Futures Arbitrage

[Shell128 10]

Shell128,

 

The likes of this one don't go away. Well he left a couple of other boards where he was recognized for what he was and chased off. But we're just gently playing with him here so he'll stay here.

 

You will note however that everything he "offers" is a variation on the same stuff. Just an ego game at the expense of newbies.

 

As I said before, myself and others have found UB's content to be very helpful. If you know of better ideas than UB's trade intensity, order flow harmonic, or net new trade indicators, please share them. I'm always eager to learn better methods. If you don't know of better methods or are unwilling to share, then you have no credibility.

 

UB I look forward to your posts and appreciate your generosity.

[thalestrader 14]

... I love London -the last time I did business in your city I stayed at Browns, I traded at the Jefferies Desk in Finsbury Circus, I drank at the Chelsea Arts Club and I gambled at the Palms. While some of them may not be today - they were quite suitable then.

 

London certainly is a fine city, though I much prefer New York City. The last time I did business there I stayed on a bench in Bryant Park, and I traded a slightly used cigarette I found beneath a discarded falafel for a slightly used tissue (a good trade for me as I do not smoke, but I do have allergies), I do not drink, but I dined in dumpsters behind some of the finest restaurants in Hell's Kitchen, and I gambled atop a cardboard box in Washington Square Park, finding myself a consistent loser at three card monte, which turns out to be quite a shell game. One should always beware of shell games.

 

And as this was just last week, so such entertainments and amusements are still available to all who share with me a similar sense of refinement.

 

Best Wishes,

 

Thales

Edited March 20, 2010 by thalestrader
typo

[maxima 10]

Bravo! Smile is what we all need these days

 

Thank you really

[cornhusker 10]

Hey UB,

 

I just want to say I've taken a couple hours and gone through most of your posts, you are brilliant sir. Your trade intensity indicator is what I've been looking for, for a long time. I'm not one who wants to buy it or anything like that, but the evidence it offers is priceless. You have succeeded in unearthing decoding, as it were, hidden flows by big money. As most of us know who have been around for a while, there is no good reason to enter until the flow is on our side and most will never come close actually being able to verify this (or even grasp it's importance). TA is really illogical in most of it's forms. But what you're doing is the most objective example I've ever seen for coming up with a good or real reason for entering the market.

 

I really liked your example of the statarb trade you identified with your flow indicators. When you saw the spike in consumption on three markets at the same time you probably inferred it was arb, but would you or do you enter directional trades on just one of those markets because of that spike?

 

This may be a dumb question, but how many of your net flow change based entries turn into trades that have the potential to run for long periods of time? Do you let any of your trades run?

 

Also, another silly question. Have you ever identified possible causes (PA, TA Setup ect.) that induced one of these automated trades? The evidence would be somewhat anecdotal and hard to prove, I'm just curious. I know the brains behind these things are probably far beyond mundane price/volume patterns.

 

One more thing. Are you confident that you'll be able to find the new places these automated entries start hiding when the current methods change? Have you already had experiances like this?

 

Sorry for throwing everything at you at once..Keep up the great work

[cornhusker 10]

Hey UB,

 

I just want to say I've taken a couple hours and gone through most of your posts, you are brilliant sir. Your trade intensity indicator is what I've been looking for, for a long time. I'm not one who wants to buy it or anything like that, but the evidence it offers is priceless. You have succeeded in unearthing decoding, as it were, hidden flows by big money. As most of us know who have been around for a while, there is no good reason to enter until the flow is on our side and most will never come close actually being able to verify this (or even grasp it's importance). TA is really illogical in most of it's forms. But what you're doing is the most objective example I've ever seen for coming up with a good or real reason for entering the market.

 

I really liked your example of the statarb trade you identified with your flow indicators. When you saw the spike in consumption on three markets at the same time you probably inferred it was arb, but would you or do you enter directional trades on just one of those markets because of that spike?

