ES Journal Archive (2006 - 2008)

[ammo]

Quote from Lawrence Chan:

Today just made a new record # of trades and bid/ask updates - 40% more than yesterday.

Edit: Across all stocks, indices, etc.

Unbelievable. :eek:

clicked on your site,a lot of good info thanks,don't know the relevance of the bid/ask updates, could you explain

 

[Lawrence Chan]

Quote from ammo:

clicked on your site,a lot of good info thanks,don't know the relevance of the bid/ask updates, could you explain

Not that long ago, trade to bid/ask updates ratio was 1:2 to 1:3.

Since last August things changed - there are way more bid/ask updates per trade. For every trade, you can see 5 to 6 bid/ask changes.

My guess is that BOTs are now being deployed across all index components. These BOTs react to any changes to the books at light speed.

e.g. a size order sell to the bid, results in immediate retract of many orders at the bid price down a tick.

 

[ammo]

LC thnx

 

[xednise]

Quote from Lawrence Chan:

Not that long ago, trade to bid/ask updates ratio was 1:2 to 1:3.

Since last August things changed - there are way more bid/ask updates per trade. For every trade, you can see 5 to 6 bid/ask changes.

My guess is that BOTs are now being deployed across all index components. These BOTs react to any changes to the books at light speed.

e.g. a size order sell to the bid, results in immediate retract of many orders at the bid price down a tick.

Is there any way to determine how much this has affected the volatility of an index as it relates to stop placement on a given setup? tia

 

[tommymoose]

Quote from mbusch:

That certainly does not meet my definition of divergence. To me, RSI divergence requires that price makes a lower low while RSI makes a higher low. Your chart shows price making a higher low, so the fact that RSI also makes a higher low is not significant...IMHO.

Agreed. While I only follow MACD, I've seen that it generates very similar signals as RSI.

If you look at the charts you can see that all major market tops and bottoms are formed with MACD divergence on the weekly charts. I'm considering the major trend down until I see this strongly appear... its not usually the type of thing you need to front run... its always very obvious that the market wants to turn so you have time to take position. It takes a long time to stop a freight train.

 

[detective]

Quote from joeyata1:

THATS THE EXACT REASON THIS SELLOFF IS NOT OVER AS THE CONSTANT INTERFERENCE IN THE FINANCIAL MARKETS BY THE FEDS AS STOPPED NATURAL FORCES FROM TAKING THE MARKET TO PRICES IT NEEDS TO HIT.

THIS PROBLEM CAN'T BE FIXED BY EASY MONEY.

Totally agree. The flabby and overbloated banking system needs more liquidity like Fat Albert needs more Krispy Kreme donuts. Bernanke and his meddlesome behavior with constant out of left field bailouts when stock markets are weak prevent true levels of fear from entering the markets. This reinforces the bottom calling behavior and emboldens the dip buyers that support at 1270-1275 will hold and never give way. So you have a lot of false breakouts which make people believe that we have bottomed and the worst is over, but when you don't wash out the weak hands, they pounce on up days with all their supply.

The market wants to go to 1200 and you may get some real buying and fundamental support there but with Fed meddling and moral hazard, it hasn't gotten there, everyone knows that the Fed will come in at 1270 to rescue the market, if that doesn't hold, they will make some announcement and bailout before the market opens let's say at 1250, again when the market is at 1230, 1210, 1200, etc. They will cause a short spike higher and the market will go back down. It is almost as if the price discovery mechanism of the markets are being held hostage and prices being artificially propped by the Fed, while they pump tons of money into the system trying avoid a bear market. They may succeed in doing so, since they are that zealously inflating things and printing like mad. $200 billion here, a huge bailout there, it soon adds up.

 

[Lawrence Chan]

Quote from xednise:

Is there any way to determine how much this has affected the volatility of an index as it relates to stop placement on a given setup? tia

Using ES as an example, if there are 100 discretionary traders using BOT assisted order entry, think of the following scenario.

1/2 of them see a buy setup at a pull back price level and then place their limit orders there. All orders will be clustered within 1 to 1.5 point range. Most order entry BOTs have options to wait 3-5 seconds and also chase the offer if it is being lifted. Some traders will setup their chase method using market orders, while some will choose to chase up to 2-3 ticks.

All these are done automatically. Bracket orders (target, trailing and stops) are placed right after the entry orders are filled, also done by the BOTs.

