Today's Action by Intelligent/Predictive Agents

[cunparis 10]

Has anyone discussed how they trade using this TI info? Scalps, swing trades, etc.? I think it can lend itself to both, depending on the action you see.

 

I'm interested in this as well so I'll share my first trade today. I'm not trading off a 100 tick chart, this is just for my intensity indicators. I haven't yet came up with a way to collect data on a fast chart and display it on my normal charts (which to make it more difficult, are in Tradestation).

 

I'm not entering or exiting based on intensity signals, but rather they're just another piece of the puzzle for my discretionary trading.

 

My biggest challenge is that I find these intensity signals are usually exhaustion and mean there will be a pause or slowdown but not necessarily a reversal. So one can't just trade these thinking it marks the top. Far from it.

 

in this case I had a setup and thought the market would turn down. It did enough for me to get one target off but didn't hit my second. I continued cycling 1 pt scalps and finally my setup was no longer valid so I exited the 2nd contract and waited for another setup.

 

[FulcrumTrader 10]

Thank you FT for posting this concise list. It is very close to what I have come up with on my own by reading through these various threads as well as trial and error/ experimentation.

 

Has anyone discussed how they trade using this TI info? Scalps, swing trades, etc.? I think it can lend itself to both, depending on the action you see.

For the ES.......8 to 12 tick runs of price is where I have been targeting covering the majority of the entered position. This may change in time with more forward testing and with any significant changes to the volatility from our current situation. In the CL for instance, I have been so far looking at 15 to 20 tick moves to cover the majority of the position.....again, more forward testing through June and July and I will have a better idea for what is realistic initial targets.

[cunparis 10]

BTW, just to throw in another wrench....Who do large liquidity participants follow most of the day (in the "ES" that is)?

 

What do you mean by "follow"?

 

And thanks for that excellent list of ideas for measuring intensity.

[FulcrumTrader 10]

What do you mean by "follow"?

 

And thanks for that excellent list of ideas for measuring intensity.

I wanted to point out that action in the Equities Index instruments follow many of the BUY / SELL program activities in the Equities markets (mainly NYSE) for the ES, YM, TF action.

[cunparis 10]

I wanted to point out that action in the Equities Index instruments follow many of the BUY / SELL program activities in the Equities markets (mainly NYSE) for the ES, YM, TF action.

 

Can you explain why someone would sell both futures & equities at the same time? I thought they would do a buy program on equities and sell futures as a hedge. I'm not sure what you mean by follow.. do you mean trade the same direction or do you mean in time (one before the other)?

[macdfx 10]

Can you explain why someone would sell both futures & equities at the same time? I thought they would do a buy program on equities and sell futures as a hedge. I'm not sure what you mean by follow.. do you mean trade the same direction or do you mean in time (one before the other)?

 

Fair Value, Program Trading, and the S&P Premium

The "premium" (PREM) or "spread" is the difference between the most active S&P 500 Stock Index Futures Contract (the spoos) minus the actual S&P 500 Stock Index (cash). That difference, which usually ranges between $5.00 to $-5.00, and slowly decays or rises as we reach the S&P 500 Futures Contract expiration, is what program trading is based on. When the PREM difference rises to a certain execution level, "buy" programs kick in. Our large institutional clients then buy the stocks in the S&P 500 Stock Index on the New York Stock Exchange and sell the S&P 500 Stock Index Futures Contract against those positions on the Chicago Mercantile Exchange. When the PREM difference drops to a certain execution level, "sell" programs kick in and our clients do the exact opposite. These transactions have extremely low risks because of the abnormal market differences in the PREM as traders capture those few points of profit before the PREM returns to normal and/or Fair Value. This type of program trading is called index arbitrage and is very common. But it usually accounts for less than 10% of all program trading activity done each day.

 

Hope that helps.

[MtnDog 10]

Thanks for the replies on targets/trade objectives. I guess there are multiple strategies that could be employed, depending on # of contracts, risk tolerance, etc.

 

As for premium arb, I have been watching this for some time and there are definitely times when the prem hits significant levels and there is no TI. Cash just snaps back in line with futures. Then there are also times when prem arb is happening along with TI. I guess this is more evidence that there are multiple participants and multiple objectives at any given time.

