Can someone explain in simple terms why high-frequency trading actually works? I can't understand how trading at a high frequency provides any advantage at all, except in a Martingale-fallacy way.
For example, if I notice that there are several large orders buying a stock, I can assume that a large institution is trying to purchase a position. If you reach this conclusion quickly enough, you can buy up enough stock, temporarily hiking the price, and selling the stock back to the large institution as they are trying to fulfill their purchase order. Do this enough times, and for large enough orders, and you can make money.