I've been reading about algorithmic trading, which involves using complicated mathematical and statistical models to profit from market inefficiencies. Usually the gains from each trade are small, but when added together, they can generate huge returns.
But why don't these trading firms simply buy a good stock, and hold the position until they make a profit?
(1) Pick a stock with good long-term fundamentals and strong short-term momentum.
(2) Set the price target at 1% higher than the current price (1% is pretty easy to achieve, because of short-term price fluctuation and the fact that the stock has upwards momentum).
(3) Buy the stock, and wait until the price hits the target.
(4) Sell the stock, rinse and repeat.
While gaining 1% per trade may not seem to be much, but when added together, they can generate huge profits.
So why don't trading firms simply do this? It seems to be a much more easier strategy than using complicated algorithms to look for small arbitrage opportunities or whatever.
Someone asked a similar question on Quora, but the answers are not what I am looking for......