 

This may be a dumb question, but how many of your net flow change based entries turn into trades that have the potential to run for long periods of time? Do you let any of your trades run?

 

Also, another silly question. Have you ever identified possible causes (PA, TA Setup ect.) that induced one of these automated trades? The evidence would be somewhat anecdotal and hard to prove, I'm just curious. I know the brains behind these things are probably far beyond mundane price/volume patterns.

 

One more thing. Are you confident that you'll be able to find the new places these automated entries start hiding when the current methods change? Have you already had experiances like this?

 

Sorry for throwing everything at you at once..Keep up the great work

[UrmaBlume 10]

CornHusker,

 

First, thank you very much for the kind words.

 

I tried to post this same message on the futures arb thread, but for some reason my post will not appear..So here is that post (it was directed at you anyways, so maybe a PM is better.

 

Hey UB,

 

I just want to say I've taken a couple hours and gone through most of your posts, you are brilliant sir. Your trade intensity indicator is what I've been looking for, for a long time. I'm not one who wants to buy it or anything like that, but the evidence it offers is priceless. You have succeeded in unearthing decoding, as it were, hidden flows by big money. As most of us know who have been around for a while, there is no good reason to enter until the flow is on our side and most will never come close actually being able to verify this (or even grasp it's importance). TA is really illogical in most of it's forms. But what you're doing is the most objective example I've ever seen for coming up with a good or real reason for entering the market.

 

Thank you again, kind sir.

 

I really liked your example of the statarb trade you identified with your flow indicators. When you saw the spike in consumption on three markets at the same time you probably inferred it was arb, but would you or do you enter directional trades on just one of those markets because of that spike?

 

No, the intensity indicator is just a small part of a whole range of algorithms we use to meter/measure the state of the price/time/volume continuum in any give market. If you will refer to this thread you will see a chart with dots, graphs and text which give precise trade recommendations which we call TradePoints.

 

We take information such as trade intensity, velocity and other measures from seven different time frames, store that information in global variables and then in the timeframe to be traded, access, process and run rule sets over that information to get the auto-posted text and trade points shown in this chart:

 

 

This may be a dumb question, but how many of your net flow change based entries turn into trades that have the potential to run for long periods of time? Do you let any of your trades run?

 

Again, this idicator is just one part of the information that we collate to come to a trade decision.

 

Also, another silly question. Have you ever identified possible causes (PA, TA Setup ect.) that induced one of these automated trades? The evidence would be somewhat anecdotal and hard to prove, I'm just curious. I know the brains behind these things are probably far beyond mundane price/volume patterns.

 

We don't care about the why of the transactions, we care about the fact of the transactions. We never know what model gave the indication for the trade or even whether the trade was an opening or closing transaction. We just care about the fact that there was out of sequence buying or selling at that point.

 

One more thing. Are you confident that you'll be able to find the new places these automated entries start hiding when the current methods change? Have you already had experiances like this?

 

Yes, because these guys that drive the market are greedy and they almost always do enough size, velocity and produce a big enoug imbalance so that they give themselves away.

 

We are aware and track the tactics used by some operators to hide/disguise this action but the fact still remains that they have to get a lot done to make a lot of money and they can't hide the fact of the transactions.

 

Sorry for throwing everything at you at once..Keep up the great work

 

While I welcome private communications, I prefer broader questions such as these be asked and answered in the room. Since you have indicated you intended to post this anyway, I will post your questions and my answers in the intended thread.

 

Thanks again for the kinds words.

 

cheers and good luck

 

UB

[mktwzrd 10]

CornHusker,

 

First, thank you very much for the kind words.........

 

Are you serious?!?!

 

:rofl: :rofl: :rofl: :rofl: :rofl: :rofl: :rofl: :rofl: :rofl: :rofl:

[BlowFish 10]

 

When you saw the spike in consumption on three markets at the same time you probably inferred it was arb

 

Be careful what you infer, even with risk arbitrage (as opposed to mean reverting arbitrage). Ask yourself what is the fundamental characteristic of all arbitrage trades be they mean reverting or non stationary?

