MoonRocket
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All you need is the Jigsaw software and level 2 data feed or do you also need Ninja?
Best Thread The Order Book - Why Bother?
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DionysusToast
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Actually, any GOOD DOM will do.
Xtrader + TTFeed is fine for most of the people that trade this way.
MoonRocket
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Would the Order Book from a futures exchange translate accurately for those trading CFDs in the forex market?
ChocolateDigestive
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MoonRocket
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I don't have a mentor, I've only got teh net. Teh net don't teach me nuffin'. teh net only lies to me. Guess I'll just have do wot a modern Tom Baldwin would do just put it up and watch it.dude you havn't been doing your homework.
Sorry to bother you.......Dude.
ChocolateDigestive
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ok I will try and help you out. From your posts by forex I believe you are talking about spot FX or a spread bet equivalent. This is an over the counter (OTC) market therefore not traded on an exchange, therefore no volume, no DOM (orderbook), no time and sales unless you are privy to an interbank FX dealing platform (I am guessing you are not). about 2% of the FX market is retail traders so if you want to go ahead and trade FX without data on the 98% of the market participants then go ahead, expect a train wreck. Some people can make forex work though but if you want orderbook, time and sales, volume it's a no go unless you want to trade the FX futures but contracts like the Emini are far more liquid.
If you trade an exchange instrument future, stock or bond then you have access to the volume, orderbook, time and sales. Here the minimum increment is 1 tick and you pay a commission to buy and sell. For the ESmini S&P contract the OP is trading tick size is $12.50 and he is paying $4 to buy and sell. So if he makes 1 tick he nets $8.50, if he scratches he nets -4$, if he makes 4 ticks he nets $46. capiche.
CFD's and SB are pants for exchange instrument, utter turd. Some leading SBs will let you trade the ESmini contract with a 2 tick spread but this puts newbies on a hiding to nothing.
My advice to newbies is pick a nice fat liquid exchange instrument, S&P, FTSE, EURO, BOND and demo that while you are saving for a decent margin to give yourself a chance. Trading the ESmini with less than $50000 is being unfair to yourself. Of course demo fills are totally different but at least you will be engaging with your market of choice
my $0.02
MoonRocket
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Thankyou ChocD. for your considered response.
I have never done better since switching to the Euro/USD trading CFDs.
I find my simplistic method excellent and very safe.
As far as spreadbetting goes.....I've never looked at it, quite happy to pay my taxes, anyway I think these days it is not tax free in Aust.
I also aware no volume or order book is available on the spot forex.
But I like the concept of fine tuning the entries as ToastMan has demonstrated,
hence my question.
If I was to get a DOM feed from an exchange, would the turning points on the DOM be near enough to identical to OTC forex?
I have never done better since switching to the Euro/USD trading CFDs.
I find my simplistic method excellent and very safe.
As far as spreadbetting goes.....I've never looked at it, quite happy to pay my taxes, anyway I think these days it is not tax free in Aust.
I also aware no volume or order book is available on the spot forex.
But I like the concept of fine tuning the entries as ToastMan has demonstrated,
hence my question.
If I was to get a DOM feed from an exchange, would the turning points on the DOM be near enough to identical to OTC forex?
ChocolateDigestive
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no as spot FX is not an exchange traded product. You could look at the 6E futures contract, open a demo account with Mirus and take a look. I dont know if it will help your spot FX trading or open up a big can of worms.
Are you trading on an exchange or via spreadbet/CFD? There is a difference. Typically with spreadbet/CFD you have to cross the spread (ie your limit BUY is filled only when the SB/CFD ASK reaches your limit price (and the quoted bid is a point below your limit price).
Generally, on exchange, the limit orders should be filled first in first out.
timsk
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tuscan
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Re: The Order Book -Why Bother?
I was trading calendar spreads on Bund, Bobl, Schatz rollovers with large lots up to 200 on Schatz, this made me focus on that type of trading- I LOVE that kinds of risks one tick profit , scratches, no losing trades planned. But I assume your bad day is when you don't make any profit , have you no losses? my worst day was around -3000$ best trade +3000$, only 3 days every 3 month of such liquidity though, to put 100 lot working order without a stop
Since I have the experience also cant imagine doin any trade only from the chart. For me it is like givin the money to someone else to enter you a trade and pay him 2 ticks for that.
