Strategy making decisions on when to trade
The trading strategy is the system's brain. This is where we will put our algorithm that represents our trading concept into action. Let's take a look at the diagram:
Figure 2.7 – Trading strategy receiving data from the book builder to make a decision on when to trade
The diagram shows that the trading strategy is divided into two main components, signal and execution:
- The signal component of this strategy only focuses on generating signals. However, having the intention (a signal) does not guarantee you will get the liquidity you are interested in. For instance, in HFT, it is highly likely your orders will be rejected because of the speed of your trading.
- The execution part of the strategy will take care of handling the response from the market. This part decides what to do for any responses from the market. For instance, what should happen when the order is rejected? You should continue...
