Steidlmayer's OFI

[gojun077 10]

In "Steidlmayer On Markets" 2nd edition (2003), Steidlmayer talks about

OFI (On-Floor Information) as an indicator for trading the first three time

periods for the following day. If OFI for the previous day is <1.0, then we

should consider going short the next morning, and if OFI > 1.0, long.

 

The formula for calculating OFI was simply:

 

OFI = AVG SIZE OF FILLED BUY ORDERS/AVG SIZE OF FILLED SELL ORDERS

 

However, in an interview with Active Trader Magazine in the September 2005

issue, the formula for On-Floor Information was a bit different:

 

OFI= (Bought contracts/buy orders) / (Sold Contracts/Sell Orders)

 

The resulting OFI figures can be quite different when we factor in the number

of contracts entered in the limit order book

(the divisor in the second formula above).

 

In my casual empirical observation of OFI figures and the next morning's move

in KOSPI200 futures, OFI doesn't seem to be a good predictor in this

market.

 

My question is- does anyone else use OFI in their trading, and which method

do you use to calculate the OFI figure?

 

Cheers from South Korea,

Jun

 

(I apologize for starting a new thread as a newbie...)

[TinGull 10]

Hi Jun,

 

Gosh, don't ever apologize for starting a thread! Especially about things like this. I've never run across OFI, but I've never read Steidlmayer either. I heard he can be a tough read for some people...and childrens books are tough for me, so I'll stick with easier things

 

It's an interesting point you bring up. I'd love to know more about how you get this data and if there are markets now-a-days that this pertains to.

 

Thanks, and sorry i dont have any insight for you on it

[walterw 10]

aha ¡¡ interesting, the big question would be, where do we collect this type of data (if it is available for TS/ or esignal).... in order to make this formula work on TS... I mean the "buy/ sell orders" data...

[gojun077 10]

To make the OFI calculation, you would need tick data. Here in Korea,

this data is usually provided by brokerage companies free of charge

through 'HTS' (Home trading system) programs provided to customers.

 

The data comes in the following format:

 

Time Ask Bid Curr. Chg(yest) OI Theo. Fut. BASIS Volume # Sold # Bought

 