It depends which exchange, they have different matching algorithms. Eurex is the one with no algorithm when your order is first, it is filled first. Some exchange algorithms depend on clip size (number of lots in one order) so if there are 2 working orders for 101 contracts on some level, 1 is yours and the rest,100, is some other trader, and someone is taking 10 contracts at the market price hitting you, you might not get anything even if you are first. CME operates with several different algorithms depending on the product. LIFFE favours orders larger than 50 lots, those have priority. But this all doesn't mean anything on some volatile markets.
Sorry I was writing about futures markets not sure how it is going with stocks.
Very nice definition. I can add that some put stoplosses only just in case of some accidental spike not as a strict level where you must leave a position, they have stop loss in their head - when something is going not the right way they leave that position regardless of where it is.
No system in such trading really but your skill and FEEL.
I was trading calendar spreads on Bund, Bobl, Schatz rollovers with large lots up to 200 on Schatz, this made me focus on that type of trading- I LOVE that kinds of risks
one tick profit , scratches, no losing trades planned. But I assume your bad day is when you don't make any profit , have you no losses? my worst day was around -3000$ best trade +3000$, only 3 days every 3 month of such liquidity though, to put 100 lot working order without a stop Since I have the experience also cant imagine doin any trade only from the chart. For me it is like givin the money to someone else to enter you a trade and pay him 2 ticks for that.
It depends which exchange, they have different matching algorithms. Eurex is the one with no algorithm when your order is first, it is filled first. Some exchange algorithms depend on clip size (number of lots in one order) so if there are 2 working orders for 101 contracts on some level, 1 is yours and the rest,100, is some other trader, and someone is taking 10 contracts at the market price hitting you, you might not get anything even if you are first. CME operates with several different algorithms depending on the product. LIFFE favours orders larger than 50 lots, those have priority. But this all doesn't mean anything on some volatile markets.
Sorry I was writing about futures markets not sure how it is going with stocks.
Very nice definition. I can add that some put stoplosses only just in case of some accidental spike not as a strict level where you must leave a position, they have stop loss in their head - when something is going not the right way they leave that position regardless of where it is.
No system in such trading really but your skill and FEEL.
Last edited:
DionysusToast
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At this point, there's been a lot of questions & comments. Let's bite off a chunk at a time.
First of all the "why do you need it to move 2 ticks to make 1 tick?" thing...
In the above pic, we can see the last traded price is 1136.00. This is the price you will see on your chart.
If you wanted to sell a contract based on the above pic, you could either put in a sell market order to sell @ 1135.75 OR put in a sell limit order to sell at 1136.00 The thing is, there's 257 contracts in the queue a 1136, so you need someone to buy 257 contracts at that price before they will start buying contracts off you.
So - what you do it you sell INTO that 1135.75 bid. That's 1 tick below the current price BUT.....
THERE REALLY IS NO CURRENT PRICE.... There is only best bid/best offer. Two prices, one for market sellers & one for market buyers.
As soon as you sell into 1135.75, that will be the new latest price.
So - let's suppose you sell. You sell 1135.75 and now you want to make 1 tick. That means you want to buy at 1135.50.
Well, guess what - there's 291 contracts ahead of you at 1135.50. So - you need 291 sell market orders to hit those 291 buy limit orders before you will get a fill.
So, if you short @ 1135.75, you don't just need 1135.50 to be traded to make a tick, you need all the buy limit orders there to be consumed. This is why people say you really need price to move 1 tick past your target to get filled.
This also why you can't buy the low tick or sell the high tick UNLESS you put in a limit order in so far ahead time-wise that you are at the front of the queue. The very nature of reading the order book is that you put your order in when you see events unfold which effectively means you put your order in at the last minute and so you are at the back of the queue... which means you need all limit orders ahead of you to be consumed before you get a fill. Which basically means you need price to tick PAST your target.
