Daytraders - Do You Know Your Enemy?

[Paul-TC 10]

sounds like a bank......................

 

LOL - Yes, and there's no Chinese Wall preventing Retail and Investment sharing how to lobby. Even Glass Steagall didn't stop that.

[BlueHorseshoe 10]

Or to put it another way: If algos could ever be so prescient, why would anyone with unlimited access to virtually unlimited money, data, computing power, speed of access, software, zero commissions, payment for orders etc., need to commit fraud on a daily basis, cheat and so fervently and expensively lobby to protect against those illegal methods being stopped?

 

Well, that's a fair point.

 

As you note, trading is primarily about risk and money management, so the crystal ball doesn't even need to be terribly good. Just good enough.

 

I apologize but rest assured I will be going to hell

 

Ha! You should know!

 

[note to mods: please can we get a 'flaming devil' smiley?]

BlueHorseshoe

[SIUYA 11]

isn't that one of the miss conceptions about all these algos (or the majority of them) - They are not predictive. They are not really intending to be.

(Can there be a predictive algo or is it merely another way of saying - 'odds are if this then this'??)

 

They are either about executing an order in a manner that breaks it up into lots or a manner designed to lessen market impact,

or

they are are trying to detect these order flows and sniff out where orders might be and be able to exploit these - the distinction between the predictive power here is they are using the fact that there is a spread to get on either side of this - they may be exploiting the tools given them by the exchange, or they may be exploiting the fact that by quickly getting in front of an order, they have a greater probability of others crossing their spreads. (this might be the controversial one )

or

they are trying to exploit either arbitrage opportunities, between instruments, or markets, or others miss pricing due to speed.

or

they may just be market making or other portfolio type algo's designed to limit or spread risk

[Paul-TC 10]

isn't that one of the miss conceptions about all these algos (or the majority of them) - They are not predictive. They are not really intending to be.

 

No - because that is not compatible with......

 

"trying to detect"

and

"sniff out where orders might be"

 

...both of which describe information that is unknown and an attempt to 'calculate' that information (without any guarantee of being correct) and then place trades according to the effect on the market that the 'best-guess' presumes will happen.

 

A prediction doesn't have to be about direction. It's still a prediction by any other name whenever you're trying to 'guess' the value of 'any' data that isn't available to you yet.

[SIUYA 11]

No - because that is not compatible with......

 

"trying to detect"

and

"sniff out where orders might be"

 

...both of which describe information that is unknown and an attempt to 'calculate' that information (without any guarantee of being correct) and then place trades according to the effect on the market that the 'best-guess' presumes will happen.

 

A prediction doesn't have to be about direction. It's still a prediction by any other name whenever you're trying to 'guess' the value of 'any' data that isn't available to you yet.

 

Which is why I asked it as a question.....plus i added the question afterward, and used the word majority...., or are you saying

 

by your definition everything is a prediction then? - even the arbitrages are predicting they will be quicker than others and will get both legs on at the same time. The market makers will get a hedge on that does not cost them....because even if the opposing side to your hedge or trade appears to be there - there is no guarantee of this.

 

Are there any guarantees in trading ?

[BlueHorseshoe 10]

For anyone who has followed my previous posts on Position In Queue, I now want to try and extend this with a model to estimate position inside of the bounds set out in the second post.

 

So far my only real idea is to model the relationship between known market depth and another known output (price?) as a hidden markov process. Does anybody have any other suggestions?

 

Can anyone think of any way that something like a concept of time decay could be employed?

 

I'll also try and provide a couple of better examples of the approach used in the second post, using real bid and ask data rather than a proxy.

 

Thanks,

 

BlueHorseshoe

[Paul-TC 10]

Which is why I asked it as a question.....plus i added the question afterward

I would have thought it obvious that I knew it was a question when my response was clearly in the form of an answer.

 

by your definition everything is a prediction then? - even the arbitrages are predicting they will be quicker than others and will get both legs on at the same time.

Arbitrage is little more than buying for less than you're selling.