 

The program that ran at that point may well have determined those instruments where undervalued in comparison to other correlated instruments but unless you can show similar opposite direction trade triggering at the same time in those other (relatively) overvalued instruments there is absolutely no reason to infer that the trade is not directional.

[become 10]

Be careful what you infer, even with risk arbitrage (as opposed to mean reverting arbitrage). Ask yourself what is the fundamental characteristic of all arbitrage trades be they mean reverting or non stationary?

 

The program that ran at that point may well have determined those instruments where undervalued in comparison to other correlated instruments but unless you can show similar opposite direction trade triggering at the same time in those other (relatively) overvalued instruments there is absolutely no reason to infer that the trade is not directional.

 

Good point. From the standpoint of a short-term trader making directional bets, does it actually make any difference whether the observed spikes are directional or arbitrage?

 

It seems to me what matters most is whether the spike represents resistance being taken out in a strong trend, or resistance stopping a trend.

[cornhusker 10]

Be careful what you infer, even with risk arbitrage (as opposed to mean reverting arbitrage). Ask yourself what is the fundamental characteristic of all arbitrage trades be they mean reverting or non stationary?

 

The program that ran at that point may well have determined those instruments where undervalued in comparison to other correlated instruments but unless you can show similar opposite direction trade triggering at the same time in those other (relatively) overvalued instruments there is absolutely no reason to infer that the trade is not directional.

The trade by definition skews the flow anyways. Even if it was a multiple instrument arb trade, you could trade and add to the imbalance the arb trade caused. Like UB said, he doesn't really give a rip what the trade originators motivations were. If the market becomes imbalanced you trade it.

[maxima 10]

If the market becomes imbalanced you trade it.

the imbalances are relatively easy to find ... this is how to trade them question bothers me for a year now :crap:

[UrmaBlume 10]

the imbalances are relatively easy to find ... this is how to trade them question bothers me for a year now :crap:

 

The intensity spikes are just one part of the inputs that we collate and weight to produce a trade decision.

 

These inputs from seven different time frames are stored in global variables, compiled and weighted and accessed from the operative time frame as described in this thread.

 

The information from these global variables is further procesed by intelligent agents and rule-sets as described in this thread to produce charts in those same seven time frames as shown below:

 

 

 

 

Cheers

 

UrmaBlume

[BlowFish 10]

Good point. From the standpoint of a short-term trader making directional bets, does it actually make any difference whether the observed spikes are directional or arbitrage?

 

It seems to me what matters most is whether the spike represents resistance being taken out in a strong trend, or resistance stopping a trend.

 

To me it does not

[BlowFish 10]

The trade by definition skews the flow anyways. Even if it was a multiple instrument arb trade, you could trade and add to the imbalance the arb trade caused. Like UB said, he doesn't really give a rip what the trade originators motivations were. If the market becomes imbalanced you trade it.

 

I am not sure if you have read this thread from the start. If you have re-read post 6 again carefully, that is not what is said at all. BTW any trade "skews the flow" that is my whole point. Why do you think it was an arb trade that caused it? Imbalanced with respect to what?

[maxima 10]

From links you posted I gather that your version of statarb is (roughly):

 

a. collect data

b. run custom weighted index on it (i.e. sum of 24 biases)

c. use regression analysis to find most probable price

d. trade deviation between "right" price and real market price

 

I was looking to be honest for how do you factor time in it. But since you use TS there is no question for that.

[UrmaBlume 10]

From links you posted I gather that your version of statarb is (roughly):

a. collect data

b. run custom weighted index on it (i.e. sum of 24 biases)

c. use regression analysis to find most probable price

d. trade deviation between "right" price and real market price

I was looking to be honest for how do you factor time in it. But since you use TS there is no question for that.