[Shell128 10]

Can you explain why someone would sell both futures & equities at the same time? I thought they would do a buy program on equities and sell futures as a hedge. I'm not sure what you mean by follow.. do you mean trade the same direction or do you mean in time (one before the other)?

 

For speculative trade, liquidity is one reason. I don't know how the big institutions decide to buy, but when they do, they often buy in a hurry. Therefore, if they can spread their orders out over as many markets as possible, they will experience less slippage than if they threw the entire order into one market.

[BlowFish 10]

For speculative trade, liquidity is one reason. I don't know how the big institutions decide to buy, but when they do, they often buy in a hurry. Therefore, if they can spread their orders out over as many markets as possible, they will experience less slippage than if they threw the entire order into one market.

 

Indeed. Whilst browsing the interwebz for interesting material for the kindle I came across this

Powered by Google Docs One of the premises is that intense trade is a function of urgency with respect to available liquidity. It is focused on defaults but seems relevant to any situation where immediacy is required. The paper suggests a few reasons for urgency (avoiding defualts), there are others that occur to me that are not about 'defaults' (last leg of an arbitrage trade for example).

 

I haven't got my head around the maths yet (I wish it wasn't so rusty) but it seems to seek to quantify intensity and its short and long term impact on price. (amongst other things). Quantifying what is 'intense' seems like an important thing for an agent.

[natedredd10 10]

Nate,

 

In answer to your first query "what tick database are you using" I assume your are talking about which data vendor, not the dbms itself. In any case I will answer both.

 

Also may I thank you for your most eloquent and well written expression of on-topic, non-personal constructive criticism? I would humbly ask that you describe and demonstrate any comprable work of your own creation in the same level of detail as is in the text below:

 

Pat, I like to pull your chain and try to be a bigger ass on trading boards than the perception people have of you, its amusing to me to do so since there is largely so little signal to pull of trading boards in general.

I'm sure from our exchanges there is no way you realize that I absolutely want to be you in 20 years.

Of course I can't DEMONSTRATE comparable work, yet...I put you on being between 52-56 years of age.. so I have 2 decades to beat what you have done.

I noticed you didn't respond on 2+2 to the guy that called you out for throwing out jargon in that thread you created in business and finance.

Your mistake is that you don't think anyone else at the trading board level is thinking as deeply about this stuff as you.

I could care less about your data feed. I meant literally what DB to learn here to store as much tick data as possible. Why SQL over a time series db? I'm on the fence between HDF5 and Berkley..I can understand if you have hired some DB guy who is simply good with SQL...any analysis of the situation though makes it obvious that SQL is not optimal for tick data at all. However, obviously a poorly done time series db setup by an amateur may be suboptimal to an SQL guru in reality.

As far as swarm intelligence, I don't see how you get around that functions that are modified by their input are better than a sum cascade of functions modeling input in the long run if you are really talking about "intelligence". In the short term obviously yes...I'm hardly though trying to figure out this most difficult problem tomorrow.

That swarm intelligence book is pretty lame though really after you have read it. I would think you would find The Ants by Bert Holldobler much more interesting. Its the most lovely book I've ever purchased to boot.

[natedredd10 10]

So while a few spend all their time over who you can or can't call a Commercial, the actual discussion should be on how to identify when large liquidity participants are getting into the market with newly initiated directional trade.

 

As usual the market evolves past what the literature and networked trading board information can keep up with between us. In COT terms, the idea you can separate in real time/short time frame/day trader time frame the difference between commercial and large speculator action is completely absurd unless you ignore the entire concept of index arbitrage. Small speculators mean nothing to the market, they basically only add noise to the analysis because of their lack of liquidity.

Its not as if "commercial" index futures players are so underfunded that they have not already blasted back against high frequency "speculative" index arbs. That doesn't even make any sense, of course they have. If anything they are better funded.

Ditmar's trade intensity I would imagine is measuring when the spread between the tick by tick value of the cash index gets enough out of whack with the derivative that all the arbs start gun slinging...some pull out a piece of alpha, a shitload react to that but are too late and on the tape you tend to get an easy fade of that game. It however also draws a line in the sand for the discretionary trader on a short time frame of what algo arbs are looking at as far as the spread and "fair value" for the current implied index volatility at that moment, but that info is completely out of context if you are only looking at price levels of the derivative. I would imagine though its information that adds to positive expectation when added to other trading decisions, even though fundamentally its obviously suboptimal in theory.

