“Multi-frequency trading" is not a standard term in finance. But it refers to trading strategies that operate across multiple time horizons or data frequencies.
Multi-frequency trading encompasses strategies that combine trading signals from different frequencies, for example using daily, hourly and up-to-the-minute data to make trading decisions.
How it works:
- Combining signals: A strategy could, for example, use long-term data (such as daily or weekly data) to determine a general trend in the market or a particular asset, and then use short-term data (such as minute or second data) to optimize entry and exit points.
- Risk reduction: By combining signals of different frequencies, the trader often hopes to capture profit opportunities while minimizing risk. For example, a strategy based solely on high-frequency data could be affected by market "noise", while a strategy based solely on low-frequency data could miss short-term opportunities. By combining the two, the trader hopes to achieve a balance.
Benefits:
- Diversification: As with any diversified strategy, multi-frequency trading can help reduce risk by not depending on a single time horizon.
- Flexibility: This approach allows traders to react to both long-term and short-term market movements, potentially capturing more opportunities.
Challenges
- Complexity: Managing and integrating signals from different frequencies can be technically complex.
- Costs: Depending on how the strategy is implemented, there could be increased transaction costs, especially if the high-frequency part generates a large number of orders.
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