This is where a lot of automated systems fall over when they go live. The backtesting assumed you got a fill just because you reached your target price.
Make sense?
First of all the "why do you need it to move 2 ticks to make 1 tick?" thing...
In the above pic, we can see the last traded price is 1136.00. This is the price you will see on your chart.
If you wanted to sell a contract based on the above pic, you could either put in a sell market order to sell @ 1135.75 OR put in a sell limit order to sell at 1136.00 The thing is, there's 257 contracts in the queue a 1136, so you need someone to buy 257 contracts at that price before they will start buying contracts off you.
So - what you do it you sell INTO that 1135.75 bid. That's 1 tick below the current price BUT.....
THERE REALLY IS NO CURRENT PRICE.... There is only best bid/best offer. Two prices, one for market sellers & one for market buyers.
As soon as you sell into 1135.75, that will be the new latest price.
So - let's suppose you sell. You sell 1135.75 and now you want to make 1 tick. That means you want to buy at 1135.50.
Well, guess what - there's 291 contracts ahead of you at 1135.50. So - you need 291 sell market orders to hit those 291 buy limit orders before you will get a fill.
So, if you short @ 1135.75, you don't just need 1135.50 to be traded to make a tick, you need all the buy limit orders there to be consumed. This is why people say you really need price to move 1 tick past your target to get filled.
This also why you can't buy the low tick or sell the high tick UNLESS you put in a limit order in so far ahead time-wise that you are at the front of the queue. The very nature of reading the order book is that you put your order in when you see events unfold which effectively means you put your order in at the last minute and so you are at the back of the queue... which means you need all limit orders ahead of you to be consumed before you get a fill. Which basically means you need price to tick PAST your target.
This is where a lot of automated systems fall over when they go live. The backtesting assumed you got a fill just because you reached your target price.
Make sense?
At this point, there's been a lot of questions & comments. Let's bite off a chunk at a time.
First of all the "why do you need it to move 2 ticks to make 1 tick?" thing...
In the above pic, we can see the last traded price is 1136.00. This is the price you will see on your chart.
If you wanted to sell a contract based on the above pic, you could either put in a sell market order to sell @ 1135.75 OR put in a sell limit order to sell at 1136.00 The thing is, there's 257 contracts in the queue a 1136, so you need someone to buy 257 contracts at that price before they will start buying contracts off you.
So - what you do it you sell INTO that 1135.75 bid. That's 1 tick below the current price BUT.....
THERE REALLY IS NO CURRENT PRICE.... There is only best bid/best offer. Two prices, one for market sellers & one for market buyers.
As soon as you sell into 1135.75, that will be the new latest price.
So - let's suppose you sell. You sell 1135.75 and now you want to make 1 tick. That means you want to buy at 1135.50.
Well, guess what - there's 291 contracts ahead of you at 1135.50. So - you need 291 sell market orders to hit those 291 buy limit orders before you will get a fill.
So, if you short @ 1135.75, you don't just need 1135.50 to be traded to make a tick, you need all the buy limit orders there to be consumed. This is why people say you really need price to move 1 tick past your target to get filled.
This also why you can't buy the low tick or sell the high tick UNLESS you put in a limit order in so far ahead time-wise that you are at the front of the queue. The very nature of reading the order book is that you put your order in when you see events unfold which effectively means you put your order in at the last minute and so you are at the back of the queue... which means you need all limit orders ahead of you to be consumed before you get a fill. Which basically means you need price to tick PAST your target.
This is where a lot of automated systems fall over when they go live. The backtesting assumed you got a fill just because you reached your target price.
Make sense?
Yeh I get it I think. So you don't actually get filled one tick above your limit price , but since you're so late and at the end of the queue, it's safe to assume that price will pretty much have to consume all of those other limits in front of you to reach/fill you at the end of the queue....which will obviously cause a tick beyond your price?
Oh, and if you set your limit order like say a year ago, you'd most likely be at the front right? So then you'd be filled without all the orders at your level having to be consumed?
tuscan
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L
Liquid validity
Good thread.
