An idea on how to screw the bund algos

[cashcow]

Although I do not trade the bund outright, I hear people complaining about how it is owned by algos. I suspect that these algos (well, at least the most aggressive are using the order book flow to place false volume, moving their orders to the back of the queue to avoid being hit. In conjunctions with upping the size on they do not want to get executed they ensure that their orders get filled and everyone else playing for small ranges gets forced out.
From this one can deduce that looking at the size will, a lot of the time, give you the wrong signal.
So what can you work out. Well, if they are cycling their size, then when they are about to get hit on a side they do not want, they will move to the back of the queue. They will retain their size on the side they do not want to get hit on.
Option 1, which is too complex to most people would be to analyze the order book like they do, and produce a filtered ladder showing real size and chances of being hit on bid and offer. Effectively filter out the crap to produce a ladder showing real order flow.
Secondly, unless they are being really sophisticated, the changes in bid and offer size on the ladders should give away their intent. The side which is changing the fastest, should indicate the ladder on which the ordered are being cycled, the side on which they do not want to be hit. The order size should not matter too much, but the rate at which it changes should.
Thus, the side with the least volatilty in bid/offer size changes should be the side with the least order flow.
Just an idea, would be interested if anyone thinks there is any value in this.

 

[uexkuell]

Quote from cashcow:

... unless they are being really sophisticated, the changes in bid and offer size on the ladders should give away their intent. The side which is changing the fastest, should indicate the ladder on which the ordered are being cycled ...

Just check it. Save a high-speed quotefeed's output to disk and do some analysis on it. No simple hints like this can be found there.

Those people are not dumbstruck. Not much sophistication needed to have some pseudo-activity on the other side of the ladder too.
Should keep in mind that those guys are not retail traders but people with big moose in the background for which they can and do buy programmers and mathematicians.

 

[bundeep]

i trade bunds outright for the last 7 years. The biggest problem the algos have caused for me (at least think it is the algos) is 'frontrunning' (don't know a better term for it) any order i submit.. commonly i will get filled on 1 or 2 lots of an order and then the algos will start holding the next best price.. As a scalper/short term trader, cannot always give up extra ticks to enter positions.. on bad trades, the algos are 'leaning' on my orders..

IMO, algos trading this way can make loads, essentially forcing participants to pay an extra tick on the majority of trades..

The bid/offer size to me mean very little, and would be surprised if these days many traders are really paying that much attention to this in the bunds..

 

[garak]

Quote from bundeep:

any order i submit.. commonly i will get filled on 1 or 2 lots of an order and then the algos will start holding the next best price..

That sounds strange. Don't you use limit orders for entry? Though it is a nice confirmation being on the right side when the big boys come in with aggressive buying/selling.
But if I don't get a fill that suits my tight stops I will leave the trade and wait for a better opportunity.