More "flash" Movements

[Predictor 11]

Is it just me or does the ES seem to be making more Flash 2-3 point movements then historically? And is this another sign that HFT is active in the ES?

[Tams 20]

Is it just me or does the ES seem to be making more Flash 2-3 point movements then historically? And is this another sign that HFT is active in the ES?

 

Who cares about HFT.

 

They can do whatever they want,

only the weak will be affected.

[TheNegotiator 13]

Who cares about HFT.

 

They can do whatever they want,

only the weak will be affected.

 

Erm, not sure on that one Tams. If you're a discretionary trader and the market 'snaps' against you, there's a good chance you'll get out of the trade either for

 

1-fear(which we all experience at some point, weak or not)

 

2-stops being hit with increased volatility

[Goals 10]

Good question. This would be a great subject for someone to explore maybe look at some historical charts or backtest....I don't have access to either, but if someone does please explain what you used and what the outcome was. I think many people think the institutional guys are moving the market and this old theory may be true, but if think of the numbers when it comes to retail investors. There are many more of them.

[ScottB 10]

I would say no, that does not indicate HFT is active in the ES (although it is) as HFT algos would not react in that fashion. All the HFT algos I have worked with/around would have taken one trade (maybe even 1 lot), cancelled away on the rest of their size and stayed out until the move was over.

 

I watch the DOM in the ES for hours every day and have logging software running metrics during much of this time. I have seen (and logged) many of the moves you are referring to and they appear to be large players unwinding a position (or alternatively putting one on).

 

If you watch carefully, they are clearing the book for multiple levels (I saw a 10 tick move the other day). To be able to do this would require either a market order (which is somewhat unlikely) or a marketable limit order otherwise the HFT players would have time to cancel.

 

One explanation is someone large is putting on or taking off a hedge of some sort.

 

Best Regards,

Scott

[Tams 20]

Erm, not sure on that one Tams. If you're a discretionary trader and the market 'snaps' against you, there's a good chance you'll get out of the trade either for

 

1-fear(which we all experience at some point, weak or not)

 

2-stops being hit with increased volatility

 

there is notjhing to be afriad of

"HFT fear" is just a trading action myth created for the noobs, by the noobs.

trading is trading

trading goes hyper, then goes slow, then goes hyper again, and the cycle repeats

if you know how to read the market,

you will find that the so called hft is just as apparant and as transparent and as easy to read as any other market participants.

sure there are exceptions,

but don't bblame it on hft

or mystify hft.

vendors like to exploit fear,

so thtat they can sell you a solution. LOL

and the fear of hft is just the ticket.

[Predictor 11]

I can tell you that I've met with proprietary trading firms where traders have access to millions of dollars and their traders are definitely feel that HFT is affecting their trader performance. Of course, they rely on getting a speed edge. Some of these firms have indicated they are moving away from discretionary traders or at least not hiring any new ones.

 

I agree that the changes are less noticeable on the longer time frames, if at all. However, for the active/very active day trading time frame then yes I think I'm seeing some changes.

 

And yes when the market moves too fast to see then its relevant for the discretionary trader who is trying to trade in real time because when the market moves too fast to see then obviously you can't react to it.

 

One way to test this would be to see if the depth of the book over the last couple years has changed.. There are at least 2 explanations:

 

1. The HFTs are making the market more volatile because institutions aren't using as many limit orders.

 

2. A study indicated HFT hasn't net/net changed the spread when accounted for trade size. This might suggest that HFT does decrease the movement in the market but at the cost of larger sudden movements (faster/larger). So, we get markets that don't go anywhere and then suddenly move a greater distance in a shorter period time.

[MightyMouse 12]

I can tell you that I've met with proprietary trading firms where traders have access to millions of dollars and their traders are definitely feel that HFT is affecting their trader performance. Of course, they rely on getting a speed edge. Some of these firms have indicated they are moving away from discretionary traders or at least not hiring any new ones.

 

I agree that the changes are less noticeable on the longer time frames, if at all. However, for the active/very active day trading time frame then yes I think I'm seeing some changes.

 

And yes when the market moves too fast to see then its relevant for the discretionary trader who is trying to trade in real time because when the market moves too fast to see then obviously you can't react to it.

