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This paper Dealing with the Inventory Risk. A solution to the market making problem, has a full bibliography and explains the intra day market making mechanism. The model is made of two components: a diffusion of the fair price (to model the market risk) a point process (with an intensity in $A \exp -k \delta$ (where $\delta$ is the distance to the fair ...

You could try net positions: where you continuously buy and sell depending on the signals generated. Net positions may lead to unnecessary commissions/spread nickel-and-diming your profits away. Once you have picked a direction and already have trade entry, your system should instead continue looking for new signals in the BACKGROUND. New signals while in ...

The answer depends on the reasoning behind your forecast. Is this a mean-reversion signal? If so, perhaps the presence of a short signal shortly after a long signal indicates that the long signal was very profitable, and you should take profits immediately. Is it a momentum signal? If so, then perhaps the momentum of this stock is very choppy at the ...

If you designed the model to predict direction only, I would just use the current signal. You could test whether this is correct by calculating the signals and their 5-second lags, then regress 1-minute forward returns (or 55-second fwd returns) on them both, and see if the coeff on the 5-second lagged signal is significant. If it's not significant, just ...

You first need to clearly define your constraints first: max single position size max net exposure I am not sure why you want to limit order size. The whole idea of hft strategies is to maximize turnover. As long as your strategy generates alpha you should allow it to trade as often as the strategy prescribes. All you need to then do is to constrain the ...

One solution I have been considering is to add a target position parameter with a time decay. For example, given the $t_1$ buy and $t_2$ short signals described in the question and assuming a 5 seconds signal window to simplify, we would have the following time-based target positions: ╔════════════════╦═══════╦═══════╦═══════╦═══════╦═══════╦═══════╦════╗ ║ ...