None business Thanks for the excellent posts. Would you be able to offer anymore insight in to how you discovered what these bots were up to?
If you watch the time and sales data you will see around 70% of the trading volume in any Crude Oil contract occurs in bursts of over 100 contracts over less than one second. These are all automated "trades" (I use the word "trades" loosely) not entered into by any discretionary trader, since the bursts result in contracts being "bought" and "sold" far off the market when compared with the prices that would be paid were the "orders" broken up. So you now know you are looking at "agendas," some "trader" buying but asking to pay the highest price he can or selling asking to get the lowest price he can, rather than an "investor." So, you think about it some more, then you observe the rhythms of when the moves occur and when the moves are undone, and you think to yourself: "If I were programming a market-making machine, and CME exempted me from margin requirements, saying I was a "liquidity provider," and CME went further to actually pay me to trade, what would I program my machine to do"? You realize the machine is doing exactly as you would have it do. When Long, it Buys more from itself, especially during lulls when others aren't at the market, and when Short is sells more to itself, eventually finding Stops to allow it out of its initial position and always at a profit. It then trades back against itself to return to where it started. And it's also paid for all of the trades with itself (reminding, CME pretends the different strats at the same firm don't talk to each other). It's genius. You do have to let Terry Duffy and his cronies buy stock in your business at a low price, though. But you are comforted by the fact the CFTC is the biggest joke among US regulatory agencies, Commissioners already leaving for roles with the HFTs since this is where all the money is. And, the CFTC bought off Bloomberg last year, after Bloomberg started asking too many questions, naming Bloomberg a "Market Participant" (as-if they were Exxon-Mobil.) Thereafter, BB turned on Michael Lewis, slandering him almost daily. Bloomberg has almost complete control over information flow in Crude Oil, and with BB corrupted there is little hope for the market to become honest. We must simply accept the corruption and work around it. And the first step is to realize every trade you make is with a machine as the counterparty. The machine "trades" without any margin constraints and can push the price a great deal intraday. So, please make sure to trade against the weak hands at all times, because the machine will always move the price against the weak hands.
I'm pretty certain this is not spoofing but I watch the Bund quite a lot and one thing i notice a lot is abnormal size bids and offers quite away from BBBO that are shifted around up and down the queue. From what I have seen spoof bids and offers are on or next to the BBBO however the ones I see generally get moved before the market gets close to them. I'm not sure if theres a pattern to them but will follow and see my guess is theres an algo behind it playing around but just thought I would put it out there to see if any of you guys have noticed it. One of my thoughts is that maybe they are showing size lilt this to attract front runners in and then use there liquidity against them, who knows.
For those of you following None Business's interesting discussion there is similar behaviour in the Dax. I don't really class it as spoofing in the conventional sense. But i've traded it slightly differently. I call it looking for "blips". You're looking for areas where there is likely to be a liquidity vacuum as people get flushed out their trades. Generally I will fade any fast spike as its often weak hands that have just panicked and algos etc take the other side. So much in trading is counter-intuitive. But NONE of this is a holy grail everything takes practice practice....
Any comments? http://www.activetradermag.com/index.php/c/Trading_Strategies/d/Quantifying_deception " Quantifying deception By Active Trader Staff The markets, as some sage once observed, function to inflict the most pain on the most people. To accomplish this, they engage in any number of deceptive practices, which can mostly be boiled down to moving forcefully in one direction just before they establish a more sustained move in the opposite direction. Subjective chart readers are the most vulnerable to these misdirections, which become more numerous on shorter time frames. The remedy, as always, is to quantify and test market patterns before trading them. The results are almost always educational, but as we shall see with the analysis that follows, the results we get depend on the nature of the questions we ask, and the assumptions we make in doing so. ... "
In Crude, right before a known weak/sell rhythm, you will often see a several-hundred-contract market order buy execute and push price 15-25 cents up, to stop out any robots who have sold in advance. The machine that put the spike on knows the robots are there because he, the machine, just bought the contracts from them. Small, market-order buys, of less than 5 contracts, orders no real trader would put on. The rhythmic sell proceeds on schedule right after the spike. I call these spikes "fences" for their function and how they appear in the Price-Volume chart. It's one of the reasons your robots must be as responsive as possible, rather than anticipating.
None Business, Are you referring to a tick chart with buy/sell volume along the bottom or a volume profile with only a kind of market profile type display. My thoughts are the latter but can you confirm please? Thanks.
First of all, thank you for very interesting observations. In the above example, did you mean that the machine was doing the < 5 contract market-order buys from the robots? It would then appear that those robots are mostly passive liquidity.