 

The two legs might take place in different Exchanges (or Instruments) but it's still no more than a fancy term for Buying low and Selling high. As such it's a legitimate practice chosen by some who do well with it. It still involves risk - i.e. that the spread will remain in place long enough for both legs to be filled and that no one else beats you to it.

 

To the extent that you believe that the arb opportunity will remain available long enough to profit from it, then Yes, there is some level of prediction in any belief about the future. i.e. If you didn't believe it would remain available for long enough, then you wouldn't make the trade.

 

However, that doesn't mean 'everything' is a prediction and I don't agree that my definition suggested that it was.

e.g. Just using an arb trade as an example:

 

If there is no arb opportunity currently available but you receive a flash quote showing a large order or orders that will create one as soon as it/they hit the book, and you can place your order(s) ahead of them, you can then profit from the upcoming arb using those large orders to offset your open position - and no prediction was required.

Edited August 15, 2012 by Paul-TC

[Paul-TC 10]

For anyone who has followed my previous posts on Position In Queue, I now want to try and extend this with a model to estimate position inside of the bounds set out in the second post.

 

I do have a simple question before you move to the more complex markov, time decay etc. suggestions.

 

When orders are cancelled, how do you propose to know whether they are orders that were in front of you in the queue or behind?

 

It seems to me that the range of possibilities is too great to be of much value beyond the most rough of estimates.

 

e.g. You join a queue that has 5000 up and add 100. After your order another 5000 is added making the total 10,100. A short time later, orders are cancelled and the total now shows 5,100.

 

You could be anywhere between positions 1 and 5001.

 

As an aside, Globex did originally make available the 'structure' of every price level. i.e. you could see every order behind each Bid/Ask size. A group of us were given a Demo of its capability but that functionality was removed by the time it went live and never saw the light of day - at least not for the Retail trader.

Edited August 15, 2012 by Paul-TC

[BlueHorseshoe 10]

When orders are cancelled, how do you propose to know whether they are orders that were in front of you in the queue or behind?

 

It seems to me that the range of possibilities is too great to be of much value beyond the most rough of estimates.

 

Hi Paul,

 

Thanks for the reply.

 

As far as my second post on PIQ is concerned, if the number of contracts bid/offered never falls below the number at the time of joining the queue - 5000 in your example - then PIQ could indeed be anywhere between 1 and 5001, exactly as you state.

 

Given the constraints of your example then this, as far as I can work out, is as close to certainty as anyone can get. I'm not sure that your example is particularly representative though - at a guess most new orders and cancellations are for one-lots or thereabouts, not 5000 lot elephants.

 

Is it necessarily any more likely that the next change to depth will increase it, rather than decrease it? Play your example the other way around: there are 5000 queued, I add 100, 5000 are cancelled, 5000 are added: my PIQ is now 1-100. I can know this because the cancellation occurred first.

 

Or, given the relative granularity of order size, might it be that cancellations are distributed with equal probability throughout the queue, so that if a queue falls from 100 to 90 it is probable that where my PIQ was 50 it is now 45? I know that's a very unlikely simplification (at a guess, a cancellation is many more times likely to occur near the back of the queue than the front) but you can see where this could lead with further development.

 

Of course what I, you, or anyone else did or didn't do with a rough estimate would be totally dependent on broader strategy. But, even taking your slightly extreme example, here are some possible responses depending on a trader's goals/motives/circumstances:

 

1. 5100 orders queued, PIQ 0<>5001, not certain enough - cancel order.

2. 30000 orders queued, PIQ 0<>5001, then see if order fills - plenty of liquidity behind to flip the position back at market and scratch the trade.

3. 5100 orders queued, PIQ 0<>5001, order flow poor and need to establish position - cancel limit and pay spread.

4. 5100 orders queued, PIQ 0<>5001, order flow strong and known PIQ at next price tier good, cancel order and wait for fill at next price.

 

Broadly speaking, this will depend on whether this information was being used merely to aid execution where liquidity is incidental to a strategic goal (eg point 3), or whether gaming liquidity was in itself a strategic goal (eg point 2).

