It actually works really well around oil inventories. I use to trade this. Both for oil and natty. See the purpose of using the OR during a shock event is that is when there is high volume and a lot of players entering and exiting the market. It becomes an anchor. It's the same logic as in the old days using the opening pit times where orders would flood in all over the place. It establishes position levels, stop levels, etc. Even to this day, using these events actually works much better then opening trading times which in the 24/6 electronic world are kind of useless.
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The ACD Method
- Thread starter sbrowne126
- Start date
It actually works really well around oil inventories. I use to trade this. Both for oil and natty. See the purpose of using the OR during a shock event is that is when there is high volume and a lot of players entering and exiting the market. It becomes an anchor. It's the same logic as in the old days using the opening pit times where orders would flood in all over the place. It establishes position levels, stop levels, etc. Even to this day, using these events actually works much better then opening trading times which in the 24/6 electronic world are kind of useless.
I don't dispute that it may work but wouldn't that create unnecessarily big OR to go from, or in other words not optimally "efficient one to use?It actually works really well around oil inventories. I use to trade this. Both for oil and natty. See the purpose of using the OR during a shock event is that is when there is high volume and a lot of players entering and exiting the market. It becomes an anchor. It's the same logic as in the old days using the opening pit times where orders would flood in all over the place. It establishes position levels, stop levels, etc. Even to this day, using these events actually works much better then opening trading times which in the 24/6 electronic world are kind of useless.
I don't trade CL, but isn't the price of crude mostly set by the spot market? The violent moves in futures one sees during reports are likely exaggerated by flows that are too big for the liquidity (not to mention many algos that are off for the reports and many algos that trade in an instant of the headline number alone). Whether it is "weak hands", stops, bad headline number (as opposed to in depth analysis of the report) the moves are wide but, for the lack of better word, not reflecting the underlying market forces. OTF (higher timeframe participants aka big guys) are not going to change their mind based on the one report and as a result the auction process resumes where ever it was heading.
The resulting significant OR, while technically valid for ACD (or similar methods) would likely produce unattractive Risk:Reward ratio. Wouldn't it be more prudent then "sit on your hands" during news/econ data, as all bets are off, instead of "gambling" with weak edge?
I don't dispute that it may work but wouldn't that create unnecessarily big OR to go from, or in other words not optimally "efficient one to use?
I don't trade CL, but isn't the price of crude mostly set by the spot market? The violent moves in futures one sees during reports are likely exaggerated by flows that are too big for the liquidity (not to mention many algos that are off for the reports and many algos that trade in an instant of the headline number alone). Whether it is "weak hands", stops, bad headline number (as opposed to in depth analysis of the report) the moves are wide but, for the lack of better word, not reflecting the underlying market forces. OTF (higher timeframe participants aka big guys) are not going to change their mind based on the one report and as a result the auction process resumes where ever it was heading.
The resulting significant OR, while technically valid for ACD (or similar methods) would likely produce unattractive Risk:Reward ratio. Wouldn't it be more prudent then "sit on your hands" during news/econ data, as all bets are off, instead of "gambling" with weak edge?
Not at all. ALL my trading in energies was fading A levels to get entries. The wide OR was perfect and offered the best risk/reward setups. Say WTI had been strong for 3 days and in a solid uptrend. You get an inventory that would create a nice downward spike with a VERY wide OR. The wider the OR, the bigger my profit target since my tgt was the A up. So I enter long on a fade on the failed A down with minimal risk and rode the trade all the way to the A up with a 4 to 1 payoff. I did this everyday. Again, this was my personal style and how I traded it. It does not mean it's the right way or even the way for you to trade it.
By the way, all of this is detailed in this thread. I really don't want to have to re-write the entire thread for your benefit. I swear to you, if you can just get through the first 50 or so pages, it's all there, I promise. Just spend a weekend going through it. The payoff is there I promise.
you're crushing my dreams!I get asked this a lot. I've refined my answer over the years. I think it all boils down to cost/benefit analysis. Most people in life are horrible at this. We take huge risks for little rewards or don't understand the expected values of various outcomes. Traders MUST be able to maximize their expected outcomes. You'll often hear traders talk about how college is a waste of time. Yet education has one of the highest expected payoffs of any bet you could make in your life. It does not matter if it makes you a better trader, it's simply a very attractive bet that offers a large positive expectancy.