Think what happens when the offer is hit by a block order?

All the parked orders waiting there will fire and zoom the price level up 3 to 4 ticks, as most traders' do not like to chase the price after that. That is what we see now at critical price levels all the time - a shoot up/down of 3 to 4 ticks and come back to the same level in seconds.

Now, when the most active stocks are all traded with these BOTs, that creates a new kind of problem. The cash S&P can lift or drop 2 points in seconds due to the use of these BOTs, and that can in turn triggers other auto algorithms - like arb program, buy/sell program, etc. Thus a small push at a critical level can result in extremely fast price movement.

Knowing that, it implies no stops are safe if placed within current noise level, making the risk/reward ratio for basic daytrade setups much less attractive.

I keep track of the average 15-min bar range in the regular session as my reference for stop placement. As of today, the average stands at 9 pts. It used to be 4 or less several months ago.

 

[Spooz Top]

Quote from Lawrence Chan:

Using ES as an example, if there are 100 discretionary traders using BOT assisted order entry, think of the following scenario.

1/2 of them see a buy setup at a pull back price level and then place their limit orders there. All orders will be clustered within 1 to 1.5 point range. Most order entry BOTs have options to wait 3-5 seconds and also chase the offer if it is being lifted. Some traders will setup their chase method using market orders, while some will choose to chase up to 2-3 ticks.

All these are done automatically. Bracket orders (target, trailing and stops) are placed right after the entry orders are filled, also done by the BOTs.

Think what happens when the offer is hit by a block order?

All the parked orders waiting there will fire and zoom the price level up 3 to 4 ticks, as most traders' do not like to chase the price after that. That is what we see now at critical price levels all the time - a shoot up/down of 3 to 4 ticks and come back to the same level in seconds.

Now, when the most active stocks are all traded with these BOTs, that creates a new kind of problem. The cash S&P can lift or drop 2 points in seconds due to the use of these BOTs, and that can in turn triggers other auto algorithms - like arb program, buy/sell program, etc. Thus a small push at a critical level can result in extremely fast price movement.

Knowing that, it implies no stops are safe if placed within current noise level, making the risk/reward ratio for basic daytrade setups much less attractive.

I keep track of the average 15-min bar range in the regular session as my reference for stop placement. As of today, the average stands at 9 pts. It used to be 4 or less several months ago.

dead on.....Chan man.

 

[xednise]

Quote from Lawrence Chan:

Using ES as an example, if there are 100 discretionary traders using BOT assisted order entry, think of the following scenario.

1/2 of them see a buy setup at a pull back price level and then place their limit orders there. All orders will be clustered within 1 to 1.5 point range. Most order entry BOTs have options to wait 3-5 seconds and also chase the offer if it is being lifted. Some traders will setup their chase method using market orders, while some will choose to chase up to 2-3 ticks.

All these are done automatically. Bracket orders (target, trailing and stops) are placed right after the entry orders are filled, also done by the BOTs.

Think what happens when the offer is hit by a block order?

All the parked orders waiting there will fire and zoom the price level up 3 to 4 ticks, as most traders' do not like to chase the price after that. That is what we see now at critical price levels all the time - a shoot up/down of 3 to 4 ticks and come back to the same level in seconds.

Now, when the most active stocks are all traded with these BOTs, that creates a new kind of problem. The cash S&P can lift or drop 2 points in seconds due to the use of these BOTs, and that can in turn triggers other auto algorithms - like arb program, buy/sell program, etc. Thus a small push at a critical level can result in extremely fast price movement.

Knowing that, it implies no stops are safe if placed within current noise level, making the risk/reward ratio for basic daytrade setups much less attractive.

I keep track of the average 15-min bar range in the regular session as my reference for stop placement. As of today, the average stands at 9 pts. It used to be 4 or less several months ago. [/QUOTE I think you are correct, it will be interesting to see if the volatility at the critical levels subsides slightly once the market quits getting jolted with news every ten minutes.

 

[Spectre2007]

Quote from Chuck Krug:

Spectre,

Is that MA crossover on your charts the main signal you use to initiate a trade?

yeah...but to use it effectively..you need other filters,

1) time of day
2) news events
etc.....

edit: I'm in Dillon, Colorado, for a week or so, still waiting for the second stage of the macro event, which is the pervasive gloom n doom on the streets, I havent seen it yet... I mean main street not wallstreet...