Instutional "Shredding"

[JohnBly 10]

This thread is concerned with understanding how large players break-up or "shred" market orders in the futs mkts.The reason I am trying to understand better how this is done is part of my methodology is concerned with tracking institutional vs retail activity.

 

In their effort to (sometimes) camouflage their activities we all know that large players are able to bleed-in markets orders very rapidly in small lots using algos. One trader I know mentioned that "up to 1000 single lot orders can be entered per second" on the Globex for example. If anyone has first hand experience with this I would be grateful to know:

1) Under what conditions will large mkt orders likely be shredded (ei entries, profitable exits, losing exits etc)?

2) We all see large block orders passing T&S. Under what conditions will a large player not be concerned with hiding his tracks?

3) If a 3000-lot order was shredded into 1000 3-lot trades in 1 second, there would be a way to spot that. Does anyone know of tools that are of use in this regard?

 

Any comments on this practice in the futs mkts would be welcome.

 

Thanks

John Bly

[jdevron 10]

Regarding point number 3, I'm not sure if this is done in futures but in equities large orders are often broken up with "baskets" which essentially means to send fractions of the same order to a number of different exchanges simultaneously. I'm not sure how this would apply to futures because I don't think you would be able to find 1000 exchanges to send a 3 lot order.

[JohnBly 10]

Regarding point number 3, I'm not sure if this is done in futures but in equities large orders are often broken up with "baskets" which essentially means to send fractions of the same order to a number of different exchanges simultaneously. I'm not sure how this would apply to futures because I don't think you would be able to find 1000 exchanges to send a 3 lot order.

 

Thanks jdevron,

 

Any given Fut contract is traded on only one exchange, which in theory should make things easier to track?!

[tucciotrader 10]

I'd like to know if the CME accounts for the 100% of the market share for futures like ES / NQ / YM. I mean, if I place a BUY order to long a ES future do you think I might be executed by the broker (playing the market maker) first, thus without showing up in the book nor in the T&S?

 

I think the Nasdaq market works like that.

 

Thanks

[JohnBly 10]

I'd like to know if the CME accounts for the 100% of the market share for futures like ES / NQ / YM. I mean, if I place a BUY order to long a ES future do you think I might be executed by the broker (playing the market maker) first, thus without showing up in the book nor in the T&S?

 

I think the Nasdaq market works like that.

 

Thanks

 

No Sir Futs don't work that way.

All trades are cleared directly on an exchange as far as I know.

[packrat 10]

This thread is concerned with understanding how large players break-up or "shred" market orders in the futs mkts.The reason I am trying to understand better how this is done is part of my methodology is concerned with tracking institutional vs retail activity.

 

In their effort to (sometimes) camouflage their activities we all know that large players are able to bleed-in markets orders very rapidly in small lots using algos. One trader I know mentioned that "up to 1000 single lot orders can be entered per second" on the Globex for example. If anyone has first hand experience with this I would be grateful to know:

1) Under what conditions will large mkt orders likely be shredded (ei entries, profitable exits, losing exits etc)?

2) We all see large block orders passing T&S. Under what conditions will a large player not be concerned with hiding his tracks?

3) If a 3000-lot order was shredded into 1000 3-lot trades in 1 second, there would be a way to spot that. Does anyone know of tools that are of use in this regard?

 

JohnBly,

There is not really a need for futures traders using large market orders to try to camouflage the size of their orders. This has been the case since the market open on Sunday, October 4, 2009. At this time, the CME changed its tick reporting on the ES, NQ, and YM, which were the last commonly traded instruments where this would be beneficial to a large trader.

 

What you see now on the T&S which looks like bot entries is not usually a shredded order - it is simply the way the exchange now presents the actual executions that occur as a result of matching market orders with the queue. I am posting a link to an informative video which explains the why's and how's of what changed at that time and what we see now. There was an in-depth discussion of this on another forum, and a very experienced tape reader provided a fine explanation for us here:

 

Just a thought on your comment regarding orders per second: Leading HFT's have the capability to submit over 60 million orders per second, although the exchange is unlikely to be able to process the flow if that were to occur. Goldman (far cry from the largest HFT out there) is reputed to average over 1000 orders per second the entire trading day. Some of the big firms are trading 2-3 times Goldman's daily volume.

 

Regarding your question #2: On the majority of commonly traded futures, there is no longer a real need to break market orders up. Also explained in the video above.

 

Regarding your question #3: skilled tape readers understand how to do it, and there is some software available to reconstruct the large order from the tape, but that would require promoting a commercial enterprise to post info here, if you know what I mean. Don't think that's accepted here, although many do try...