 

Working out an estimate of whether reduced depth is due to cancellations from the front of the queue or later arrivals is certainly a challenge, and there's a very real possibility that I won't be able to arrive at even a very crude way of estimating this. The purpose of the thread was to try and improve my chances by inviting input from people like . . . well, like yourself.

 

By the way, are you from the UK - I just noticed your spelling of 'cancelled'?

 

Cheers,

 

BlueHorseshoe

[BlueHorseshoe 10]

A further thought on PIQ:

 

Given that an increase of n in depth could correspond to either the addition of n orders or the addition of 2n orders and simultaneous cancellation of n orders etc . . . does change in depth provide a way to measure decay in confidence for an estimation of PIQ?

 

Mind you, if depth remained completely static then orders could still be being added and pulled in equilibrium, in which case confidence would decrease with time.

 

Sorry, thinking aloud there . . .

 

BlueHorseshoe

[Paul-TC 10]

Given the constraints of your example then this, as far as I can work out, is as close to certainty as anyone can get. I'm not sure that your example is particularly representative though - at a guess most new orders and cancellations are for one-lots or thereabouts, not 5000 lot elephants.

 

I didn't mean my example to sound as if it was a one 5000 lot elephant. I had hoped by writing "some time later, orders are cancelled' rather than " some time later an order is cancelled" would make that clear but I'm sorry that it didn't. In any event, the 5000 could be made up of 5000 X one lots and your PIQ could still be somewhere between 1 and 5001 without any means of really knowing where.

 

Is it necessarily any more likely that the next change to depth will increase it, rather than decrease it?

 

You're right it isn't more likely (maybe equally likely) but orders are added and cancelled repeatedly. It's how you proposed to handle the cancels that I was interested in. Whether they are elephants or one lots really doesn't make much different when you don't know from which side of your order they are being cancelled.

 

Without more data about the orders, I don't see how you will ever know whether they are before or after you in the queue. You could either ignore cancels completely while the total is above your 'known', worst-case position (which would be a pessimistic calculation choice - to be conservative) or 'guess' and assign some arbitrary formula to the before/after estimates.

 

In that case, 50/50 might be the worst possible ratio to use for this guess - except for all the other possible ratios that is!

I'm not sure how adding complexity into that formula could achieve any greater accuracy.

 

No, I'm not originally from the UK but I spent so much time there working for the banks that my spelling is now considered atrocious in both the US and the UK as I swap spellings - sometimes daily. However, I still always say 'skedule'.

Edited August 16, 2012 by Paul-TC

[SIUYA 11]

 

If there is no arb opportunity currently available but you receive a flash quote showing a large order or orders that will create one as soon as it/they hit the book, and you can place your order(s) ahead of them, you can then profit from the upcoming arb using those large orders to offset your open position - and no prediction was required.

 

semantics maybe, but isn't this the reasons why when revealed flash trading was stopped/discouraged/discontinued......even if it may still exist. It was seen as a loophole.

 

It was not seen as an upcoming arb - but more a licence to front run to certain individuals. ie; there was no risk, and the arb occured because of a loop hole in the rules for some individuals.

 

Even though the point of doing an arb is maybe a subset of simply buying lower and selling high - it is meant to be the 'near' instantaneous doing this that is risk free - and that is why its considered separate to the speculation of buying low and selling higher. This point being that arbs should naturally be arbitraged out of existance, whereas speculation is just that. (again semantics as you lump them together - which I am happy to go with)

 

Given a lot of the arb opportunity has a lot more to do with the ability to speedily trade various markets, and pull and submit the orders there. It maybe a reason to encourage markets to not be fragmented?

 

Regardless - in your experience or by your definition then are the majority of algos used in the market predictive? or are the HFT trading ones mainly predicitive or merely arbs?

 

Or are the HFT now merely making the most of loop holes in the systems - with zero risk.

[SIUYA 11]

Blue - as Paul suggests maybe you are complicating it unnecessarily when a guesstimate may be all that is required...or will at least do the same thing.

eg; you guesstimate slippage as being where you have to cross the spread all the time v where sometimes you will get set, others you wont.