The power of networking. You'll often hear traders on this site talk about working alone and keeping their secrets. Yet these people clearly don't understand probabilities. Just about any cost benefit analysis will how the returns to far outweigh the risk when it comes to collaborative partnerships. These might sound trivial but the reasons many traders don't do these things is because they are not adept at truly understanding the long term payoffs to various short term costs. And this skill is vital to being a good trader.
Traders who are too short term focused. You'll often see traders completely blinded by their short term p&l. Not looking at the big picture. They give up on ideas that have not worked for a month. They look at 3 charts and completely ride off a viable strategy. They let one large loss completely dominate the empirical data.
This goes beyond just trading. The most successful people in life in any endeavor are the ones that truly grasp the idea of cost/benefit analysis in all its forms. A very common one on this forum is the guy or girl who walks away from a 80k a year job to make 10k a year trading. The long term expected value of simply investing their 401k funds in an index fund while earning 80k a year will far exceed the total revenues generated by trading alone for most traders with small accounts yet they see it the opposite. All they really need is an excel spreadsheet and a few macros and the numbers will be obvious.
Or take the guy with a 3k FX account with dreams of moving to Switzerland with the billions they will make. It might sound funny but their problem is not that they are dreaming. There is nothing wrong with dreaming. The problem is the math. I've said this many times on here that you can count on two hands how many people in the entire world have generated long term returns greater than 25% yet 98% of the people on this site think that is their monthly goal. Again, it comes down to understanding math and perhaps the central limit theorem. All long term averages drift towards zero, not the other way around. It's very fundamental to math. It has nothing to do with how good of a trader you are, it's just the law of averages. If one can make 10% to 20% a year you are in a very very rare breed. If you could document live trade data with those returns with little correlation to other risk assets you could raise millions in outside funds. It's a very worthy goal. Yet most on here would claim they wouldn't get out of bed for those kinds of returns. They are usually the ones that end up losing all their capital.
I think most people could benefit from a very basic course in statistics that one could get for free on Coursera or other MOOC. Just understanding basic math, compound returns, averages, sample data, distributions, outliers , etc. Nothing fancy and certainly no rocket science. Just learn to understand numbers. No need for a PhD. Paul Wilmott has written some great books on this stuff. Some of it is heavy but he has some beginner books that will suffice that cover all the basics. I actually have one that is a miniature version called
"Frequently Asked Questions in Quantitative Finance". Tiny little book but covers all the bases.
Reading your comment about the people leaving their careers for trading, a quote from a movie "Micheal Clayton" comes to my mind, the scene at the poker table when a guy pokes at the character played by Clooney (a lawyer that decided to become a restaurant owner/operator and went bankrupt) saying to him: "yeah, but you had to be a rockstar"...
If there is one thing that I would disagree (not from personal experience, of course) is that making good (outsized) returns as individual and then rising millions in funds are two completely different animals. I think that what is possible for the little guy (that can ride the coat tails of the "whales") is often not possible for the bigger players that move the market. I understand that the market is bigger that any participant, but the small guy can pick off the bigger guys especially on the smaller timeframe, therefore increasing ROI on capital. Smaller timeframe means higher turnover. Bigger players are not cocerned with perfect entries, they can't. With that being said I want to stress firmly that I don't believe it is valid to calculate ROI on capital for very short term trading, as evidenced in my recent discussions on that subject in other relevant thread). But I digress
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I know (as I'm reading through it). I forgot that you're looking at macro ACD to get extra bias for the intra day playsBy the way, all of this is detailed in this thread. I really don't want to have to re-write the entire thread for your benefit. I swear to you, if you can just get through the first 50 or so pages, it's all there, I promise. Just spend a weekend going through it. The payoff is there I promise.
you're crushing my dreams!
Reading your comment about the people leaving their careers for trading, a quote from a movie "Micheal Clayton" comes to my mind, the scene at the poker table when a guy pokes at the character played by Clooney (a lawyer that decided to become a restaurant owner/operator and went bankrupt) saying to him: "yeah, but you had to be a rockstar"...