 

Hope it helps!

[JohnBly 10]

PackRat,

 

Thanks very much for your reply.

That video was exactly what I needed to clarify much of this issue.

I appreciate that, you saved me time and brain cells.

 

In the vid he mentioned that the CME may revert back to the old style (reporting "Intent").

Do you know if this is planned for?

 

As far as pasting T&S back together, it would easy to code a tool which which groups all trades of any given time stamp together. This would give a good picture of what size mkt order really hit the book at any given moment right?

 

Thanks Again,

John Bly

[packrat 10]

PackRat,

 

In the vid he mentioned that the CME may revert back to the old style (reporting "Intent").

Do you know if this is planned for?

 

As far as pasting T&S back together, it would easy to code a tool which which groups all trades of any given time stamp together. This would give a good picture of what size mkt order really hit the book at any given moment right?

 

Thanks Again,

John Bly

 

John,

I haven't heard anything about it reverting back, could probably ask the video author or the CME. Can't imagine them doing it anytime soon given how long it took them to change it the first time.

 

Regarding your second question, it would give a reasonable estimation of the actual order - close enough for govt work but no way to prove it was right on. When I went through his tape reading workshop, he showed screenshots of an altered T&S which went far beyond simply putting the order back together, but I believe it is in beta testing right now. It definitely made a lot of sense as he explained it.

 

Glad the video helped - really allowed me to make sense of what was going on after a couple years of wondering about it.

[JohnBly 10]

PackRat,

I have heard about his Tape Reading educational programs etc and wondered about the quality. Did you find the materials helpful to your trading?

 

JohnBly

[packrat 10]

PackRat,

I have heard about his Tape Reading educational programs etc and wondered about the quality. Did you find the materials helpful to your trading?

 

JohnBly

 

Yes, very much so. Is the only real substance I have found on tape reading after much searching.

 

If you are aware of any others, please let me know - it is a fascinating subject and has been very valuable so far

[tucciotrader 10]

I think they should be better off using IDs instead of timestamps.

[squishy 10]

The only discussion I have ever run into that explains large order fragmentation can be found here:

 

http://www.camron.com.au/mainpage.htm

 

This site discusses the Australian market, mostly, but is definitely relevant to trading the e-minis. I use a Time and Sales window filtered for 10+ lots on the Russell e-mini to see when larger traders are coming into the market. Using a Volume Distribution chart will help determine volume at a price level and help uncover institutional action.

[JohnBly 10]

Yes Cameron is a treasure trove of information

[4EverMaAT 10]

No Sir Futs don't work that way.

All trades are cleared directly on an exchange as far as I know.

Yes. and guaranteed through the clearinghouse. Futures also works on FIFO order filling, so the institutional trader gets the same filling order as joe trader

[FulcrumTrader 10]

The CME has still not completely broken down all the order flow in their reporting. Apparently, they do not feel the existing data infrastructure can handle the flow of data from a complete break down to the most granular level.

 

It makes total sense why large liquidity participants continue to spray very small lot order flow into the book (up to 950 single lot orders sequenced together in one second)...this is by far the most dynamic way to work liquidity into order flow activity they want to take advantage of. This is also to this day the best way to mask their entries/exits from the market (versus sitting in the book with limits).

 

If a trader has a complete understanding of Cumulative Delta Volume tracking, you will see bursts of order flow activity frequently at key held inventory levels. This is activity of a winner covering (spraying market orders) orders into a loser capitulating (bailing with market orders). This activity causes order flow transitions, as buyers lose control to sellers or sellers lose control to buyers - which we can see very easily through Delta candlesticks. We also see large liquidity participants market order flow sprayed into the market as a new directional trade..into others who are capitulating a level of held inventory (losers bailing with market orders).

 

The dynamics of efficient order flow tracking are a foundation of the commercial participants heavy market order flow directional activities. They see exactly when others are capitulating, and this frequently triggers their extremely fluid order entry actions. This is mili-second tracking and order entry precision that most all retail traders have never been exposed to. This is also the main reason I use Cumulative Delta Volume tracking as a means to see where open interest is at realtime (when is the market going out of balance, when are levels of held inventory holding or folding, and what pricing levels still have held resting inventory - or real support and resistance).

[jtrader500 10]

This thread is concerned with understanding how large players break-up or "shred" market orders in the futs mkts.The reason I am trying to understand better how this is done is part of my methodology is concerned with tracking institutional vs retail activity.