You could improve on this with a ms resolution snapshot of the actual value of the cash index and compare things, but taking ms snapshots of the cash index at our level is hardly non trivial.

Edited June 4, 2010 by natedredd10

[BlowFish 10]

 

So while a few spend all their time over who you can or can't call a Commercial, the actual discussion should be on how to identify when large liquidity participants are getting into the market with newly initiated directional trade.

 

I think most would agree that it does not matter whether they are 'commercial' however I'd go further. You mention 4 criteria -

 

1) large - not so important to me which is fortunate as while you can detect patterns you can not know for sure whether it is 10 x 100 lot traders or 1 x 1000 lot traders. As you say liquidity is what it is all about. Fortunately things like intensity are pretty effective at detecting immediate liquidity requirements.

 

2) Getting into - again not so important perhaps - whether they are getting in to the market or out of the market. Fortunate as pretty hard to detect (imho). Arguably participants getting out of the market are equally worth coat tailing as they often cause greater movement (more urgency).

 

3) Initiating new trade - again not so important (imvho) similar reasons to above. Hard to know if the buyer/seller is buying/selling to open/close. Mind you I do like how you use cumulative delta as a sort of proxy for OI.

 

4) Directional trade - not bothered - hard to detect for sure especially when you consider that some of the largest participants are not speculating on market direction at all.

 

The key thing is liquidity in fact you can look at markets fairly simply as systems to match the liquidity requirements of participants.

 

I think my criteria would be a bit more general, determine where liquidity might be found (simple S/R would do or your resting inventory model seems pretty robust). Monitor the order flow (demand for liquidity) particularly in these areas. Do not pay much attention to the who is operating and why (or do so just for fun if that floats your boat). Fortunately you can always (leaving aside dark pools) see someone is at it, and by using tools based on V@B/A and or intensity see how aggressively.

[idetsc 10]

Do not pay much attention to the who is operating and why (or do so just for fun if that floats your boat). Fortunately you can always (leaving aside dark pools) see someone is at it, and by using tools based on V@B/A and or intensity see how aggressively.

 

Hello BlowFish,

 

thank you for your useful post.

 

Referring to macdfx's useful link to program trading in post #106, I'll agree with you when you write: "Do not pay much attention to the who is operating and why".

 

The important part is: How much at all?

 

And this is obvious, because even if I know their (the who) intentions (the why) like e.g. program traders, I will never know their possible impact in that unique moment as they begin to act.

 

Like looking on some ants conquering one domino. Can they turn the domino to the right side and will this have enough follow through. How about the other ants on the opposite side?

 

Even when we can identify program trading 80% on average, what does that mean? You will have 80% success?

 

So, when program trading kicks in, they make their money in a couple of seconds or minutes and once $prem is in balance they are out. And then? What about follow through?

 

Do I really need to know when e.g. program trading kicks in, since the program trading are reputed to be accountable for only 10% of the volume?

 

Do I even have to know if it's the big paper or anyone else with allegedly influence who has entered the game?

 

How much worth is a 80% success rate of identification the correct party at that particular moment when they too, naturally don't have a 100% success rate?

 

As long as I can locate/identify the effect by recognizing the aggressivity/intensity in a timely manner, I really don't need to know who is exactly most probably liable or the cause for that, just because it is always another unique moment.

 

I would say, the most important part is "context" and not "identification".

 

I can set an exact context for each price, when I can determine my own (although discretionary) extreme levels. By the way, we are doing this all the time in our lives.

 

But what am I gonna do, if I can identify who is now in the game for sure, but can neither talk to him nor knowing how much his impact will be?

 

Put simply, what is a local gonna do when he/she is long and paper selling is coming in?

 

a) sell everything (to whom?)

b) to pit oneself against (how long?)

c) buy as much as he can (how much can he?)

 

And at least to put it in real estate language, IMO everything amounts to just one: prime location

 

PS: Although someone could argue that this thread is still on topic, I am very happy with the amount of insightful contributions. Thanks!

[MiniFlowTrader 10]

How can intensity help you if you don't know what the underlying is doing, intensity is simply intensity it can be a blip or something important.