 

Maxima,

 

I have scanned all your posts and have no surprise that this post of yours conveys such a complete mis-understanding and over simplification of our work. As to one of your previous posts which asks "Guess who lost more," I now have an opinion.

 

None of our work is about statistical arbitrage in pair trading it is all straight spec trading.

 

As to time there is indeed a way to use time in TS - it is just that most don't understand how to access a more granular level of time than the 1 minute stamp available in TS. We do and have discussed it elswhere. Our indicator of trade intensity and the velocity meter on the HUD are both calculated in the millisecond time frame.

 

For those with your level of technical understanding - I was in recent conversation with the development team at TS and they say that TS 9 will be out this summer and will include a millisecond time stamp and some much awaited changes to order placement and the trade manager that will help with the development of higher frequency trade bots.

 

UrmaBlume

[maxima 10]

here we go again. I was trying to understand the essense and you are saying that I am daft by "scanning" my posts...

 

Erm...OK then... I'll leave you to live your :haha: "high frequency quant" dream... :rofl:

[cornhusker 10]

I am not sure if you have read this thread from the start. If you have re-read post 6 again carefully, that is not what is said at all. BTW any trade "skews the flow" that is my whole point. Why do you think it was an arb trade that caused it? Imbalanced with respect to what?

 

Some trades really skew the flow though, and that is the point I was trying to make. Professional (size) demand creates reversal points/prices. I'm not saying it was an arb trade, just putting it into the context of the thread. Most arb trading is contrarian anyways, thus when size comes in it's going to in theory pull the respective instruments back.

 

As UB said, it's not even about finding arb trades, it's about seeing the fingerprints the professionals leave behind when they're trades are placed. He clearly said that it's easy to see when they come into the mkt because they are greedy. Even for a stupid ******* like me using no high level programs can see this happen. June Euro for example just vomited out a series of 40's (size), all going off one after the other and sure enough a sell off ensued (albeit small), and a relative high was made. I call that greedy bolsheviks trading. I don't care why those trades were placed, I just need to see that they are there.

Edited March 23, 2010 by cornhusker

[natedredd10 10]

FWIW, here's my idea of the best method of futures arbitrage - - (the original topic of the thread - now my post appears off topic)

 

Get a room full of beginning traders, give them some stochastics and MACD and do the exact opposite of what they do.

If 90% of traders go broke, then that should be a slam dunk.

 

My real point should be that making $ in the markets doesn't need to be rocket science, it just takes thinking creatively.

 

Strategies with only a few lines of code can make $, and if they do, who is to say that they are "for fools". If I get laughed out of the room (cave) by the secret quants, who cares? Still made $.

 

My message is that newbies, don't get to discouraged or intimidated by the quants. You can do it if you are dedicated and creative.

 

Fading a losing trading system will not work because of transaction cost. Its nearly impossible to build random trading system that loses 10% over a good sample size. If you did this then you could hone in on what market mechanics you may have captured and reverse it. Obviously things are not so simple.

Anyone who would claim to have a winning automated system with a few lines of code is lieing or extremely lucky for now. There is no way you could handle order entry and risk management with just a few lines.

People in general are afraid of what they don't understand and most people are just lazy IMO. If I said I was a quant and trade strats based around this formula

I'm sure a moving average trader would chime in that they don't need such "sophisticated tools"..

high frequency/quant/arbitrage are just the buzz words last years cool street kids used that got invited to the cool highschool parties. Don't confused that human social nonsense though with the actual tactics that simply use the massive cpu power that sits under your desk that tradtional TA does not. Like the analogy a few pages back of using a bike instead of a car...Everyone has a car, why try to enter the daytona 500 on a bike when you don't have to. Augmented Dickey–Fuller test isn't that much more complex than a moving average when your computer can run both blindly fast.

Just like there are micro organisms all around me right now, some would do me harm but don't since they are locked in a battle with other micro organisms, we actually probly all benefit with how tight spreads are from HFT.