 

In their effort to (sometimes) camouflage their activities we all know that large players are able to bleed-in markets orders very rapidly in small lots using algos. One trader I know mentioned that "up to 1000 single lot orders can be entered per second" on the Globex for example. If anyone has first hand experience with this I would be grateful to know:

1) Under what conditions will large mkt orders likely be shredded (ei entries, profitable exits, losing exits etc)?

2) We all see large block orders passing T&S. Under what conditions will a large player not be concerned with hiding his tracks?

3) If a 3000-lot order was shredded into 1000 3-lot trades in 1 second, there would be a way to spot that.

Thanks

John Bly

 

 

 

You are on the right track to profits my freind.

here is secret that is in plain sight, learn it, know it.

Jigsaw Trading. Day Trading, Tape Reading Decision Support Software.

your welcome

[jtrader500 10]

The CME has still not completely broken down all the order flow in their reporting. Apparently, they do not feel the existing data infrastructure can handle the flow of data from a complete break down to the most granular level.

 

It makes total sense why large liquidity participants continue to spray very small lot order flow into the book (up to 950 single lot orders sequenced together in one second)...this is by far the most dynamic way to work liquidity into order flow activity they want to take advantage of. This is also to this day the best way to mask their entries/exits from the market (versus sitting in the book with limits).

 

If a trader has a complete understanding of Cumulative Delta Volume tracking, you will see bursts of order flow activity frequently at key held inventory levels. This is activity of a winner covering (spraying market orders) orders into a loser capitulating (bailing with market orders). This activity causes order flow transitions, as buyers lose control to sellers or sellers lose control to buyers - which we can see very easily through Delta candlesticks. We also see large liquidity participants market order flow sprayed into the market as a new directional trade..into others who are capitulating a level of held inventory (losers bailing with market orders).

 

The dynamics of efficient order flow tracking are a foundation of the commercial participants heavy market order flow directional activities. They see exactly when others are capitulating, and this frequently triggers their extremely fluid order entry actions. This is mili-second tracking and order entry precision that most all retail traders have never been exposed to. This is also the main reason I use Cumulative Delta Volume tracking as a means to see where open interest is at realtime (when is the market going out of balance, when are levels of held inventory holding or folding, and what pricing levels still have held resting inventory - or real support and resistance).

 

To all viewing this thread, this "cumulative delta" is an unbelievable tool when you know how to "properly" use it.

It gives you a leg up on the answering the most important questions in trading consistently profitable.

Know WHO is in the market and from WHERE

The big money knows where you are, do you know where they are?

How can you fight and beat someone if if you cant see them...

[FulcrumTrader 10]

Fortunately, the futures markets are all orders on one exchange for all to see - so no one can really hide what they are doing. As all the large liquidity participants (and retailers) are running their order flow, you can see it live tick by tick. The Cumulative Delta is just a simple mechanism to visualize the differential in the BID/ASK order flow (market order activity). Too see who is in control of the order flow moment to moment - BUYERS or SELLERS.

 

Too bad all the Forex interbank activity could not be put on one exchange for all to see - oh wait, that would kill their racket...LOL!

[jtrader500 10]

I have always done my trading based only on total volume (swing highs to swing lows) and adjust my size accordingly. The hardest part of that is factoring how much is short covering vs real buying.

I am just starting with this cumulative delta, but it seems to me that you can spot the frenzy buying clearly when the average range of the delta bar is out of normal proportion.

I would also like to see the bid/ask delta extended on top of each total volume bar so I can get a good sense of "ease of movement" for the current bar (5sec bars for entries)

I know the cumu delta measures the market orders beyond the limits, but is there any advantage to knowing which side the size is favoring in the limit orders after a nice run.

thanks

[FulcrumTrader 10]

I have always done my trading based only on total volume (swing highs to swing lows) and adjust my size accordingly. The hardest part of that is factoring how much is short covering vs real buying.

I am just starting with this cumulative delta, but it seems to me that you can spot the frenzy buying clearly when the average range of the delta bar is out of normal proportion.

I would also like to see the bid/ask delta extended on top of each total volume bar so I can get a good sense of "ease of movement" for the current bar (5sec bars for entries)

I know the cumu delta measures the market orders beyond the limits, but is there any advantage to knowing which side the size is favoring in the limit orders after a nice run.

thanks

 

Large Delta bars are usually a sign of a lot of covering activity, so if your in some good trend following action it is great when large Delta bars keep printing. Large Delta bars will take place when there is a solid breakout of a range, or price runs to new highs in a rally or new lows in a downtrend (big Delta bars is a sign of breakout strength - triggering heavy covering action). I also know a 7 figure acct trader group who are using a zig-zag feature on both price and Delta...they have found some ratio's of price movement to Delta movement that are a very good signal for their trades. When they first showed this pattern to me I was like, "I'll be darned" and that was a really good find on their part. For tracking the activity of the limits I use the Cumulative Uptick/Downtick. When delta and uptick/downtick are in alignment you will get linear price movements (a lack of resistance to the market order flow). When delta and uptick/downtick are not in alignment price movement tends to cycle (or chop)...you are watching limit order activity absorbing market order flow (resistance to the market order flow).