Experience from a test walking forward in real life might help show what to expect.

[Paul-TC 10]

semantics maybe, but isn't this the reasons why when revealed flash trading was stopped/discouraged/discontinued......even if it may still exist.

It hasn't been stopped.

 

"If it may still exist" There you go with the unresearched "IF" again, that allows you to not question too hard the fantasy you want to believe?

 

Some 'claim' to have stopped the practice voluntarily (there's no proof that they have) and the SEC proposed an all-out ban 3years ago!!

 

http://www.nytimes.com/2009/09/18/business/18regulate.html?_r=1

 

Since then, despite all the chest-thumping, the SEC has done absolutely nothing about it!

 

Just earlier this year, they changed their stance and are now only proposing instituting fees instead of their original 'all-out ban'.

 

Flash Trading Gets New Scrutiny By Regulators

 

It was not seen as an upcoming arb - but more a licence to front run to certain individuals. ie; there was no risk, and the arb occured because of a loop hole in the rules for some individuals.

Now that is semantics.

 

It's an arb. That someone saw it as a licence to front run, doesn't change the fact that they were front running an arbitrage opportunity and they could only profit from it once it became an arb in reality. i.e. If it had not been front-run, it would still have been an arb opportunity once the orders hit the book - which is exactly what their front running algo detected.

 

Regardless - in your experience or by your definition then are the majority of algos used in the market predictive? or are the HFT trading ones mainly predicitive or merely arbs?

 

I'd say most trading tools are predictive - not just algos and HFTs - but I wasn't saying that ALL are as you incorrectly concluded.

I only used the front running (of even an arb) as one example of where not everything is necessarily predictive. There are many others.

 

e.g. A breakout strategy, say, buying at 1400 or selling at 1395 (whichever comes first) is a non-predictive strategy. I suppose that even here, if you wanted to be completely anal about it, you could say that you're still predicting that the price won't stay within that 5 handle range for eternity.

 

But that's beyond pedantic. In that case, even putting one foot in front of the other predicts that the ground will still be there by the time your foot hits it.

Edited August 16, 2012 by Paul-TC

[MightyMouse 12]

A further thought on PIQ:

 

Given that an increase of n in depth could correspond to either the addition of n orders or the addition of 2n orders and simultaneous cancellation of n orders etc . . . does change in depth provide a way to measure decay in confidence for an estimation of PIQ?

 

Mind you, if depth remained completely static then orders could still be being added and pulled in equilibrium, in which case confidence would decrease with time.

 

Sorry, thinking aloud there . . .

 

BlueHorseshoe

 

A good idea might be to figure out or get the algorithm that ninjatrader uses to estimate execution for limit orders in its sim trading engine.

[SIUYA 11]

I am going to run with this Paul as it clearly seems something that you have definitely got issues with.....

 

Paul - if it may still exist? is a question. It may be cynical or rhetorical, or just a question.

If it may still exist, is more a quantifying statement.

 

Let me put this on the record for you -

I am not defending HFT as it exists today.

I am not defending or even think front running or other illegal activity is acceptable. - and the debate is clearly what constitutes this regardless of your interpretation of the law.

 

"If people are breaking the law then something should be done about it" not "People are breaking the law something should be done about it"......see the difference.

 

"Some 'claim' to have stopped the practice voluntarily (there's no proof that they have) "-

 

therefore they must me still doing it.....??? WTF I would hate to live in your country under Pauls rules.... - that person once slept with another man - that makes her a adulteror and as we have no prove they are no longer doing it they are clearly still guilty - lets stone her to death.

 

While not trying to distract from the thread.....this seems to have stemmed from

 

I thought that most/majority were predictive.

You did not think so

.....and examples where given as to why, based on the definition of predictive.

 

Point made....thanks......

 

but you still seem hung up IF, or by your definition that they ARE doing something illegal.

 

Fine - you think (you are 100% sure, convinced, definitively know) they are doing things illegally - I suggest you write your congessman, SEC and stop trading in the markets - as clearly they are rigged.

