How Does This Compare to Your Approach

[BlowFish 10]

Hi Urma,

 

How do you assign a block as a buy block or sell block? Most exchanges have a mechanism for blocks to be negotiated outside the normal continuous auction process and then be reported later as a transaction on the tape. They never actually hit the order book. Globex I believe has this mechanism Eurex certainly does. What about iceberg orders? Does this effect your block analysis?

 

Before we get into the quant stuff it would be intresting to know the data you are using and the assumptions you are making about it. Do you actually use some sort of algorithm to try and assign volume to one side or the other?

 

I am not sure if you saw my question a few posts back about whether you do order book analysis particularly looking at blocks that get pulled?

 

Final question do you use these tools to make discretionary trading decisions or is automation your goal?

 

Cheers.

 

EDIT: How do you define a 'block' I kinda made and assumption which is bad.

Edited July 10, 2008 by BlowFish
adding a question

[smwinc 20]

This sort of thing is interesting, but I just have never found the need for it to make money.? The only need I've seen for tools like these is working with institutions who make an impact on the market they trade.

 

Mathematically, it changes the game for your trading decisions, because you're no longer making a trade based on the market, you are making a trade based on how the market is AND how you assume it will remain once you make your trades.

 

Interested to hear more information. Like Atto said, keen for a discussion but we probably need to nail it down to something specific.

[BlowFish 10]

I found the presentation of the data kind of interesting too. For a discretionary trader how data is presented is pretty important imho. Mind you there was a recent thread about that. That was why I wanted to know whether the OP's objective was automation or 'decision support' (I don't like that term despite it being kind of functional).

[darthtrader2.0 10]

I have to agree with MC. While I would be quite interested in a discussion its hard to not have some skepticism with what you posted about Time Series Analysis, argueably the most studied and well documented aspect of quantitative finance. Time series analysis is hardly rocket science, pun intended. Of course gotta have some neural networks, traders love those neural networks even though they have been largely abandon for more robust techniques in the data mining world like kernel methods and Bayesian networks. But hey, it makes for good marketting since everyone has a neural net in their head therefore they believe they can naturally understand the algorithm.If you used a support vector machine no one would buy it because they would inherently know they know nothing about support vector machines.

 

The bigger problem with your post is if you have developed your variations on known techniques then what possible discussion can we have? Ignoring Blowfish's questions doesn't really remove some of the shadyness.

Edited July 10, 2008 by darthtrader2.0

[AgeKay 10]

Most Data Vendors designate trade on the ask as UpVolume and trade on the bid as DnVolume. We have found flaws in that approach and use something close but, still different.

 

Can you please point out these flaws? (I am genuinely interested because I am using the same designation in my trading)

 

P.S.: It would be very appreciated if you could describe your approach on designating 'buying' and 'selling' volume.

[AgeKay 10]

Could you share background on your user name? "Urma blew me" is how I would read that out. That dosen't seem very legit or credible, maybe I'm reading that wrong though so help me out here.

 

Dude, chill out. So far this guy has not tried to sell anything and his ideas make sense compared to the bullshit (sorry, but that is my opinion) that is generally discussed on trading forums (I think that's what he meant by 'bleak technical discussion').

 

And why the hell do you get worked up on a user name? ('Blume' in German means 'flower', by the way and his last name sounds German, so he might know a little German.)

[BlowFish 10]

Can you please point out these flaws? (I am genuinely interested because I am using the same designation in my trading)

 

P.S.: It would be very appreciated if you could describe your approach on designating 'buying' and 'selling' volume.

 

Personally I think the largest 'flaw' is peoples assumptions about aggressive buying/selling vs passive buying/selling (market vs limit if you like). I think this has partly been perpetuated by the market delta guys. It really isn't as simple as green (buying at ask) vs red (selling at bid) representing order flow.

[AgeKay 10]

Personally I think the largest 'flaw' is peoples assumptions about aggressive buying/selling vs passive buying/selling (market vs limit if you like). I think this has partly been perpetuated by the market delta guys. It really isn't as simple as green (buying at ask) vs red (selling at bid) representing order flow.

 

Of course, it's not as simple as that, and it completely depends on your approach and market. But based on my personal testing I have found that in the very short term in certain markets, market orders are responsible for 80%-90% of the movements. This varies significantly though for different markets.

[BlowFish 10]

All I was saying is that some of the material on the marketdelta web site might might lead the unwary to think thinks are simpler than they are. To be fair to Trevor he did publish a couple of things that I wrote about common misconceptions people seemed to have.

 

I watched delta for a while and found at key points (turns) it was at it's most unpredictable. Your mileage might differ of course :)When a trend is under way you can see that from price. I guess it is good confirmation that delta is +ve too. Interestingly the limit order book goes heavy the opposite way 80% or 90% of the time. I guess that tends to add weight to the old adage price moves towards size.

 

The thing is when markets change direction or go into consolidation all these things flip around, as often as not instantaneously. I am not saying that there is no value in delta just that during different market phases different participants are active in different ways. In your research did you find a way to use delta that had a positive impact on your trading either in timing or looking for areas to trade in? I have to say it always eluded me. Having said that some people seem to look for divergence in a delta oscillator... doesn't appeal to me. Also know of people looking at absolute values of cumulative delta around the open the premise being that once a threshold is reached there is probably enough to support a directional move for bit.

 

One thing that might be interesting would be to fit delta with order book analysis to look at filled orders vs cancelled orders at various levels.