[jtrader500 10]

Thats good stuff,

Today I confirmed my short on the 3rd test of todays highs with the cumu delta and i am still holding for a high vol low.

Thanks

[DionysusToast 10]

You are on the right track to profits my freind.

here is secret that is in plain sight, learn it, know it.

Jigsaw Trading. Day Trading, Tape Reading Decision Support Software.

your welcome

 

So that's it - I was just there looking @ google analytics for my site & saw a few links to my site from places that I barely visit.

 

Any questions along these lines, I'm up for a discussion.

 

Also - any general sh1t slinging at an evil vendor is also welcome :crap:

[DionysusToast 10]

In the vid he mentioned that the CME may revert back to the old style (reporting "Intent").

Do you know if this is planned for?

 

My reckoning is it ain't going to happen - it's been 2 years since the change.

 

I would also guess by know that the 'big' guys already did the work to re-assemble the trades and so it may be to their advantage to keep it the way it is.

 

After all - this is hardly a gentlemans game!

 

In terms of CD - I think it helps to keep you on side. I have a perpetual desire to trade against the trend. What I now do in a trending market is look at the size of the pullbacks and the size of the delta move for a pull back. If delta goes +10,000 on a move up but -2000 on the pullback, I will go long using DOM/T&S to enter.

 

Later - if I see a pullback with a -10,000 delta shift, then I'll consider that we are at least temporarily in a down move.

 

The thing is though - this is fine on the ES but doesn't seem to work so well on other instruments. If you think about it - the ES is thick but unlike the treasuries, it doesn't hang around much.

 

I've seen treasury traders see a long opportunity and just join the bid, if you did that on the ES you'd miss most of the trades. For a long, I hit the offer which on CD terms would be a +.

 

Of course, you do see times where people try to hold the market in the ES and in that case delta will move down when price doesn't BUT overall on the ES, the delta is a pretty good guide, mostly because if you are trading off tape/DOM, it's pretty tough to enter on a limit order. If you trade mostly of the charts, I think limit orders would be fine as you can pick your level and wait for price to come to you.

 

On an instrument like CL - you'd be a bit nuts to enter with market orders in my opinion, one because you could slip a mile and two because it wiggles that much that once you see your 'in' - you could still get a few ticks better price because of that wiggle.

 

For me CD is good for day trading but I dont buy into all the 'inventory grab' stuff & using it long term.

 

Just my 2c

[FulcrumTrader 10]

Using Cumulative Delta as my primary mechanism to target trades, I run about 90% of my entries with "limit" orders. Also, when a trader can completely understand what is actually taking place during an Inventory Grab (both minor grab within the Delta Volume Distributional range or a major grab on the edges of a Delta Volume Distributional range) it can really help you hit a bunch of very high probability trade action throughout the day. When available supplies of held inventory capitulate and let go...that means something. Commercial participants use the runs of capitulation to cover into (winner profitable covering into a loser letting go) and price frequently reacts to this action (pivots in price - price changes direction as newly initiated directional trading comes in after Inventory Grabs - this happens a lot in all instruments day after day).

 

BTW, instruments like the CL, DAX, some of the Ag's are amazing after Inventory Grab action - I love trading the CL and DAX because of this alone. Remember, when a large liquidity participant gets into the market, with newly initiated directional trade, they already want to know where there are potential exits (the price levels they see where held supply was initiated and not yet neutralized - areas of resting supply is one of the things they track all day long - they always want to know where there are optimal exits - areas where they can cover with the least amount of negative slippage while unloading large position size).

[DionysusToast 10]

I hear you FT - I just don't buy into those theories personally.

 

The bit I don't buy is the claims that institutional players always enter with market orders. I saw that on a few webinars of yours. I'm not sure if you are still telling people this or whether your concepts have changed. I'd be more than willing to have an in depth discussion about the use of market orders and the claims that institutions always use them (and therefore show their tracks with CD).

 

If all of your theories rely on that, then it's all based on a false premise because it's fairly clear to anyone reading a DOM that this is not the case.

 

Still - that's not to say it doesn't work for you,