15:05:00 189.55 189.5 189.5 0.9 94,121 189.66 1.82 157,472 2

15:05:00 189.55 189.5 189.5 0.9 94,121 189.66 1.82 157,470 1

15:04:59 189.55 189.5 189.5 0.9 94,121 189.66 1.82 157,469 1

15:04:59 189.55 189.5 189.55 0.95 94,121 189.66 1.87 157,468 3

15:04:59 189.55 189.5 189.5 0.9 94,121 189.66 1.82 157,465 1

15:04:59 189.55 189.5 189.5 0.9 94,121 189.66 1.82 157,464 1

15:04:58 189.55 189.5 189.5 0.9 94,121 189.66 1.82 157,463 1

15:04:58 189.55 189.5 189.55 0.95 94,121 189.66 1.87 157,462 1

15:04:57 189.55 189.5 189.55 0.95 94,121 189.66 1.87 157,461 10

15:04:57 189.55 189.5 189.55 0.95 94,121 189.66 1.87 157,451 1

15:04:57 189.55 189.5 189.55 0.95 94,121 189.66 1.87 157,450 5

15:04:56 189.55 189.5 189.55 0.95 94,109 189.66 1.87 157,445 1

15:04:56 189.55 189.5 189.55 0.95 94,109 189.66 1.87 157,444 1

15:04:56 189.55 189.5 189.55 0.95 94,109 189.66 1.87 157,443 2

15:04:56 189.55 189.5 189.5 0.9 94,109 189.66 1.82 157,441 6

15:04:55 189.55 189.5 189.5 0.9 94,109 189.66 1.82 157,435 5

15:04:54 189.55 189.5 189.5 0.9 94,109 189.66 1.82 157,430 5

15:04:53 189.55 189.5 189.5 0.9 94,109 189.66 1.82 157,425 1

15:04:53 189.55 189.5 189.55 0.95 94,109 189.66 1.87 157,424 3

15:04:51 189.55 189.5 189.5 0.9 94,109 189.66 1.82 157,421 5

15:04:50 189.55 189.5 189.55 0.95 94,109 189.66 1.87 157,416 2

15:04:49 189.55 189.5 189.55 0.95 94,109 189.66 1.87 157,414 2

15:04:49 189.55 189.5 189.55 0.95 94,109 189.66 1.87 157,412 15

15:04:49 189.55 189.5 189.55 0.95 94,109 189.66 1.87 157,397 1

15:04:49 189.55 189.5 189.5 0.9 94,109 189.66 1.82 157,396 7

15:04:49 189.55 189.5 189.55 0.95 94,109 189.66 1.87 157,389 1

 

 

(I apologize for the poor formatting- it looks nice on my screen, but the exported text is hard to read) I'm sure similar data is available from your service providers' screens. Once you have the tick data, simply calculate the average of the contracts sold column, and do the same for the contracts bought column. Then divide (avg bought)/(avg sold)

and you get your OFI. As I stated in my earlier post, there are different ways to calculate OFI. This is the easiest method.

 

The second method requires data from the limit order book. It takes into account the number and size of orders in the order book in calculating OFI.

First, the formula:

 

(Total # of contracts bot/# of buy side contracts in order book) / (Total # of contracts sold/# sell side contracts in order book)

 

Sometimes, however, I feel the second method gives a misleadingly low OFI figure. Consider the case of a monster up day. On such a day, there will be a large bias of longs vs shorts. When we divide the number of Total contracts bought by the huge number of unfilled orders in the order book, the numerator of the OFI will be small. Let me illustrate with some real numbers from the KOSPI200 futures on 3-27:

 

75,047 contracts sold, 84,676 contracts bought

avg number of contracts on the sell side of the limit order book: 3,781

avg number of contracts on the buy side of the limit order book: 5,658

 

(84,676/5,658) / (75,047/3,781) = 0.75, a very bearish OFI figure, but using the first method above, we get:

avg size of buys: 6.76 contracts, avg size of sells: 6.07 contracts,

OFI = 6.76/6.07 = 1.11, a moderately bullish OFI figure

 

Although MP is getting quite popular among day traders here in S. Korea, the OFI concept is still not well-known. I'm still in the process of gathering data for OFI correlation to the next morning's up/down movement. I will post my findings after gathering a few weeks' data...

[Soultrader 12]

Hi gojun,

 

This might be a little off-topic and I apologize. I see you are located in South Korea which triggered my interest. How is the day trading population in Korea? Has it always been big or is this a recent trend? In Japan, day trading took off in 2006. What markets do most day traders in Korea trade? Thanks

 

James

[gojun077 10]

Hi, Soultrader-

 

In response to your post regarding the daytrading population in S. Korea, it is

absolutely HUGE in stock index futures, namely, the KOSPI200. On some days,

individuals make up 50% of total volume! Also, options activity on ATM and

slightly OTM index options are mostly driven by retail buy-side activity. Margins are really steep, though (15% for KOSPI200 futures!), after a spate of retirees losing all their money in the futures market or getting wiped out after selling OTM naked puts.

 

So how is trading in Japan? I recall reading an article in the WSJ a few weeks ago that talked about housewives and salarymen currency trading after work and how individuals are getting into the yen-carry trade through futures brokerages...We're in the same time zone, apparently. It's 6:51am right now, best luck trading today!

 

-Jun

[torero 10]

Looks like the carry-trade is getting contagious. I read this strategy is blamed for the Yen's movement in last few months. Don't know if it's true or not though. Forex seems to be on everyone's mind in recent times.

[notouch 10]

I think stocks are what's on everyone's mind, making record highs around the world. With so many great stock index futures to trade around the world (KOSPI, NIKKEI, FTSE, DAX, CAC etc.) it make no sense just to concentrate on US markets.

 

As for the original question, there are so many fake orders entered on the order book it makes no sense to use that information for trading.

[walterw 10]

I think stocks are what's on everyone's mind, making record highs around the world. With so many great stock index futures to trade around the world (KOSPI, NIKKEI, FTSE, DAX, CAC etc.) it make no sense just to concentrate on US markets.

