jk3000 refers to "Number of orders vary, possibly 150-450 a day, obviously with a lot more fills coming back than that number". In this context, would this be referring to parent/"meta" orders (an intention to buy 100k AAPL), rather than chrisaycock's individual order book-level orders on a given trading venue, e.g. bid 20 for 100 AAPL GTC on Arca?

I suspect that the writer is asking for something along the lines of that counter-parties measure their adverse selection from their interactions with you, which isn't necessarily targeted at identifying latency arb specifically, but any incidence of high short-term adverse price movements after interacting with your flow.

@javapowered Frequent re-quoting with no participation may simply be indicative of a market state in which you cannot profitably participate with your models and/or current parameterisations (incl. spread), i.e. your expected value of a quote update, inclusive of costs, is negative. Simply identifying this fact (state) and avoiding losses can be useful.

Your USD2 'market impact' reflects how much you've instantaneously moved the bid price. If you're measuring your impact against the mid-price, you have only moved the mid USD1. Wider-than-normal spreads are likely to result in more passive orders refilling the book. Roughly speaking, under most circumstances, there are likely to be more refills on the bid side that you just cleaned out than on the offered side.

What you describe (more or less) is the instantaneous market impact of a single, aggressive fill (execution) of a given size. If you can fill your entire order like this, then you now have a benchmark "worst" cost. On average, you should be able to do better by e.g. posting some passive liquidity, taking liquidity for smaller portions of your order and then allowing the order book to refresh, et cetera. Very often (most?) of the time, institutional orders are too large to fill instantaneously simply by walking the order book.

Just an aside regarding your "most compelling" reason: strategies have capacity limits, i.e. levels beyond which your market impact would exceed the available alpha, even assuming you had unlimited capital. I'm not sure what you mean by a "stock market prediction" (index futures? ETF's?), but certainly there are plenty of people making short-term predictions, and benefitting from them, every day in markets.

Also, a bank deposit isn't exactly "risk free", though admittedly it has been a long time since retail depositors (or at least all those covered by the FDIC) in the US have lost money. But then again, neither is government debt "risk free", even if denominated in own currency, since governments may choose to default rather than inflate their way out of debt.

Also probably worth a read is fp7.portals.mbs.ac.uk/Portals/59/docs/Hautsch.pdf "On the Dark Side of the Market: Identifying and Analyzing Hidden Order Placements"

I've put the above as a comment because I'm not quite clear as to what kind of answers you're looking for, i.e. how concretely a strategy implementation you are looking for.

(Consolidated) limit order books present a view on the supply/demand schedule for a stock. The more complete this view, the better short-term price forecasts can be. Leaking this information as a large-in-scale trader results in greater price impact if short-term traders are able to trade ahead of you. An alternative mental model to extracting value, to your disadvantage, from large and visible order(s): they effectively amount to a free option to someone who can bid ahead of your large bid, selling at a higher price if the market moves up or turning round and hitting your bid if not.

"List and explain at least 5 trading strategies" just sounds wrong to me.