 

Still I guess I have digressed a bit. At the end of the day the raw data is what it is and there just aren't that many ways of slicing and dicing it.

[AgeKay 10]

All I was saying is that some of the material on the marketdelta web site might might lead the unwary to think thinks are simpler than they are. To be fair to Trevor he did publish a couple of things that I wrote about common misconceptions people seemed to have.

 

Completely agree. I don't even think the way that delta is presented in MarketDelta makes much sense.

 

Interestingly the limit order book goes heavy the opposite way 80% or 90% of the time. I guess that tends to add weight to the old adage price moves towards size.

 

In my experience (which is not great, mind you) it really depends on the market. Yes in the ES this seems to be true, but in many correlated markets like the FESX this is not the case.

 

The thing is when markets change direction or go into consolidation all these things flip around, as often as not instantaneously. I am not saying that there is no value in delta just that during different market phases different participants are active in different ways. In your research did you find a way to use delta that had a positive impact on your trading either in timing or looking for areas to trade in? I have to say it always eluded me. Having said that some people seem to look for divergence in a delta oscillator... doesn't appeal to me. Also know of people looking at absolute values of cumulative delta around the open the premise being that once a threshold is reached there is probably enough to support a directional move for bit.

 

I watched delta for a while and found at key points (turns) it was at it's most unpredictable. Your mileage might differ of course :)When a trend is under way you can see that from price. I guess it is good confirmation that delta is +ve too.

 

The problem with how most people look at delta is that they put it on the wrong type of chart and/or periodicy. What was yours?

I haven't seen the chart type I use implemented in any commercial software. Also the delta is not going to help you predict the next 10 ticks, but it's good for the next 2-4 ticks. I also found delta to be the most helpful at certain support/resistance prices. You can't just go "oh, a lot of aggressive buying here" and buy when it's just about to reach a resistance. I guess, it's best combined with price action. It's effectiveness also really depends on the market. Example: Works very well on Bund, but it is a lot less reliable in the Schatz. It also works ok on the FESX, but there is a lot more 'noise'. Can't commend on the U.S. markets because I have not researched them enough with regards to delta.

 

One thing that might be interesting would be to fit delta with order book analysis to look at filled orders vs cancelled orders at various levels.

 

I have created a DOM that shows this but I have not hooked it up to real-time data yet. The problem I suspect though is that the DOM is less helpful that it was years ago because there is a lot more algo trading that is responsible for much of the order pulling which might not necessarily mean anything. Even Paul Rotter, the god of DOM reading, said a few years ago that all those computers in the Bund made his job a lot harder.

 

Still I guess I have digressed a bit. At the end of the day the raw data is what it is and there just aren't that many ways of slicing and dicing it.

 

That's why I am so interested in how UrmaBlume is using the tick data differently to determine 'buying' and 'selling'.

[AgeKay 10]

Oh, I forget to mention that I don't just look at 'delta' but also at the total volume. A delta of +500 is less significant for me when there were 5000 contracts traded than when only 600 contracts traded.

[bakrob99 11]

..... market orders are responsible for 80%-90% of the movements. This varies significantly though for different markets.

 

 

Could you please enlighten me by letting me know what moves price the other 10-20% of the time?

[AgeKay 10]

Could you please enlighten me by letting me know what moves price the other 10-20% of the time?

 

Pulled orders, little depth on one side or huge depth on another side.

Edited February 1, 2009 by AgeKay
Added one more reason I forgot to mention.

[bakrob99 11]

Pulled orders, little depth on one side or huge depth on another side.

 

Sure.. but how does that actually translate into price movement until someone is willing to lift the offer or hit the bid? In other words ... either it's a Market Order with someone entering a position or closing out one, or a Stop Market order (same thing), where someone is getting stopped out or entering an order at a specified price. Or someone Joins the bid or ask once price has moved. I don't think UrmaBlume has any magic to offer that will change the way the market works.

 

 

Pulled orders or Imbalances in Depth won't make any difference to price until someone accepts the bid or ask at market. The spread would have to change which can and will happen in fast markets or in imbalances. But the change in spread will still only be confirmed by a market order taking place at the wider spread.

[AgeKay 10]

Sure.. but how does that actually translate into price movement until someone is willing to lift the offer or hit the bid? In other words ... either it's a Market Order with someone entering a position or closing out one, or a Stop Market order (same thing), where someone is getting stopped out or entering an order at a specified price. Or someone Joins the bid or ask once price has moved. I don't think UrmaBlume has any magic to offer that will change the way the market works.

 

 

Pulled orders or Imbalances in Depth won't make any difference to price until someone accepts the bid or ask at market.

 

Please make sure you know how the double auction market works before you make statements that are not true. If all the limit orders on the best ask are pulled then the price goes up without even any market order hitting the exchange.

 

An extreme example that I have seen a few times is where all the bid or offers on 5 tick levels were pulled at the same time and price moved up or down 5 ticks without any market order hitting the market.

[bakrob99 11]

An extreme example that I have seen a few times is where all the bid or offers on 5 tick levels were pulled at the same time and price moved up or down 5 ticks without any market order hitting the market.

 

How do you know it wasn't a market order?

[AgeKay 10]

How do you know it wasn't a market order?

 

I look at the time & sales.

[BlowFish 10]

It's usually a combination of both (or appears to be from my observations). For example a largish market order(s) will hit eat through or wipe out a couple of levels on the limit book this may trigger stops or have break out traders jump in. Other side traders see this and pull their limit orders as clearly there is a good chance they can get them filled at better prices. That's just one possible scenario of course.