ScottB

They didn't normally use market orders or stops because they always had orders on both sides of the market. They shredded all orders. There are literally dozens of things like the one I described. They combine to make it very difficult to compete in the micro scalping (essentially market making) arena. However, with any directional component involved the playing field gets leveled pretty quickly. Once you are going for more than a couple of ticks things get a lot move even. There are still things you can do with an ultra fast data feed that a normal retail trader can't - think of all the times you have been stopped out because a small order (sometimes a 1 lot) hits your stop price with a gazillion orders at that level. Your stop is triggered but it was one of a handful of trades at that price. With a fast enough feed, an algorithm can monitor the number of contracts and if it gets below a threshold you hit the market, otherwise you let it ride. Often you end up stopping out anyway but for the high frequency player, that technique alone saves thousands over the course of a month. Scott

John, shredding was used for a couple of reasons - to disguise their intentions and to maintain a predictable position in the queue at a given price. Let's say the ES is 800 on the inside bid; the algo would put in 50 orders in those 1-3 lots sizes, wait a few milliseconds to a couple of seconds and do it again. They do this over and over until they have 300 - 500 orders scattered through the 800 (which by now might be 2000 depending on what other players are doing. Here is the part that is difficult to explain: they didn't necessarily want those first orders, they were just placeholders. They would then cancel order and see if other algos followed suit thus allowing the orders further back to move forward. They would cancel orders/add new ones until they felt they were in just the right place in the book and then let them rest to execute or get pulled if the market moved the wrong direction. The goal is to be at the top of the queue with a large number of orders behind you. Because their commissions were less than $.50 a round turn, scratching a trade meant nothing. So if you are filled and there are a lot of orders behind you if you want out, you just hit that side and scratch the trade. Because they are doing this on both the bid and ask, the ideal trade is to be near the top of the book on the opposite side and once they get the first side filled, they get out virtually immediately on the opposite side with a 1 tick profit. They do this literally hundreds, if not thousands, of times per day. I may not be doing a very good job of explaining this but it is a random walk trade. If you have the speed, commission structure and capital to have literally thousands of orders outstanding at any given time, it is the lowest risk trade in the universe. As to the other question; thanks I will check those out. The exchanges can burst data out but it will be consistent at the timestamp level regardless of when it is actually received. Again, there was an entire group of programmers whose only task was to write data integrity/alignment algorithms. Scott

Thanks for reminding me, I used to follow him and then stopped for some reason.

Hi, Prior to the prop shop I currently work with, I worked for a decent sized prop shop in Chicago. They never put through a large order on the CME, they always "shredded" their orders, in fact, they had algorithms just for breaking up the large orders into randomly sized smaller orders (1-3 lots). They also stacked the book in such a way as to always be near the top with some orders and yet have others sprinkled throughout. This allowed them to quickly pull an order from the front of the book if the algo "didn't like" the order flow but still retain some position in the queue in case the order flow returned to something that could be traded. One major question - do you know of any completely unfiltered, non-coaleseced data feeds that are not institutional in terms of cost? If you are only getting snapshots, regardless of how frequent, I don't know of any way to guarantee the trade is lined up with the actual inside bid/ask of the book. Without unfiltered data you don't really have an accurate delta because even though it looks like a trade went off at the ask, it may have been the bid when it was initiated. Best Regards, Scott

MM, I agree completely; actually that was my point. Too many traders push to make the rent, etc and therefore take chances they shouldn't or stay in trades that are not working. I have friends on the fx desks at major banks; their high end goals are in the 15 - 20% range. If that is the best they can expect, why would I think I can make 100% plus?

