Paul: a Perfect Example

Paul,


Pull up a chart of yesterday's S&P futures. Notice the perfect runup in the morning. As it rose, it triggered all the buy systems one-by-one. Then, a couple who exit based on a morning session flattened before lunch. Then, a larger pool who use stops, either a certain amount off the high, or below recent prices, got taken out after lunch. Then, towards the close, the bulk of the traders - who use the end of day combined with a stop based on their entry price - triggered each other in a neat cascade.


This is the cleanest illustration I have ever seen of how most short-term stock traders use a one-day wavelength for their systems. Volatility - which you measure the current move against - is pulled off the previous day's range, or off the opening range, or some combination of the highs and lows therein. I thought they would have the sense to stand aside, because Christmas Eve wasn't a normal day, but instead they just let the anomalously narrow range make the next day look abnormally trendy, and put them all in against a low-volume backdrop that revealed them in stark resolution.


By 1-day wavelength, I simply mean that if the market gets far enough from the previous day's close in either direction, they ratchet it out a notch, then if it drops back, they ratchet it back down into the range. It's almost binomial! The interesting thing, trading around them, is that they are usually right, meaning when they are long I cannot blindly sell short into them for a washout because, as often as not, they will get paid off. Moreover, this probability doesn't really turn until the exact moment they get washed out - meaning their systems are accurate on both sides. Understand what I mean?


A lot of insitituional orders are basically flexible as to the time of the day they are executed, but inelastic so far as their ability to postpone until tomorrow (unless a really big move adds or takes some away). And the institutional fillers get paid on, like, 50% of the amount they do better than the average price. So if prices have gone towards them, they may just fill the whole pile right before lunch whereas, if prices have moved away from them, they may postpone until after lunch, making it correct for a system to trade with the trend to fade their postponement.


But since there really isn't much structure around which to time acceleration and postpenenment inside a single day, shorter-frequency systems are much tougher. Plus, there are some other complications...


See what I'm saying?


eLROY

Where's a good place to pull up an S&P futures chart?

I tried Google, but I can't remember ever having found a decent place for charts on the web.


So I saved a bitmap of one of my screens, which I could email to you, or I could post a link to it if you can think of a good place to host it.


I have a couple web sites, but I don't usually screw with them, and I don't like hits.


leroy

> And the institutional fillers get paid on, like, 50% of the amount they do better than the average price.


Interesting. Can you list some of these institutional order fillers? How frequently do they collect their fee? Daily? Weekly? Monthly? I assume they don't rebate when they do worse.

It never occurred to me that they would get paid on anything apart from a per-order basis.


Here is one example of a filling service:


http://www.madoff.com/dis/display.as...&mode=1&home=1


Madoff uses this silly pitch to obtain visibility into client demand so they can lean on it all day!


Here are two links to just two firms that offer these sorts of services but, in reality, they probably all do:


http://www.elkinsmcsherry.com/


http://www.bear-hunter.com


You could even say a matching service like Posit creates the same effect, because there is an invisible leave-behind postponed over a series of batches, on one side or the other.


Just for your information, all the information on "best execution" in the entire investment universe is UTTER nonsense, and I am apparently the only expert. Seriously! Everything you will run across is myth and garbage, so ignore all of it. I repeat, do not pay any heed to anything you read anywhere about auction-market liquidity and market structure unless it was written (or at least confirmed as accurate) by me


Or, if it makes you happy, you can just choose to be wrong. I don't care. But you have been warned.


eLROY

Actually, I think the McSherry I was thinking of now runs SunGard Global.


But what just occurred to me is how NYSE specialists aren't allowed to chase or trend trade, but are only allowed to counter-trend trade, giving them an incentive to allow prices to overshoot, at the same time as handing the trend-trading off-floor to sharks at, like, ? Clearing (darn, I can't remember the name of the primary firm I'm thinking of!). There are also some redundancy-diffusion restrictions so far as, like, requiring floor-trader orders to originate upstairs.


So, probably the source of average-price guarantees, intraday av-price options, and so forth, is that a specialist firm can trend-trade if executing client orders from off floor. So he essentially uses the client orders to do what he is barred from doing, and then gets the money back in the form of a payout from the client. That may be what is going on in many instances.


But really, it's all just one form or another of the buy-the-pullback-and-save-money illusion.


eLROY

In summary, for every guy that is feeding an order out slowly - so as to avoid "market impact" - there is another guy buying frantically at-the-market - in exactly the size of the postponed order - to front-run the market-impact idiot.


If some people didn't believe in "market impact" then big orders would hit the market all at once, and it would be over - eliminating 99% of day-trading opportunities overnight.


It's just silly!


But as long as they keep postponing, we'll keep accelerating!


Like I said in an earlier post, the reason market orders work is only because, and so long as, some idiot is using a limit order. You figure out situations where too many people are inclined to use limits, you go to the market and front-run them, you win.


eLROY

Hi,


I've been reading the posts here for several weeks.


This looked like a good place to start my first post.


As a person who trades commodity's, on a SMALL basis, I can point you to several very good (free) chart sites.


1) This will give you end of day, and weekly info on all markets. As well as options, figured by strike price, puts and calls, and the settled price.


http://www.bohl.minot.com/


2) This will give you DELAYED daily quotes, by minute, you will need the symbol for the contract, the month to be traded, and the year. That list is at the top left. It's a different language than stocks. For example: the March contract for the S&P is sph2 (link). There is no contract for January or February.


http://partners.tradesignals.com/pri...=null&x=25&y=9


3) This is the Chicago Mercantile Exchange (CME) lots of good stuff here, as well as charts. I think there is a quiz here as well. Worth the time to take it.


http://www.cme.com/


I am not a broker, having said that, you should know you can lose your home, dog, and the kids shoes trading commodities. Take the time to understand what you are trading, BEFORE you open an account. Oh yeah, you can not trade commodities in a stock account, you'll need a commodity account.


Steve B

Here is page on the latest mechnical S&P 500 futures trading program I have come across:


http://iasg.pertrac2000.com/SnapshotPT.asp?ID=497


The S&P's have chopped up a lot since 9/11, but apparently he is still making money!


By the way, for a good measure of how choppy vs, trendy the stock market is intraday, try...


...on second thought, I'll not post that link today


eLROY