Until then I certainly hope you support to the letter of the law every other countries laws - especially those ones that people find abhorrent in certain parts or the world but are legal elsewhere -

Or is this just something you have against HFT....or me.

 

For the record in simplistic terms - I believe - humans will always find ways around bending or breaking rules and having rules written to further their own self interest. All we can do is minimise the harm this might have on the rest of us.

 

''''''''''''''''''''''''''''''''''''''''

Again - so as to keep Blues thread on the idea of how best to understand HFT and his ideas around it, I will refrain from using the word if, maybe or similar derivations and I will conceed that Paul-TCs interpreptation of the law is correct - please ignore these when i use them paul - HFT are acting illegally.....

 

(I thought I had already done this, and Paul I would hope you think about your own bias rather than "There you go with the unresearched "IF" again, that allows you to not question too hard the fantasy you want to believe?" - if you truly think the world is black and white - at least understand it is not for everyone else. )

 

..........................

I know, I know :doh: its pathetic - but the markets are quiet.

[BlueHorseshoe 10]

A good idea might be to figure out or get the algorithm that ninjatrader uses to estimate execution for limit orders in its sim trading engine.

 

Hi MightyMouse,

 

Thanks for the very helpful reply.

 

I had been puzzling over this myself. I used the Infinity platform in sim for a few months last year, and I was pretty certain that this also estimated fills in some manner (they certainly didn't happen as soon as price was touched). I guessed that the algorithm may have been something as simple as filling an order once a certain number of contracts traded at that price, or assuming that the order occupies a position at a fixed fraction from the front of the queue at the time price is touched, and then counting in the traded volume from there.

 

Given that these firms must actually be routing a shed load of real orders, couldn't they just marry a sim order to the last placed real order, and 'fill' the sim when confirmation of execution of the actual order was received?

 

This makes me wonder about TradeStation, which I have never used in sim, but tends to be pretty transparent in how it operates if one knows where to look - a good question to ask Onesmith or Tams, I reckon. And it couldn't hurt to ask the question of a few other firms as well.

 

Cheers for the suggestion!

 

BlueHorseshoe

[TheDude 10]

Dont know if it helps, but TT now offers the number of orders making up the size in MD trader as well as EPIQ - so it would seem the exchange publishes this info.

[BlueHorseshoe 10]

Without more data about the orders, I don't see how you will ever know whether they are before or after you in the queue. You could either ignore cancels completely while the total is above your 'known', worst-case position (which would be a pessimistic calculation choice - to be conservative) or 'guess' and assign some arbitrary formula to the before/after estimates.

 

Hi Paul,

 

I do agree with what you're saying - there is no way that I (or anyone else) could know without having more data.

 

So beyond what I described in that second post it would indeed be a guess/estimate. I'm not sure why you think that the formula need be arbitrary, however, or not prove sufficiently informative to be useful? An SMA, although it seldom corresponds with actual price, can provide a workable estimate of the underlying trend state of a market. And some estimates are better than others. If a method of estimating PIQ is only sufficiently accurate to improve a strategy by a small amount, but is unique in its ability to improve this aspect, then I would consider it worthwhile.

 

But just to be absolutely clear: I'm not suggesting that it is possible to arrive at a highly accurate estimate of PIQ, and certainly not one that is known with certainty.

 

Glad to hear working for uk banks improved your spelling, even if it tarnished your soul - maybe you should check your contract with the devil - it mightn't be valid in your jurisdiction if the terms are poorly spelt - or should that be spelled?

 

BlueHorseshoe

[BlueHorseshoe 10]

I received a PM from someone asking about bid and ask volume, and I thought the reply might be useful to other people, so I'm taking the slightly egotistical step of re-printing it here:

 

There are essentially two types of orders. A limit order and a market order. A trader using a limit order might get filled, and if they do they won't pay the spread; a trader using a market order definitely will get filled, and will always pay the spread (plus some slippage, maybe).

