Richard Olsen started with an analysis of the typical pitfalls of trading. There followed an overview of high frequency finance, a new discipline in finance. The methodology is a bottom-up approach that starts with a meticulous statistical analysis of tick-by-tick market data. In an iterative process models of financial markets are developed. The new discipline has paved the way for new scientific discoveries that revolutionize the our understanding of financial markets.
We continued with an overview of the key discoveries: the financial markets are a dynamic system that is in ongoing motion without a point fixed. To trade markets successfully is necessary to understand the pace of the market, its natural rate of change. Successful traders can make money, if they learn to identify exceptional price moves and handle the onset of cascading margin calls.
Research of market behavior has brought to light that the frequently erratic market behavior that confounds fundamentals is a result of cascading margin calls. The excess confidence of traders in their ability to predict a particular price move leads to excessive leverage. Minor price shocks with in the adverse direction leads to margin calls, whereby traders have to close their losing positions further increasing the imbalance of supply and demand fueling a continuation of the price move. The talk closed with an overview of the key decision rules that are necessary for a trader to be successful.