 

As they say, Cash is king.

 

[cunparis 10]

How can intensity help you if you don't know what the underlying is doing, intensity is simply intensity it can be a blip or something important.

 

As they say, Cash is king.

 

 

Ok I'll bite: what's in the 2nd & 3rd panels?

[Student of Tape 10]

MiniFlowTrader,

 

I agree completely... if the cash is very strong in one direction it will not matter if an intensity goes off.

 

 

-SOT

[jeffersondaarcy 10]

Urma,

From my understanding, you've said that the large/important players submit very large orders (let's assume 1,000 contracts) by placing 1000 one lot orders (or some variation of this) that all fall within a single second (or less). From now on, I'll refer to this as a "pulsed order." Furthermore, the purpose of your trade intensity indicator is to detect this pulse. Please correct me if I am wrong. My question is this:

 

Prints are not based on the size of the market order, they are based on the size with which the market order was matched. Meaning, if I place a market order to buy 10 contracts, the tape will print the quantities that were sitting on the offer when my market order was matched. So, if someone happens to be offering 10 contracts, the tape will reflect this by printing a 10. If 10 different people are sitting on the offer, all offering one lots, the tape will print 10 one lots. Therefore, I question how you can tell whether an order was pulsed in or whether someone placed a buy market block 1000 order (assuming the offer was made up of smaller size). Are you saying that a "pulsed" 1000 lot order prints faster than a 1000 block order that gets matched with 1000 one lots? Seems to me like they would have the same "intensity." In fact, seems to me that the block order might even print a tiny bit faster since it is a single order (as opposed to a pulsed order, which is a 1000 micro orders).

 

Thanks

[SIUYA 11]

I thought this was an interesting article I found that may or may not have some application/interest to the volume ideas discussed here and in a few other threads

Volatility: Friend or Foe? | FINalternatives

a guest contributor article on

Volatility: Friend or Foe?

Jun 9 2010 | 1:02pm ET

 

(I think everyone should be able to view it without a login, otherwise I will try and reproduce it)

[Shell128 10]

Urma,

From my understanding, you've said that the large/important players submit very large orders (let's assume 1,000 contracts) by placing 1000 one lot orders (or some variation of this) that all fall within a single second (or less). From now on, I'll refer to this as a "pulsed order." Furthermore, the purpose of your trade intensity indicator is to detect this pulse. Please correct me if I am wrong. My question is this:

 

Prints are not based on the size of the market order, they are based on the size with which the market order was matched. Meaning, if I place a market order to buy 10 contracts, the tape will print the quantities that were sitting on the offer when my market order was matched. So, if someone happens to be offering 10 contracts, the tape will reflect this by printing a 10. If 10 different people are sitting on the offer, all offering one lots, the tape will print 10 one lots. Therefore, I question how you can tell whether an order was pulsed in or whether someone placed a buy market block 1000 order (assuming the offer was made up of smaller size). Are you saying that a "pulsed" 1000 lot order prints faster than a 1000 block order that gets matched with 1000 one lots? Seems to me like they would have the same "intensity." In fact, seems to me that the block order might even print a tiny bit faster since it is a single order (as opposed to a pulsed order, which is a 1000 micro orders).

 

Thanks

 

When you see 1296 contracts fly by in 100 ms, and also that the burst is padded with several hundred ms of no trade activity both before and after...you're probably not looking at 500 perfectly synchronized retail traders.

[jeffersondaarcy 10]

When you see 1296 contracts fly by in 100 ms, and also that the burst is padded with several hundred ms of no trade activity both before and after...you're probably not looking at 500 perfectly synchronized retail traders.

 

Exactly. A 1300 block order will look very similar to a pulsed 1300 lot order (assuming there wasnt size sitting on the offer for the block order). Therefore, trying to distinguish between pulsed orders and block orders (if one indeed believes that pulsed orders are a better indication of order flow shifts than block orders) is somewhat futile because prints are based-off of the limit orders in the book, not the market orders (assuming two market orders are not crossed).If I place a 1200 block buy market order and there are 1200 one lots on the offer, the trade will look exactly like a pulsed order. You cant tell the difference (unless there was size sitting on the offer).