The real deal, not some dude running tradestation and claiming to be a high frequency trader.

[maxima 10]

The real deal, not some dude running tradestation and claiming to be a high frequency trader

:rofl::rofl::rofl: that what I've been thinking.. just didnt want to add to the flame

[UrmaBlume 10]

Nate,

 

What a great post. Thanks.

 

All of our posts are about what you call point & click trading and that is done from TradeStation.

 

We have never posted anything about the concepts, applications, data and server location that we consider valuable in HF Algorithmic trading and probably, like everybody else, including you, never will.

 

Your view of the markets is of a perspective that is born of both experience and a great understanding of state of the art protocols and technologies and all here can benefit from that.

 

thanks

 

cheers

 

UB

[BlowFish 10]

Some trades really skew the flow though, and that is the point I was trying to make. Professional (size) demand creates reversal points/prices. I'm not saying it was an arb trade, just putting it into the context of the thread. Most arb trading is contrarian anyways, thus when size comes in it's going to in theory pull the respective instruments back.

 

As UB said, it's not even about finding arb trades, it's about seeing the fingerprints the professionals leave behind when they're trades are placed. He clearly said that it's easy to see when they come into the mkt because they are greedy. Even for a stupid ******* like me using no high level programs can see this happen. June Euro for example just vomited out a series of 40's (size), all going off one after the other and sure enough a sell off ensued (albeit small), and a relative high was made. I call that greedy bolsheviks trading. I don't care why those trades were placed, I just need to see that they are there.

 

The 'context of the thread' is Futures Arbitrage in particular pairs trading. I would respectfully suggest you are taking things further out of context of the thread . (I am pretty laissez fare when it comes to thread policing but do like to point out when people start calling apples oranges).

 

My point was not about 'disruptions in the flow','footprints of the elephants' or 'finger prints of the pros'. Neither was it about whether these could be detected, traded, exist or are imagined. You are clouding things with these arguments and replying to points that I did not make. Whatever as they say

 

As an aside has anyone read "Finding Alpha: The Search for Alpha When Risk and Return Break Down" by Falkenstein? Looks interesting.

[donaldkagan 10]

I recently participated in an online session where an "expert" took a group of would be traders through what he called pair trading. It was a very peculiar experience. The method taught by this expert, was to create a pair of some sort (no correlations/co-integration calculations) and then trade the pair as though it were a single stock, by which I mean to say he would take RSI readings, Stochastic's, and various candle formations and interpret them as buy/sell signals. The most shocking thing about this for me was how eagerly the participants ate it up. I hadn't realized how insulated I was from the general population of retail traders, and how badly my estimation of their awareness of very basic (non quant) principles of arbitrage was. Mean reversion was not mentioned once, I actually have trouble fully understanding how one can trade in that fashion.

Needless to say, my list of questions regarding stat arb with futures went unasked.

[natedredd10 10]

Nate,

 

What a great post. Thanks.

 

 

childs play to bait you into a reaction Pat...

 

TS with nice timestamps if true is great...amazing actually...I had assumed they were not just watching Ninja walk all over them then **** up this bad without a response...

good stuff..

Edited March 24, 2010 by natedredd10

[natedredd10 10]

Ditmar, how much your shitty poker book sold? Its totally useless.

your traders are made up of what??? 20 tableing mindless nits you can game off a hand everytime...I posted here awhile back and you told me to learn poker, I have.

I'll have beat you in 5 years easy, maybe 4...

I do respect you though to some degree because no way I tell these morons 10% of what you have....

[ame=http://www.youtube.com/watch?v=rjCyZ2P9bCA]YouTube - Obi-Wan Kenobi Vs Darth Vader[/ame]

 

Hard to figure out that the outliers of two arbitrary data points, and two other nonsense data points, are just some kind of weird asian fetish......

Edited March 24, 2010 by natedredd10