 

As for the original question, there are so many fake orders entered on the order book it makes no sense to use that information for trading.

 

I agree with the fact of fake orders... its not reliable information...

[gojun077 10]

It's true that lots of limit orders are placed far away from

the current price, especially when traders are caught on the

wrong side of a move. It's kind of an attempt to 'psych' out

the market. However, it can also be a good contrary indicator,

as Steidlmayer pointed out on pg. 153 of "Steidlmayer on Markets"

(3rd Ed):

 

'One relevant observation I have made pertaining to watching

the book and order flow on my Trading Technologies (TT)

front end is that when the book is stacked (aggregate bids vs.

aggregate offers), the book is usually wrong. When I say

stacked, I mean it has slightly less than twice as many total

bids as total offers or slightly less than twice as many total

offers as total bids. What is probably happening is a trader or

traders on the wrong side of the market are putting in false

bids or offers defending open position, which are cancelled

once the market gets close to the trade price.'

 

I'm sure many of you are familiar with this situation. There might

be a huge overhang of several thousand sell orders 5 or more

ticks above the market that suddenly evaporate once aggressive

buyers start hitting the ask. I disagree that order book info is

worthless. It is certainly misleading, but that doesn't mean we

should discard it entirely. Perhaps some of you out there use the

huge imbalances (when the book is "stacked") as a clue for reversals

of intraday moves.

 

Also in S. Korea, we have an indicator called the "buy ratio" which is simply

a ratio of the outstanding buy orders to sell orders. When it's above 1,

the indicator is bullish, and when it's below 1, it's bearish. Of course,

there's more to it than just that, but really fast-moving day traders

like to use it as a momentum signal. I've attached a chart showing the

movements of the buy ratio vs. the KOSPI200 futures from April 6th. It's

pretty amazing how closely the two track each other. (the buy ratio is

in red, and the kospi200 is in blue)

[walterw 10]

gojun : I understand basicly what you mean and it makes a lot of sense... I think we dont have access to that type of data here on US markets... and never seen ploted on a chart that information... its very interesting the type of data your market gives to their participants... cheers Walter.

[Guest cooter]

It's true that lots of limit orders are placed far away from

the current price, especially when traders are caught on the

wrong side of a move. It's kind of an attempt to 'psych' out

the market. However, it can also be a good contrary indicator,

as Steidlmayer pointed out on pg. 153 of "Steidlmayer on Markets"

(3rd Ed):

 

'One relevant observation I have made pertaining to watching

the book and order flow on my Trading Technologies (TT)

front end is that when the book is stacked (aggregate bids vs.

aggregate offers), the book is usually wrong. When I say

stacked, I mean it has slightly less than twice as many total

bids as total offers or slightly less than twice as many total

offers as total bids. What is probably happening is a trader or

traders on the wrong side of the market are putting in false

bids or offers defending open position, which are cancelled

once the market gets close to the trade price.'

 

Paul Rotter made a mint "spoofing" like this in the Eurex German Bobl, Bund and Schatz treasury futures.

 

The attached article should provide more detail as to what he was alleged to have done, and how his activities earned him the notorious handle of "The Flipper".

paul-rotter-trader-monthly-flipping-out.pdf

[alleyb 10]

The OFI is published but in a very obscure way deep inside the LDB - Liquidity Data Bank - at the CBOT. The OFI was Pete Steidlmayer's beginning of the change from the tradional market profile and looking at responsive and initiative trade to moving onto the higher plane of vertical and horizontal with front page and back page analysis that then becomes the basis for capital flow and his software

 

Rather than look for this OFI then I suggest that as an alternative because as I have frequently demonstrated there are alternatives to susbcribing to the LDB which is cumbersome, expensive and time consuming in many respects - and these days everyone is so into instant gratification - that a look at the thread posted about

when does a profile become fat may offer further insight

 

http://www.traderslaboratory.com/forums/f6/mp-question-how-many-30-min-1865.html

 

The basis in very simplistic terms for OFI effectively is a ratio of uptics vs downtics. However it has to be considered that in the short term not all down tics are sells and not all uptics are buys