted in the MBA room, which is on the second floor of the business school. The topic will be high frequency market making in forex.

Topics for the high frequency forex trading seminar (about 10 minutes per subject):

• Market making versus price taking
• Comparing frequency to expectation. The more you trade, the more you make
• Liquidity risks and self-feedback loops
• Technical approaches and limitations

The major automated trading platforms such as MetaTrader 4, NinjaTrader and TradeStation all count time in the same way. This makes it quite convenient for ordering trading strategies and expert advisors; you don’t have to do any mental gymnastics to describe the strategy in different platforms. The consistent arrangement of time makes it easy for us to translate trading strategies across multiple platforms.

We tend to think of time as moving in the same direction as when we read. English speakers, who read from left to right, think of time as moving the same direction. If you speak a language like Arabic that reads right to left, you tend to think of time as marching to the left.

All of these charting platforms are written by speakers of left to right languages. The past is anything that’s not on the far right side. The present is the square on the far right. Each square represents an equal time interval. Traders know these as bars.

A visual display of time and how it's segmented

What tends to confuse everyone ordering expert advisors is that even though time marches to the right, trading programmers count the bars to the left. What makes things more confusing is that programmers always start counting from 0 instead of 1.

Even though time moves to the right, we count it from the right and move back left

If you want to trade a moving average cross strategy that waits for the bars to close, what you’re looking at is “bar 2″ and “bar 1″. The way I describe this in the scope of work is the value at two closed bars ago and the value at the last closed bar, respectively.

An expert advisor that uses closed bars ignores bar 0 because it is still open, which causes the moving average values to fluctuate. The only way to know for certain a moving average value at a particular bar is to wait for the bar to close, which means it is no longer bar 0. When a client requests an expert advisor that trades intrabar, they intend to compare the moving averages at “bar 1″ with “bar 0″. In plain language, that means to compare the value at the last closed bar with the currently open bar.

Hopefully, this description makes sense when you open a chart and see the bars already loaded. The final confusing element is when a new bar pops onto the screen. The previous examples showed 5 bars on the chart (bars 0-4). When a sixth bar pops up, the count is reset to the new time period on every update.

Say that we’re looking at an H1 chart in MetaTrader and that the current time is 06:00. When the new hour strikes, the chart loads a new candle to represent 07:00. It’s at this time that the count resets.

When a new bar appears, your charting platform resets the count based on the newest bar.

I’ve been working on a high frequency trading system for NinjaTrader on behalf of a long term client. My live account is with MB Trading. Rather than placing market orders and paying a commission, I changed the order types to limit orders. We want to receive a small commission for the market making strategy rather than paying a commission to accept the displayed prices.

MetaTrader suffers two major disadvantages that make NinjaTrader a superior option for high-frequency trading. MT4 does not offer charts lower than the M1 time frame and the trade context is busy error prevents multiple charts from running simultaneously. NinjaTrader is complex enough to where I can control most details, but simple enough that I don’t need to invest hundreds of hours to test an idea. After extensively testing the strategy on M1 charts as a price taker, I feel very confident that the strategy is sound. The only issue now is determining whether or not whether taking a passive (i.e., market making) approach will result in enough fills to make the strategy worthwhile.

The first issue that I came across wasn’t with NinjaTrader; it was with MB Trading’s API. The strategy worked fine on the simulation account, which only routes orders to NinjaTrader (NT). NT then makes guesses when fills would occur. The goal of that phase was not to test the strategy. I only wanted to test the programming to make sure that it worked properly.

100 trades went off without a hitch in the Sim account. The strategy only made it through 2-3 microlot trades on the live account before the pending orders hung. NinjaTrader pending orders pass through 3 states before they actually hit the market. For the programmers out there, these are the OrderState properties of IOrder objects.

1. Pending submit – the strategy sent the order to the broker and is waiting to hear back
2. Accepted – the broker acknowledges receipt of the order, but is still placing the order into the market
3. Working – the order is available for others to trade

The strategy updated orders on every tick. What often happened was that the pace would go far too quickly, creating a major communications backlog during fast markets. NinjaTrader never threw an exception. The only evidence of a problem was that I would see a hanging order with the PendingChange property. The inconvenient solution was to exit NinjaTrader and reload everything.

I figured that perhaps that the managed order state caused the issue. I changed my approach to unmanaged orders, but that did not make a difference. I eventually came to the realization that the MB Trading API cannot handle more than one order every few seconds.

The strategy found the sweet spot after changing from tick to second charts. Updates of 6 seconds or longer seem to give the MB Trading API enough time to update wihle still preserving something of a high frequency approach. Any trades that need to run faster than that threshold at MB Trading need to use the FIX protocol.

The other element that drove me crazy is that NinjaTrader limit orders automatically delete themselves once per bar. I nearly tore my hair out, and I don’t have all that much hair, for several hours trying to figure out why orders deleted themselves automatically. Many people identify with the school of hard knocks approach to learning. I’m as thick headed as most. I figured out the cause when I revisitied NinjaTrader’s online documentation and discovered a limit entry method that allows good till cancelled (GTC) orders.

The speed problem also manifested with overfills. An overfill is when a strategy requests to cancel a pending order, but the broker fills the order before the cancellation takes effect. The biggest concern with overfills is that NinjaTrader automatically disables a strategy and exits positions at market when an overfill occurs. The only way to programmatically prevent this is to change the entry methods to an unmanaged approach.

The easiest way to develop for a high frequency strategy in NinjaTrader (but not ultra-high frequency) is to use managed orders. Whenever an exit is needed, place the limit entry in the opposite direction. NinjaTrader takes care of placing the exit order for the open market positoin. Limit the updates to every handful of seconds. It allows the broker API to catch up and helps avoid the problem of overfills.