If there is one thing that I would disagree (not from personal experience, of course) is that making good (outsized) returns as individual and then rising millions in funds are two completely different animals. I think that what is possible for the little guy (that can ride the coat tails of the "whales") is often not possible for the bigger players that move the market. I understand that the market is bigger that any participant, but the small guy can pick off the bigger guys especially on the smaller scale, therefore increasing ROI on capital. With that being said I want to stress firmly that I don't believe it is valid to calculate ROI on capital for short term trading, as evidenced in my recent discussions on that subject in other relevant thread). But I digress
Michael Clayton is a great movie. That we agree on. As for the bigger players, not anymore. When I first got in this game it was very easy to pick them apart. They were manually doing their executions and were going all in. Today it's all algos. If some fund wants to take a 5% stake in AAPL, they will build the position in tiny lots over weeks to build it without even waking a mouse. There are no coat tails to ride or pickoff, trust me. That is an ET fantasy that gets peddled on here for guys trying to justify their existence on the food chain. James Simons can move billions, and I mean billions in commodities and stocks without even a ripple showing up on the tape. If you can't see the enemy, how do you even know he is there?
how about intraday FX market then? wouldn't that be at least slightly different since big deals still happen on interbank market? (I want to move to Switzerland!)Michael Clayton is a great movie. That we agree on. As for the bigger players, not anymore. When I first got in this game it was very easy to pick them apart. They were manually doing their executions and were going all in. Today it's all algos. If some fund wants to take a 5% stake in AAPL, they will build the position in tiny lots over weeks to build it without even waking a mouse. There are no coat tails to ride or pickoff, trust me. That is an ET fantasy that gets peddled on here for guys trying to justify their existence on the food chain. James Simons can move billions, and I mean billions in commodities and stocks without even a ripple showing up on the tape. If you can't see the enemy, how do you even know he is there?
how about intraday FX market then? wouldn't that be at least slightly different since big deals still happen on interbank market? (I want to move to Switzerland!)
All algos. Large amounts of money can be moved with relative ease. The reason you see spikes in FX rates is not because of large players moving money but because large players abstain from the market when these events happen. It's actually the lack of liquidity that is causing those spikes, not the actual size of the trade. So even those spikes you are not actually picking anyone off. It's just a price vacuum.
I have been misunderstood. I was not referring to FX moves on news.All algos. Large amounts of money can be moved with relative ease. The reason you see spikes in FX rates is not because of large players moving money but because large players abstain from the market when these events happen. It's actually the lack of liquidity that is causing those spikes, not the actual size of the trade. So even those spikes you are not actually picking anyone off. It's just a price vacuum.
I totally agree with what you just said (regarding spikes on news) and that was exactly my earlier point why slapping OR on news might not be the best idea (even if R:R is good) because the moves are more random at that moment and not reflecting true underlying forces. In other words: so what that R:R is 1:4 if the market is not acting orderly then the probability of that trade working out is very low. In orderly market you might have a bull bias and look for failed Adown to go long with 1:4 RR, but the very same trade done on news (same RR and all) is more gambling since with less liquid market you risk being run over just on the "noise" alone. Wouldn't you agree?
My comment (question) regarding FX was in direct response to you claiming that at least in other markets, you can't "pick-off" larger players since they quietly build their positions. So essentially you are claiming that larger players (which by definition are longer than day timeframe) are extremely price sensitive, which I disagree with. If you were to go that route further then I'm not sure if you could justify ACD altogether, but I digress.
Let me go back to FX.
Just to make sure again, I'm not talking about trading around the news but FX trading in general. I'm not sure how familiar you are with that market (I'm not implying anything just saying, as I always assume I know nothing), sure there are algos but the big FX transactions are happening (from what I know) on the interbank market through Market Makers (banks), not through algos. That's how MM can quickly offload huge position that unexpectedly land on his lap. He does that by offloading it quickly to many other MMs that in turn get trapped and as they all offload heir positions, the market moves and that's where one can look for the possibility of taking advantage of the move. No algo will effectively offload huge FX trade that get's dumped onto MMs hands that needs to be laid off asap. I've seen documentaries and fx dealer interviews and actually same thing is in one of the Market Wizards books. Sure it is old, but algos or no algos, not that much has changed over the years in that matter. At least I like to think that way...
Hence my original question, if one was to agree with you that (in other markets) you can't pick-off larger players, isn't it different at least with fx market? And I'm not talking about Fx futures market because it is arbed to the IB market. Since the biggest flows (real money) happen through IB market, as these positions get offloaded you see the moves of the big players trapping others and you capitalize on that move by jumping on it. After all, isn't that the whole premise of ACD to begin with? Once you see the market moving and making i.e. Aup or Adown you look to jump on this freight train for a quick ride, as the move might be meaningful.
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