Cleaning the Book: How Structural Filtering Sharpens High-Frequency Signals
In modern markets, speed kills signal. High-frequency trading (HFT) has flooded the limit order book (LOB) with millisecond-scale activity: orders that flash in and out without intention to execute. These “flickering quotes”—the strategic residue of market makers, latency arbitrageurs, and spoofers—inject enormous noise into directional indicators like Order Book Imbalance (OBI). For firms trying to build real-time trading signals, the result is a muddied picture: imbalance measures that correlate weakly with returns, and worse, mislead causally. ...