MightyMouse, you can look at it that way. One thing to consider with smaller account sizes is the worth of your time (opportunity costs). If you are spending 10+ hours a day trading 1 lots and are making $100 per day, once you subtract your opportunity cost (what you could be making at a regular job) you likely actually have a negative return (I would argue that is the case). You are essentially working for $10/hr and returning 0% on your investment. Only once you surpass what you could earn in a regular job you can begin to calculate a return on investment. So if I can earn $300 per day at a regular job I have a negative return on investment until I am making $301 per day. At that point, assuming I am trading 3 contracts to do that and have 15k in my account, I am getting a return of $1 per day on 15k. Using 240 trading days per year (high but technically possible) I am getting 240/15000 = 1.6% return on my money. Now when you adjust that for risk, it still stinks. However, once you get rolling and are trading 10 contracts (100k account), you are returning $700 per day ($1,000 - labor costs of $300) on 100k and with the same 240 trading days it is $168,000/100,000 or 168% return. Check the math but hopefully my analysis makes sense. For the record you don't have to come up with the math, if you are married, your spouse will. Scott

If you had a scalable strategy that makes $100 per day per contract (futures), you couldn't spend all the money. At 1 futures contract per 5k in your account you can support yourself (depending on your lifestyle) with a 20 - 25k account. If you look at that in ROI terms, the numbers are ridiculous. Where new traders often go wrong is thinking a 2k account is somehow going to support them. That simply won't happen over any period of time for the vast majority of traders (technically anything can happen). Personally, I would only trade 1 futures contract for every 10k in an account. That gives you enough cushion that even a bad day allows you to still trade the same number of contracts the next day.

todds, I am with you on this. I have been a professional trader for 10 years and I must say the first 2 years were a disaster. I lost so much money doing so many stupid things that it is a wonder I survived financially or emotionally. I was lucky enough to meet a few good traders along the way and although they didn't give me any secrets that amounted to an "edge" what they did was tell me honestly - this isn't a game, if you want to gamble go to Vegas, to get good at this is going to take years and thousands (that was daunting) of hours of screen time. Luckily charts facinated me (after all these years, still do) and I spent that time. For scalping, I found looking at charts wasn't enough and I didn't get good at that until I spend more thousands of hours watching a DOM and then trying to reconcile what I had seen there with what a chart of that same period looked like. I could go on and on but you get the idea. A neighbor told me about an ad he had seen and wanted to start trading currencies. He knew that is what I do and so asked me about it. I was honest and told him to save us both a lot of time and just give me his money now; that he was going to give it to some professional trader and it might as well be me. Scott

PW this type of trade is very difficult to do profitably. You can do a statistical analysis of the number of moves per day/week etc that meet your requirements and then look at what happens next after the move i.e. does price continue reverse and how far. You now have to account for reports and to be completely fair news events in general. Even given all that, you have to have tight spreads and low commissions and of course low latency won't hurt. I am not trying to be negative but I would personally look for another way to trade until you have more experience with scalping algorithms. This type of trading seems simple and is not. One area to look in that I alluded to above; see what the probability is of a 3 tick move (or any number you choose) given you have already had an N tick move (this is a type of Bayesian probability). If you can partition your results along the lines I also mentioned above, you might find a good strategy. After re-reading my own post, my guess is that it will sound like gobbledygook so pm me if you want a better explanation. Best Regards, Scott

aversano, that's what makes the trading world go round. For example, Al Brooks has an incredible book; dense but definitely worthwhile. Every time I read it, I get something new but wonder how a human could keep all that in their head. It always reinforces that I went the right direction for me. I write algos and trade through a prop firm in Chicago; it is a perfect match for me and could be someone's worst nightmare. HFT works if you have the knowledge, speed, capital and commission structure. Without all of those components, you can get close but the deck is stacked against you. We each have to find our own way, it seems. Scott

The scariest question any trader can ever ask themselves ever (it is so scary, I can barely type the words) is: Am I really cut out to be a trader? My personal answer wasn't very clear - I can trade but normally hate to; so where does that leave you? Then it occurred to me; I have pretty straightforward rules, when I follow them I virtually always make money and I have years of commercial software experience (as with actual software companies as opposed to in house IT). The solution was simple, write algos and let them get up at 1 am and watch 3 trades in a row go against you (even though the rules were executed as only a computer can). That was when I began to be profitable. The funniest thing is that now I can take manual trades much more easily (it still is not my favorite thing to do) because I know that if I follow the rules I will make money (and I like making money). Scott

ROFLMAO - perfect description of the trade!

