Big OTF Players and Why They Are Important

[TheNegotiator 13]

One of the ideas originating from MP is the idea of Other Time Frame (OTF) players and how they affect the market. They are market participants who have trading objectives on a much bigger scale and longer time frame than most- especially compared to day traders. An example of an OTF might be a fund. Clearly these guys need to move size when they enter the market and tend therefore to move the market.

 

Although it sounds immediately obvious that if an OTF trades size then we need to be aware of them, there are important points to consider other than just how the market moves when they enter(or exit). It's important to note at this point, that OTF is not automatically correct in their assessment, but will in most cases move the market in either case. The importance is imo in two key points.

 

Something has changed. Often something fundamental. The market moves heavily in one direction. It's almost like it stands to attention or the straighting out of a slinky so to speak. In any case there is more flow. When this happens, a trader potentially needs to adapt their strategy from a bracketing style to going with OTF. It can be easy to not adapt quickly and get run over, believe me. The temptation is that you see a price printing which before would be a great entry, yet now activity means it's unlikely to hold fast. This is often what fuels extensions to moves.

 

The other point is previously reliable intraday and even longer term reference points lose their validity and so a trader should be more careful in their attempts to exploit them.

 

So the next thing is how do you identify OTF? Well, I for one just have a feeling of when they are there. I know this is probably not what you'll want to hear. But it is something which can be picked up. If you use auction market theory and view moves with context, you will get a much better idea of whether OTF was present or not. For example, an unexpected rate announcement take place. The market moves heavily in one direction. Of course, we know that OTF is likely to be present in this case. But if a Fed speaker changes their tone say, to become much more dovish than previously, what then? Well you have to look at the move, its stength and its persistence. This also can apply to any trading day and how the market moves.

 

Anyway, I hope you get the general idea about OTF and it'd be good to hear from others as to their views and methods for monitoring OTF activity.

[bakrob99 11]

How to identify ?

 

Volume. And time and sales tempo and pace increasing. And then the first slight pullback, maybe a down 5 minute bar is bought aggressively (opp for shorts). Go with this flow.

Longer time frames intraday (30 minute) have consistently higher lows in uptrends. As price gets back or even near a prior bar's low it rallies and never takes it out. This is an OTF reentry or add-on entry point. Stay in or get long. EXIT is at close of day.

[MightyMouse 12]

OTF traders act or react on larger time frame. While trading, you have to be cognizant of where the daily activity is in relation to weekly, monthly data formations. Price action begins to stop making sense on the lower time frames when they enter because their size overwhelms the activity of the smaller time frame traders. In my mind they are not even aware of what is occurring on a sub-hour chart. Depending on what the market looks like, you'll have a fair share of otf who are trading the breakout or those who are trading to fade the move.

 

When trading MP on an intraday basis, during periods where we were at major highs or lows, I switched to anticipating break outs where I normally would have wanted to fade the move. Doing so allowed me to capture the losses of the traders who continued to try to fade the move at bracket highs and lows.

[trader001 10]

I understand that increasing prints in the tape with much greater volume is probably a direct reflection of the entrance of OTF players. Coupled this with important price level may even increase your odds more. Yet, I am thinking what can I do when trading multiple products. That's simply too much information to digest? Any suggestions?

[TheNegotiator 13]

I understand that increasing prints in the tape with much greater volume is probably a direct reflection of the entrance of OTF players. Coupled this with important price level may even increase your odds more. Yet, I am thinking what can I do when trading multiple products. That's simply too much information to digest? Any suggestions?

 

Well it depends. If you look at indices for example and OTF enters in one of them (e.g. ES) all of them will probably go.

[BlueHorseshoe 10]

An example of an OTF might be a fund. Clearly these guys need to move size when they enter the market and tend therefore to move the market.

 

I don't want to detract from what is a great thread starter, but I wonder if 'funds' is a broad and perhaps misleading generalistation here? An HFT firm probably has time horizons well below those of the average day trader. They typically account for a massive chunk of market volume. Then there's a fund like RenTech - their outlook is probably pretty similar to that of the average trader in terms of timeframe and with $23 billion in AUM then they're probably moving size. Trend Following type funds are of course longer term in their outlook and equally hefty in weight . . .

 

While consideration of OTF traders is vital, I don't think that all large traders should be regarded as OTF. In fact, some whiley HFT firm probably just flipped five ES contracts under your nose . . .

 

Bluehorseshoe