 

One way to test this would be to see if the depth of the book over the last couple years has changed.. There are at least 2 explanations:

 

1. The HFTs are making the market more volatile because institutions aren't using as many limit orders.

 

2. A study indicated HFT hasn't net/net changed the spread when accounted for trade size. This might suggest that HFT does decrease the movement in the market but at the cost of larger sudden movements (faster/larger). So, we get markets that don't go anywhere and then suddenly move a greater distance in a shorter period time.

 

Traders will make all sorts of excuses for their trading performance. HFT is a good excuse for poor performance. Anything is good as long as they don't blame themselves.

[andrei_lint 10]

Traders will make all sorts of excuses for their trading performance. HFT is a good excuse for poor performance. Anything is good as long as they don't blame themselves.

 

So when you want to get out of a trade and place an order in a gap and all of a sudden there are 20 lots before you and others come also so that you have to hit the market and when you do in a milisecond the 50lots you think you hit go out of the market, you get 1tick slippage and then they come back instantly this doesn't affect your performance right?

[Predictor 11]

Based my experience, the algorithmic trading is making an impact for some traders/styles. I've been very successful at trading compared to common measures. Some people wrongly believed that "causing problems" means "not profitable". One common theme I see though is that the algorithmic trading is pushing those who wish to make money trading into higher risk spaces/trades. Basically, this means that traders are forced to use larger stop losses or hold trades for longer periods of time.

 

Some of the tendencies I've observed in terms of futures:

 

* Faster intraday movement

* Fewer pull backs.. i.e larger moves

* Sharper/faster reversals.

* Gaming of open/close prices (or more "efficient" markets). Some of my systems relying on open/close prices no longer work as well but adaptations that don't rely on open/close still work. I view this as a function of an increasingly efficient market. Basically inefficiencies that might have existed for a few days are resolving intraday now.

* More herding behavior..

 

What I haven't seen to any tangible effect:

 

* Spoofing/pulling orders. Most shown orders in the book seem legit. A small % may be pulled but the majority are there.

----

 

Based on what I've seen, I don't believe that futures HFT systems are "pulling limit orders" as might exist in say stocks. Instead, I suspect they are sending in large quantity of market orders in order to trigger stops or for a few ticks gains. This is not to say they always work.

 

This would make sense as to why we have greater straight-line vertical movement... if the bots are buying at highs and selling at lows. Another tactic may be selling at lows then buying everything up.

Edited December 5, 2012 by Predictor

[Predictor 11]

Last night we traded from appx 1400 to 1391 on about 4k contracts only (rough calc by hand -- not exact). Contracts per level ranged only 50 to 200 contracts. Total we traded from 1440 to 1391 or 49 points appx.

 

This wasn't the entire run down but surprised not more discussion on this.

 

I believe that most flash crashes are caused by institutions pulling bids. Not HFT per say..

 

They did it again.

 

Its clear it wasn't "heavy selling" that made the spike move down from 1400 to 1391 but rather no bids. Fortunately was out of market...

[TheDude 10]

Traders will make all sorts of excuses for their trading performance. HFT is a good excuse for poor performance. Anything is good as long as they don't blame themselves.

 

In fairness I think it's a bit more complex than that. I'd say it's the ability to change and adapt that determines whether one will do well.

 

The guys I speak to are definitely finding it harder. They cant read the book as well as they used to due to orders being broken up. This is more of HFT used as an execution tool by paper (eg in a T/V-WAP algo) rather than HFT being used as a strategy (stat arb, market making, etc).

 

Thus they are changing their strategy. People who recruit traders from grads are also finding the success rate of new traders is also much lower than it was say 2,3,5 years ago.

 

Another factor is decreasing volumes. There are less contracts to trade these days. Most exchanges are down 20% on volumes year on year. That means less opportunity/less to go around.

[TheDude 10]

* Spoofing/pulling orders. Most shown orders in the book seem legit. A small % may be pulled but the majority are there.

----

 

Based on what I've seen, I don't believe that futures HFT systems are "pulling limit orders" as might exist in say stocks. Instead, I suspect they are sending in large quantity of market orders in order to trigger stops or for a few ticks gains. This is not to say they always work.

 

This would make sense as to why we have greater straight-line vertical movement... if the bots are buying at highs and selling at lows. Another tactic may be selling at lows then buying everything up.

 

Very much depends where you look. ES, yes I'd agree. Bund, Bobl, no way. As soon as 10 lots print in the Bund, the other 200 or so are pulled. When this starts happening, it's usually time to hop on board....