DT have you personally been affected by the reduced liquidity on ES due to HFT?
Nanex - HFT Killed the EMini
http://www.conatum.com/presscites/HFTMMI.pdf
It's WAR: Day Traders And Floor Traders VS High-Frequency Traders
Have you found the ES order book to be increasingly manipulated in a way which
is becoming harder to read, or even reducing the value of the orderbook as an effective tool?
Not a knock, genuinely curious to hear if you have had to significantly adapt
your methods with more of a bias to the tape.
DT have you personally been affected by the reduced liquidity on ES due to HFT?
Nanex - HFT Killed the EMini
http://www.conatum.com/presscites/HFTMMI.pdf
It's WAR: Day Traders And Floor Traders VS High-Frequency Traders
Have you found the ES order book to be increasingly manipulated in a way which
is becoming harder to read, or even reducing the value of the orderbook as an effective tool?
Not a knock, genuinely curious to hear if you have had to significantly adapt
your methods with more of a bias to the tape.
DionysusToast
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LV
Interesting question. In the past 2 years, I've not seen any fundamental changes. I can see how decimalisation made scalping the spread harder but that isn't something I ever got into anyway. Of course the markets have changed - just in the past 12 months there have been changes. From August 2011 we had much higher volatility which tamed at the end of the year...
ES Daily chart (day session only), volume and daily range (high - low)
The ES has changed this year - 2012. The volume has been generally lower and so has the volatility.
In terms of liquidity, I don't really think it is lower relative to the amount of contracts traded. Now - when I think of liquidity, I think of it in terms of liquidity providers & consumers. The providers being those putting limit orders out there, some because they want to trade and some because they want the spread/rebates. If there is enough liquidity, then you get filled at good prices because the liquidity is there for you to take.
I say this because if we see less liquidity relative to the overall volume, then we will see higher volatility. What we have seen is lower volatility. I think the ES since 2012 started is plenty liquid, it's just there's been lower volume.
Greece certainly has a bearing on this, news is coming out at random right now. Any time a politician speaks in Europe an off the cuff comment can send the ES spinning one way or the other. I know I got caught out on a Bund trade in December where Angela Merkel said something and I got 23 ticks slippage.
In terms of manipulation, I think there's a few things to consider:
Manipulation is good - it is done to put people offside but it is also very visible. There are certain things you can watch for that tip your hand that someone is trying to subtly build a position. This still goes on but it can't be your bread & butter in my opinion.
If machines are now liquidity providers, that's fine with me. Machines won't be building 20,000 lot positions but if they do, they'll need to employ similar techniques to the large day traders that used to do that.
There are 'setups' and a good place to learn those is the "No BS Day Trading" eBook. Even though setups exist, yhe mainstay of my trading is seeing moves fade away. Often you get to a point and no-one wants to hit that price. It's not a setup per se, just that you can see it's not going any further.
The flip side to that is when somebody stands in front of the market and just starts absorbing the trades on one side. Again, it's not a setup but at the right moment, you can lean on somebody absorbing those trades.
There isn't really much to this. You have limit orders & market orders. You have liquidity and consumption of liquidity. When you boil it all down, market orders cause the price to move and when they don't it'll move the opposite way. Everything is a variation on that simple theme. I guess in this respect, I am more tape (market orders) oriented than just looking at the book and trying to figure out who's spoofing.
I hope this makes sense.
Pete
Interesting question. In the past 2 years, I've not seen any fundamental changes. I can see how decimalisation made scalping the spread harder but that isn't something I ever got into anyway. Of course the markets have changed - just in the past 12 months there have been changes. From August 2011 we had much higher volatility which tamed at the end of the year...
ES Daily chart (day session only), volume and daily range (high - low)
The ES has changed this year - 2012. The volume has been generally lower and so has the volatility.
In terms of liquidity, I don't really think it is lower relative to the amount of contracts traded. Now - when I think of liquidity, I think of it in terms of liquidity providers & consumers. The providers being those putting limit orders out there, some because they want to trade and some because they want the spread/rebates. If there is enough liquidity, then you get filled at good prices because the liquidity is there for you to take.