The volume in the futures market can be used as a proxy for the cash (i.e. 6E futures EUR/USD cash). But it appears there is an assumption in all this that is not correct in my experience. The arb players are not going to get the cash vs. the futures get out of alignment, nor are they going to let any sort of misalignment of the cash go for more than a couple of seconds. If you could buy some oil with dollars, then trade the oil for gold and then sell the gold for more dollars than you started with, wouldn't you do that all day long? Well, that is what currency arbitrage is; buy and sell the pairs and crosses in a circular fashion as long as it meets the criteria above - EUR/USD -> EUR/JPY -> USD/JPY. There are a huge number of issues surrounding the fx market but in the end, if you are on the right side of the trade, you will make money. Scott

Central banks and their proxies are often behind big moves or rather they are often the reason big moves end. In a macro economic sense there are a multitude of reasons why someone (such as a Central Bank) wants a currency in a certain band (range). They want it for their exporters/importers, for political reasons, to keep promises made, to affect interest rates (and therefore their borrowing costs) and maybe even, just because they can (if you could move the markets, wouldn't that be cool enough to do it once in awhile just for fun). The next tier of players know when the Central Banks are likely to rein in prices so they push them to that point and then fade the response. There are also Merger and Acquisition money flows that can affect prices, hedging and a host of other legitimate reasons. Scott

The easiest and best way is to ask yourself if the parameters make sense and are in any way connected to observed price patterns. It is tough to find usable patterns that are not curve fitted but if you use some common sense relative to the results, it can be done. You have probably heard this a dozen times but money/risk management and position management are key to algorithmic trading. Best Regards, Scott

What size account are you thinking of opeing? If you open a decent size account (10,000+, maybe in some cases a little less) most brokers have a demo account with live feeds that are pretty realistic. NinjaTrader has an excellent simulator given a real time data feed. That will meet the requirements you stated above. You mention trading with a prop shop like cy group; do you mean immediately once you get comfortable with the demo account? You might do a search on cy group to see how they are thought of; I don't personally know anything about them. Scott

Hi, If that is the actual code, you are missing Begin/End after If time = 0 but time isn't ever 0 (it the time at the end of the bar), so your initialization wouldn't ever happen. Use either the Once keyword or a bool variable like needInit and then once you have done your initialization set it equal false. I also assume you are incrementing the winning/losing trade counters somewhere in your code.

Hi, If you are using intraday time based charts, you can use the EasyLanguage reserved word BarInterval to count time in multiples of your chart inverval. You could also simply stop your stragegy for X bars. You can also access the PC clock to get the time that way. There are reserved words for all the variables you mention in your question. Best Regards, Scott

Currenex shows volume at the levels like the futures and will report trades that happen on its platform but there is no way to know what trades or even what prices are on other venues. One thing that works just fine though is using the futures as a proxy. The arbs won't let prices get truly out of sync with the cash for more than a second, therefore, once you abstract out the interest rate differential (the futures/cash spread that particular day), you can line up futures volume with the cash. It won't be perfect but it is very close if done correctly.

pctman, I just re-read my post about tick charts and put 144 where I meant to type 145 (144 ticks for bar 1 and 1 tick to begin bar 2 on a 144 tick chart). As to why people use Fibs for tick charts; I can tell you I do it because 144 feels much cooler than 150 ticks or 233 is more fun than 250. Trading is how many of us (me included) make our living; that doesn't mean we can't have fun doing it.