 

Suppose the ES is 55 bid, 56 ask. If you have a limit buy order at 55, to get this filled a seller will need to be matched with you at 55. No limit seller is matched at 55 because the lowest limit sellers are at the ask at 56; a seller with a market order can be matched with you though, by crossing the spread. Essentially this market sell order steps in front of the queue of limit sellers at 56 to complete a trade, agreeing to be matched with a limit buyer at 55. In doing so they 'pay the spread', as they are matched one tick lower than the sellers at 56.

 

The same would happen if you wanted to buy - you could agree to buy one tick above the best bid, stepping in front of it (ie crossing the spread) with a buy market to match with one of the limit sellers at 56.

 

Moving on to bid and ask volume . . .

 

The bid volume tells you the total number of trades that occur at the bid. Thinking back to what we just discussed, for a trade to occur at the bid, a sell market order must cross the spread to be matched with a buy limit order at the bid. If the bid volume is 10, this means that ten market sell orders have been matched with 10 limit buy orders.

 

In other words, volume at bid tells you the number of aggressive sellers who have used market orders to get filled. Volume at ask tells you about the number of aggressive buyers.

 

A trade at bid will cause the market to tick down, hence volume at bid is sometimes called 'downtick volume', which makes it a bit clearer that this volume is descriptive of the number of aggressive sellers, and not buyers.

 

So, bid/ask volume is a great way to get information about what one type of market participant - the "aggressive" or "active" type who use market orders - are doing. To know about the "passive" type who use limit orders you need to look at the depth of the book. This simply means the number of limit orders at a given price - it's the figure you see when you look at the DOM.

 

Returning to the earlier example, let's say there are 20 buy limit orders at 55, and 60 sell limit orders at 56.

 

Now, 30 sellers decide to cross the spread with market orders and get matched with buy limit orders, and 50 buyers decide to cross the spread with market orders and get matched with sell limit orders. What happens?

 

The answer is that the market ticks down.

 

The bid (ie aggressive sellers) volume reads 30, and the ask (ie aggressive buyers) volume reads 50 - there are far more aggressive buyers than there are aggressive sellers.

 

The reason the market ticks down has nothing to do with the relationship between the bid volume and ask volume. It has to do with the relationship between the bid volume and depth of ask, and the relationship between the ask volume and depth of bid.

 

The 50 aggressive buyers are matched with 50 of the 60 limit sellers at price 56 - this leaves 10 sellers at limit, and that price tier holds.

 

The first 20 of the 30 aggressive sellers are matched with the 20 limit buyers at price 55, this price tier then collapses, and the remaining 10 aggressive sellers are matched with 10 limit buyers at 54.

 

I know that's a long explanation, but hopefully it's clear enough after a few reads. If you have any questions then let me know and I'll do my best to answer.

 

Please feel free to correct any glaring errors - I'm no expert!

 

BlueHorseshoe

[BlueHorseshoe 10]

Dont know if it helps,

 

Er yes, just a bit!!!

 

Thanks - I think I need to do a bit more investigation into exactly what data is widely disseminated by the exchanges and which platforms offer it.

 

This information would make it possible to calculate things like average order size. One could also 'remember' information from before an actual order is placed so that if, say, depth increased by 389 as orders increased by one (implying a single order of size 389), then one places one's own order, then depth increases behind this, and then depth decreases by 389 at the same time as orders decrease by one, it could be reasonably assumed that the 389 order ahead of one's own in the queue has been cancelled, rather than a total of 389 one-lots, some of which were ahead and some of which were behind . . .

 

BlueHorseshoe

[SIUYA 11]

I received a PM from someone asking about bid and ask volume, and I thought the reply might be useful to other people, so I'm taking the slightly egotistical step of re-printing it here:

 

Please feel free to correct any glaring errors - I'm no expert!

 

BlueHorseshoe

 

Not a matter of errors - but improvements....???

 

"In other words, volume at bid tells you the number of aggressive sellers who have used market orders to get filled. Volume at ask tells you about the number of aggressive buyers."

 

Those buyers may be using limit orders themselves - they maybe using fill or kill or other such order variations as well - they are not necessarily just market orders. All you can say for certain is that if the market was bid ask and they hit the bid, they crossed the spread.