I say this because if we see less liquidity relative to the overall volume, then we will see higher volatility. What we have seen is lower volatility. I think the ES since 2012 started is plenty liquid, it's just there's been lower volume.
Greece certainly has a bearing on this, news is coming out at random right now. Any time a politician speaks in Europe an off the cuff comment can send the ES spinning one way or the other. I know I got caught out on a Bund trade in December where Angela Merkel said something and I got 23 ticks slippage.
In terms of manipulation, I think there's a few things to consider:
Manipulation is good - it is done to put people offside but it is also very visible. There are certain things you can watch for that tip your hand that someone is trying to subtly build a position. This still goes on but it can't be your bread & butter in my opinion.
If machines are now liquidity providers, that's fine with me. Machines won't be building 20,000 lot positions but if they do, they'll need to employ similar techniques to the large day traders that used to do that.
There are 'setups' and a good place to learn those is the "No BS Day Trading" eBook. Even though setups exist, yhe mainstay of my trading is seeing moves fade away. Often you get to a point and no-one wants to hit that price. It's not a setup per se, just that you can see it's not going any further.
The flip side to that is when somebody stands in front of the market and just starts absorbing the trades on one side. Again, it's not a setup but at the right moment, you can lean on somebody absorbing those trades.
There isn't really much to this. You have limit orders & market orders. You have liquidity and consumption of liquidity. When you boil it all down, market orders cause the price to move and when they don't it'll move the opposite way. Everything is a variation on that simple theme. I guess in this respect, I am more tape (market orders) oriented than just looking at the book and trying to figure out who's spoofing.
I hope this makes sense.
Pete
DionysusToast
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You can test this out of course in my experience 6E and EURUSD are pretty much in locks step when taking EUR/USD data from Kinetick/IB. Just bring up a chart showing both on a 1 min timeframe and you'll see how they are correlated.
If you think about it, any major difference will be arbed out of existence in short order anyway.
If you watch the order book for the 6E and trade the EURUSD with a reputable broker you should be OK. Similarly you can watch the ES and trade the SPY.
What you need to avoid is worrying too much about which one is the tail and which one is the dog if you go that route.
L
Liquid validity
DT cheers for the detailed reply.
Yeah I read that no BS day trading book (very good its too).
The thing that struck me most about your reply was the kind of entries you look for.
Waiting for a move to run out of steam then fading it.
Thats pretty much the approach I've taken with my automation.
I have to say though, the caveat with automation, or so I've found, is that entries
are unsuprisingly less precise. Hardly a revelation.
No question that the OB and tape with discretionary input is more efficient unless you
are a big HFT outfit.
The reason I chose automation for the time being is purely availability, thats it.
I only look for 1-2 trades per day, sometimes none are taken, they all run until
close unless exit is triggered.
Basically I'm looking for the larger intra moves to reduce frequency and
commissions and I don't want to babysit them.
Good thread about the order book, never really used it much myself, purely T&S
whenever I take this sort of approach.
Anyway, cheers for the detailed reply
Bit pushed for time now, hence shortish reply.
Yeah I read that no BS day trading book (very good its too).
The thing that struck me most about your reply was the kind of entries you look for.
Waiting for a move to run out of steam then fading it.
Thats pretty much the approach I've taken with my automation.
I have to say though, the caveat with automation, or so I've found, is that entries
are unsuprisingly less precise. Hardly a revelation.
No question that the OB and tape with discretionary input is more efficient unless you
are a big HFT outfit.
The reason I chose automation for the time being is purely availability, thats it.
I only look for 1-2 trades per day, sometimes none are taken, they all run until
close unless exit is triggered.
Basically I'm looking for the larger intra moves to reduce frequency and
commissions and I don't want to babysit them.
Good thread about the order book, never really used it much myself, purely T&S
whenever I take this sort of approach.
Anyway, cheers for the detailed reply
Bit pushed for time now, hence shortish reply.
DionysusToast
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I might have a few things that could help in that regards...
PM me if you want to discuss.
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