Tick charts and time charts normally cannot be lined up in a way that will stay constant over the course of a day because the number of trades (ticks) per minute can (will) vary widely over the course of a day. While a 144 tick chart may correspond to a 1 minute time frame during one part of the day, it may require a 300+ tick chart to give that same resolution at a different time of day. ptcman, in your initial post, you referred to tick charts but seemed to be talking about a range chart. A tick chart forms a new bar after N trades (regardless of the volume traded each time) whereas a range chart (momentum for TradeStation) forms a new bar every time price breaks an old range. For example, 144 trades would produce one full bar and the beginning of a new bar, whether each trade was a 1 lot or 100 lot. A range bar would be produced on a 10 tick range bar chart if the 6E (EC for TradeStation) had traded 1.3011 - 1.3020 bar 1 and then traded either 1.3021 or 1.3010 producing the beginning of bar 2. I hope that helps. Scott

Stop hunting is real but the banks are not the ones doing it; it is the leveraged funds or prop traders. I write algorithms for a prop firm. Some of these algorithms look for price/volume patterns that give clues to where stops might be. We don't run the stops, we just wait for someone else to run them, then our algorithm will enter against the stop running. Sure, we get stopped out ourselves sometimes but more often than not, we get in somewhat near the extreme and ride the trade back into the balance area for a small but regular profit. If you are looking for a large profit run, you don't need to be as precise with your entry but you need to have a larger stop; if you are scalping, you need precise entries but can have a tighter stop. In the end, if you had the capital and the technology, what would you do? Whatever your answer is, look for someone to be doing it and plan accordingly.

Max, I think you are doing the right thing using small leverage; being over leveraged causes a lot of anxiety and often gives rise to poor trading decisions. I currently use NinjaTrader or the TT FIX gateway currently but with the last prop firm I was with, I used X_Trader API. X_Trader is the gold standard of front ends in my opinion although I like NinjaTrader almost as much. I trade enough to test out my algorithms but other than that, I don't take many manual trades. The algorithms are based on basically what you trade - price action, S&R and a few proprietary calculations I have developed over the years. Always more to ponder.

Yes, I like Velocity Futures the best - low margins (don't overleverage though), decent commissions, great infrastructure, been around forever and great support/customer service. Advantage Futures is also very good at all of the above. IB is a good choice if you are going to be trading a wide variety of instruments that include equities, stocks, options or FX (cash). Their margins are higher (which is not a bad thing), their commissions are in the ballpark (I don't know exactly but they are neither great nor awful) but they can be challenging at times to work with. Also, IB does not stream prices but rather takes a snapshot every 100-200 milliseconds so if you are doing anything algorithmically, you should be aware of the implications. Dorman Futures is pretty good as well. There are a zillion others but I have or have had accounts at all of the above and therefore am speaking from direct experience. I hope this helps and as I said, never hesitate to ask questions. There are also an incredible number of online resources that you can find. Remember, if it sounds too good to be true, it is. This is a tough business, it takes an enormous amount of work to become even marginally proficient. If you see a claim or offer of service that uses any of the following, run, run very, very fast Hurry, dirty secret, revealed for the first time, can't lose, all you have to do is... limited time, limited number, in only a few hours per day, etc. In fact, we should start a new thread of all the catch phrases vendors/trainers use to make it sound like they are going to make all this easy.

Max, Say the EUR/USD spot FX is 1.3188 bid by 1.3189 ask and you put a limit order at 1.3188 on an interbank platform like Currenex. No other customer can hit your limit order, only banks. The banks will only hit your order if your 1.3188 order is now the ask because prices are now 1.3187 bid by 1.3188 ask. Your limit order is still at the same price but now, instead of being at the bid, it is at the ask. In an interbank market, you only have the illusion of getting in at the bid, although, you do get the price you want. With an ECN, another customer can hit your limit order at the bid and therefore you can get filled while 1.3188 is still the bid. I know this sounds confusing but it only applies to the spot market. If you stay with the futures market, you won't have to deal with this as there is no broker created spread. I only mentioned it so you can see the differences among the various brokers (account types) and to encourage you to ask your broker any question at all. There is an old saying in poker: if you sit down at the table to play and can't spot the sucker, you are the sucker. The reason 80-95% of all traders lose their money pretty quickly is they are sitting at a table with professionals and are the suckers. It takes a lot of questions, hard work and unfortunately a lot of money lost to become the one sitting at the table who can spot the sucker (i.e. be the professional). Don't be discouraged by what you don't know, just keep asking questions regardless of how basic they may seem.