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dougr

Unusually High Bid and Ask Sizes on the NQ

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Today I saw some unusual bid and ask sizes going on on the NQ. I actually at first thought it was a data error but I also saw it on my buttontrader platform in the market depth. It would only flash for a second or two and have no actual big volume trades associated with it. Maybe an error at the exchange? Maybe this is really big buying or selling or maybe just manipulation. I posted the pictures of the single tick chart on my blog, click the link below to see them. I am not sure how to attach pics to this posting. In the first picture it almost fooled me and I almost went short here. It looked just like some firm resistance and it had just made a nice runup. It immediately punched through this price and went up another 40 points! It was hard to take that trade as it had just gone up so far. The one below that looks like support and what happens, it immediately goes down. Would anyone in this group care to comment on what the big ask and bid size might be? I cannot explain it. It does not surprise me though as I cannot explain a lot of things I see on the tape.

 

Here is the pictures of the time and sales.

 

nqbigbids2.thumb.PNG.f6f1fd28e4412bcc59510945e6314cca.PNG

NQbigbids.thumb.PNG.df029deffcc8bc384908fbd921b1c11b.PNG

Edited by Soultrader

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Its complete manipulation by black box systems. Its unfortunate the US exchanges allow such behavior.... I don't see this happening on the Japanese futures market. I mentioned somewhere, the CME will charge a hefty fee if too much order modification is done by black box systems.

 

The future of trading in my opinion will be harder for new traders. The learning curve for entry traders may become drastically higher. Exchanges and system vendors are promoting algorithmic trading because of the size of the transaction. Regulations will cater for institutions and will care less about the average retail trader. Japanese exchanges are already like this... protecting securities firms and banks, allowing trading to be advantageous for them. Block trades are allowed by institutions without showing on the tape, iceberg orders to hide size, etc... The whole system is designed to take money from the mass and distribute amongst the few.

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I think it only affect those who trade by just reading the tape, right? Technical analysis base on chart shouldn't be affected much.

 

I used to think that a high Bid or Ask repel price, but then I see somewhere that say it actually attract price.

When I read the tape, I saw a bid size of more than 2000 on ES break easily with only less than 50 contract traded. And I have seen on the DOM the ask size show less than 10 contract, yet more than 500 has hit the ask and price eventually move back down. I didn't even know the big guy doesn't need to show up on the bid/ask until recently. :(

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Unfilled orders don't show up on the tape at all, so these huge orders that are pulled wouldn't affect tape reading. Since it's so easy to do this, I personally only pay attention to the tape. A huge bid/ask is yanked just as often as it's not, so you'd probably have difficulty using those.

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The future of trading in my opinion will be harder for new traders. The learning curve for entry traders may become drastically higher. Exchanges and system vendors are promoting algorithmic trading because of the size of the transaction. Regulations will cater for institutions and will care less about the average retail trader.
This is why I feel it is so important to have a strategy that is not time frame dependent. As algorithmic trading increases and gets more complex, the speed and actions on the extremely low time frames may not be within ones risk/reward as well as having increased manipulation like Soultrader said. An individual with a strategy that is time frame independent can just zoom out and proceed as normal. Of course this means removing the DOM information all together. :2c:

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Its complete manipulation by black box systems. Its unfortunate the US exchanges allow such behavior.... I don't see this happening on the Japanese futures market. I mentioned somewhere, the CME will charge a hefty fee if too much order modification is done by black box systems.

 

Eurex has a system where you are charged if you change limit orders too often (compared to actual trades). It's fairly nominal however.

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I didn't even know the big guy doesn't need to show up on the bid/ask until recently. :(

 

You also have to consider that with the execution speed some players have vs your consumer internet connection, there are going to be trades that simply can not get updated fast enough on your DOM. I don't know what the latency is on a home interenet connection as far as when a messsage originates vs when it hits your eyeballs but I think its safe to say their are high frequency players that are faster than that. Thats a big reason I've basically given up on the DOM. Its like bringing a knife to fight an Apache helicopter.

Also from what I've read the high frequency guys are actually pretty much at the limit of what can be done speed wise. They are already so incredibly fast there isn't much to gain by spending money to try to get slightly faster.

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Someone buying or selling 50-100 e-mini contracts is just as likely a large retail as it is institutional action.

 

I live in Chicago and I know 2-3 guys who own seats on CME and are hardwired to the exchange. They all trade 100-200 mini lots at a time. One of the biggest guys on the floor that trades his own money(ie. not a hedge fund with investors) trades 100-125 BIG S&P 500 lots at a time. Its hard for me a 2-4 lot trader to wrap my head around this kind of cash but there are plenty of them out there.

 

A funny story relayed to me was the guy who trades 100-125 BIG lots had 30 BIGS on and went to lunch. HE DIDN'T HAVE A STOP ON. This was the kinda money he could afford to lose.

 

That said, I read tape as part of my trading. One 50-100 lot coming across the tape catches my interest. But it is not enough to really move the mkt. I just try to watch order flow and get a sense for the direction of the movement. Keep in mind that the big boys scale in and out of positions 3-4-5 cars at a time. A Big position is enter and exited the same as many small positions.

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When you want to mess around a little get on your simulator and try and get in and out of a 200 car trade. You will see what I am talking about. Even though your orders are not in the mkt its still hard to get in and out.

NOW imagine if you really had 200 buy orders sitting there>>>

 

Hope ya'll are having a great weekend. I am stuck in yet another Chicago snow storm :(.

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