[TheDude 10]

Exactly. A 1300 block order will look very similar to a pulsed 1300 lot order (assuming there wasnt size sitting on the offer for the block order). Therefore, trying to distinguish between pulsed orders and block orders (if one indeed believes that pulsed orders are a better indication of order flow shifts than block orders) is somewhat futile because prints are based-off of the limit orders in the book, not the market orders (assuming two market orders are not crossed).If I place a 1200 block buy market order and there are 1200 one lots on the offer, the trade will look exactly like a pulsed order. You cant tell the difference (unless there was size sitting on the offer).

 

 

Quite.

 

Alas, you're banging your head against the wall. There are many, many flaws with the logic sitting behind this. You have mentioned one. I have mentioned others (on either this or another similar thread). For example, the person you addressed has given thanks to a post since yours, but has not replied. Thus we know he is here, but can not answer.

 

One thing is for sure however: There are a few people on these boards who promote them selves as 'experts', yet demonstrate a shocking lack of knowledge of the basics of the futures industry and it's workings; from how orders are matched, to variety of techniques employed, the goals and reasons of business of different participants.

 

These few people have an unshakeable belief however that what they have observed a few times in the past (they call this back testing apparently), and have managed to come up with an explanation, so decide it must be true. They have built an idol of their own making and worship it. If you try and suggest otherwise, and help them correct their ways, they accuse you of stalking, etc. It's quite fun to observe - dressing opinion as fact, then insisting you are an intellectual.

:rofl:

 

I wouldn't worry about it. You seem intelligent enough to see the flaws. Just sit back and be amazed at those who follow.........

[cunparis 10]

Exactly. A 1300 block order will look very similar to a pulsed 1300 lot order (assuming there wasnt size sitting on the offer for the block order). Therefore, trying to distinguish between pulsed orders and block orders (if one indeed believes that pulsed orders are a better indication of order flow shifts than block orders) is somewhat futile because prints are based-off of the limit orders in the book, not the market orders (assuming two market orders are not crossed).If I place a 1200 block buy market order and there are 1200 one lots on the offer, the trade will look exactly like a pulsed order. You cant tell the difference (unless there was size sitting on the offer).

 

i must be missing something here.

 

Let's say there are 100 1 lot traders who sell 1 lot on the offer as a limit.

 

I buy 100 market.

 

Does the Time & Sales show 100 at offer? Or does it show one hundred times 1 at offer?

 

and the second question:

 

50 1 lot traders put 1 lot sell at limit 76.50 (which is the offer)

50 1 lot traders put 1 lot sell at limit 76.75

 

I buy 100 market. What does time & sales show?

[TheDude 10]

i must be missing something here.

 

Let's say there are 100 1 lot traders who sell 1 lot on the offer as a limit.

 

I buy 100 market.

 

Does the Time & Sales show 100 at offer? Or does it show one hundred times 1 at offer?

 

and the second question:

 

50 1 lot traders put 1 lot sell at limit 76.50 (which is the offer)

50 1 lot traders put 1 lot sell at limit 76.75

 

I buy 100 market. What does time & sales show?

 

Firstly, it will depend on the exchange. Different exchanges report differently.

I think the CME will report in the smallest denominator, so your 100 lot bid will print as you receive the fills back 100x1lots.

 

2nd Q: 50x 1 lot prints at 50, 50x 1 lot prints at 75

[jeffersondaarcy 10]

Just sit back and be amazed at those who follow.........

 

That's why I posted in the first place. Im trying to do my part and stop people from following, that is unless Urma actually wants to address the post and prove me wrong. I would be more than happy to admit that I was wrong and apologize. Plus, his answer would be a tremendous benefit to the community.

 

On another note, if anyone has any questions about how the CME reports trades, I highly recommend calling and talking to them, I have done so on numerous occasions and they are incredibly helpful, usually providing even more information than you initially needed/wanted. If you're going to incorporate something into your trading system, better make sure your assumptions are correct (as opposed to taking the word of someone on the message boards).

[cunparis 10]

Firstly, it will depend on the exchange. Different exchanges report differently.

I think the CME will report in the smallest denominator, so your 100 lot bid will print as you receive the fills back 100x1lots.

 

2nd Q: 50x 1 lot prints at 50, 50x 1 lot prints at 75

 

EDIT: Read the post after this one because I misunderstood TheDude's reply..