 

(would you say the same thing if they were putting a limit order to sell at the offer at 56 when the market went 56 bid as their order is placed - they would hit the spread of 56-57, but still maybe not intentionally - when measuring it you would have to but they still entered a limit not a market order.)

 

(I know I am using the word 'may' again :doh:)

[BlueHorseshoe 10]

Not a matter of errors - but improvements....???

 

"In other words, volume at bid tells you the number of aggressive sellers who have used market orders to get filled. Volume at ask tells you about the number of aggressive buyers."

 

Those buyers may be using limit orders themselves - they maybe using fill or kill or other such order variations as well - they are not necessarily just market orders. All you can say for certain is that if the market was bid ask and they hit the bid, they crossed the spread.

 

(would you say the same thing if they were putting a limit order to sell at the offer at 56 when the market went 56 bid as their order is placed - they would hit the spread of 56-57, but still maybe not intentionally - when measuring it you would have to but they still entered a limit not a market order.)

 

(I know I am using the word 'may' again :doh:)

 

Hi SIUYA,

 

Thanks for the correction.

 

As far as the ES/CME is concerned though, aren't all orders essentially limit or market? I thought FOK etc were just simulated within a platform, and then implemented in terms of one of these basic order types at the exchange?

 

Cheers,

 

BlueHorseshoe

[BlueHorseshoe 10]

Blue - as Paul suggests maybe you are complicating it unnecessarily when a guesstimate may be all that is required...or will at least do the same thing.

eg; you guesstimate slippage as being where you have to cross the spread all the time v where sometimes you will get set, others you wont.

Experience from a test walking forward in real life might help show what to expect.

 

Hi SIUYA,

 

I have no wish to make anything more complicated than it needs to be, and I agree with you that a guestimate is both all that is possible and all that is required.

 

I'm not sure that was what Paul was saying though - I understood him to be saying that a guestimate was pretty much useless. I certainly agree that a guestimate will often be useless, but I think what is fascinating is that it is possible to know whether or not the guestimate is useless. In his example a guestimate could be made, but clearly it was of little use - such a guesstimate could be thrown out the door (read: order cancelled), and the process repeated until a guestimate in which one had greater confidence was achieved.

 

Surely the option to shrug of anything that isn't high probability and simply move on to look for the next decent opportunity is the main advantage of daytrading? - one opportunity is always hot on the feet of the last.

 

BlueHorseshoe

[SIUYA 11]

Hi SIUYA,

 

Thanks for the correction.

 

As far as the ES/CME is concerned though, aren't all orders essentially limit or market? I thought FOK etc were just simulated within a platform, and then implemented in terms of one of these basic order types at the exchange?

 

Cheers,

 

BlueHorseshoe

 

They maybe classed by the exchange as limit or market only but I what I mean is that just because you crossed the spread does not mean you have decided to have a market order.

eg; Lets say the market is 55-56, 10 volume quoted each side, and there is also 10 bid for at 54, 10 at 53.

I sell 200 at a limit order of 53. I will cross the spread and hit the market for 10 at 55, 10, 54, 10 at 53....I will then be in the first in the que for 170 on offer at 53.

 

So in your counting - are the first 30 market orders, then the next 170 limit orders if they get hit? How does the exchange see it?

From the person who hit the button they were aggressive and crossed the spread for the first 30 with a market order, and passive and used a limit order for the rest......

 

If that makes sense......mind you it might not make any difference if you are only counting those that cross the spread and hit the bid or the offer, regardless of passive or aggressive and what type of order they used.

(I saw some great uses of manual order placements in a previous life and watching the brains tick away about what was happening - one example a massive sell order sat at a level and was hit and hit and hot. Finally it seemed complete the stock ticked up about 1% - the order came back at the original level about half an hour later taking out all the bids down to that level- this occurred 2-3 times over about 6 days. They sold pretty much near the top for that recent move.....and the volume was huge)

 

Re Paul - I just read his feedback as dont make it more complex than it needs to be...he can answer that. Often a well researched thought out complex plan will be just as good as a guess if there are too many fudges in there not revealing enough data to be accurate.

Edited August 16, 2012 by SIUYA