Trade what you see, not what you think....

[robster970]

I looked at this thread on Friday evening and thought it had car crashed. Nice too see some insightful posts. Will throw my hat in the ring tonight.

I have mixed feelings on the matter and believe automated trading vs human performance is comparing apples with pears. Computational complexity has got nowhere near the capabilities inherent in our brains and this for me encapsulates the human edge over arithmetic horsepower. I am not arguing about what can be coded and what can be modelled which is very large, very sophisticated and beyond the ken of most people unless you are a professional developer with a background in Maths/Physics/Other serious natural science.

My position revolves around complexity. Take walking, something we don't think about. They still can't get a robot to walk like a human because the act of walking is based upon throwing yourself off balance and then catching the fall, step by step. We don't even think about it. Scientists/CompSci people still can't get robots to replicate this kind of basic task. I believe that some aspects of trading live in this competence area and are beyond computation and it's current limitations.

Personally I am broadly in the same place as WSW. This probably isn't a surprise to him LOL

 

[wallstreetwarrior87]

Finally the markets are still emotionally driven and based on feedback loops. I realise this is hard to quantify, so you are quite welcome to say I'm writing BS. I can't give any convincing evidence. But even looking at Liquid Validity's post using the nanex data to show liquidity drying up before a news annoucnement, the question is why? Why would all these algos withdraw liquidity before news? Fear?

Maybe the algos were never there in the 1st place? Those that really have influence (who ever they may be) need to know if they must attack or defend. This is all a consequence of what has happened in the events leading up to the news/data announcements. Take a look at the link below, this is based on information before an announcement. It has nothing to do with programmes at work, just by observing those that influence.

http://www.trade2win.com/boards/indices/154976-whos-shorting-dow-jones-now.html#post1928836


This is why I cannot buy into the debate that these algos control/influence markets anymore more than for a tiny edge, which simply is not a concern for the likes of us.

The same goes for aspiring traders trying to use other concepts to determine likely (not definite) market direction.

http://www.trade2win.com/boards/stocks/162580-dj-30-elliott-wave-viewpoint-2.html#post2058778

So sit back watch the action unfold, then pounce when you are ready. Dont worry too much about others.

Be your own machine:cheesy:

 

[barjon]

I wonder how long it will be before an automated intelligent system does a Leeson and works out how to hide its losses from the risk managers

 

[new_trader]

Watch floored again as well.
Not hard empirical proof, but where is any proof to back up what you say?

My own eyes!

Let me put it this way. I gather you are more of a system trader so I don't think you go right down to the nuts and bolts level of analysis that I do...I have historical data for the ES from approx 1998 - 2007 and I have been trading the ES since 2005. I see no difference whatsoever in all that time even compared to historical data...If anyone claims that it is computers running the markets 'now' then I'd like to know the precise date they took over because to me it is indistinguishable. If HFT has had a direct impact on the market then I should see it in the volumes, AND I DON'T! If HFT doesn't impact the market then it is irrelevant, it’s like arguing about how many fairies can dance on the head of a pin. HFT is just typical T2W "headline of the day" hysteria.

Traders have been ‘painting the tape’ and ‘wash trading’ since the stock market was created and certainly long before computers were invented, so how anyone can claim that computers have changed the game now is beyond me. I’d like them to point out specifically how it has (or should have) impacted my trading.

 

[BeginnerJoe]

Take walking

The trouble with machine walking is that there is no guaranteed profit in it. If you offer up a big enough prize, you will find machine start walking in no time. There are things in life worth doing, and there are things not worth doing. It comes down to if the reward justifies the effort.

In trading, 95%, 99.5% of casino go'ers loose. Even monkeys can do better, nevermind about the loaded machines operated by the banks. I am willing to bet a large part of the money loosed by the 9x.xx% are taken by the bank fruit machines with no human intervention. The formula used is surprisingly simple: sell at A, move price to A-b, buy back at A-c, repeat and rinse.

 

[wallstreetwarrior87]

Maybe a better way to look at HFT (since it seems to be a major point of debate) is:

Does it exist? Can you show on a chart where it does? If we can go beyond this, then;

what would be the goal/aim of those participating in HFT? It should then reveal a footprint which can be seen.

So if I can see that it does happen, then I know by the definition, these trades will be happening quickly and at many times during the day, scalpers trading an off balance environment, thats all thats going on, and this has been done since the days the markets began.

In the past a team of traders would have to do it, now a computer pushes the buttons thats all.

But I agree with the comments regarding anybody willing to show HFT at work in the market place; maybe bring up a 1 and 5 min chart and show the trades in action?

Flash crashes and HFT should not be confused as the same.

So has anyone actually got a real life example they could show, then we can see if there is any other information present on the chart that could help us with this?
Volume would be a benefit, but not essential.

This could develop into an interesting thread

 

[Liquid validity]

OK, first up - rise in volatility due to HFT:
Nanex ~ 31-Aug-2012 ~ SPY Intraday Volatility
See attached images as well.

That is probably the most visible manifestation of HFT.
Its not so much increased overall volume, rather the % of volume
handled by computers that has changed.

Most of the other obvious affects are only visible on the order book.
If you don't use that you won't have noticed anything.
Basically high frequency quote spam.
Nanex ~ The Rise of the HFT Machines
http://www.cmegroup.com/globex/images/RTT.png
Nanex ~ The Liquidity Illusion ~ NBBO Flutter

Not that much of a long winded post really.
Thats the basic gist anyway.
Increased volatility.
All started increasing around 2007.

 

[BeginnerJoe]

what would be the goal/aim of those participating in HFT?

The goal would be to make teh monies. In a hedge fund hft I got involved in, the hope was to make money from short term volatility. The trades were designed to piggy back on the existing market flow and therefore innocuous. But the market maker/bank ran their ship so tight that the effort was a looser.

 

[new_trader]

Thats the basic gist anyway.
Increased volatility.
All started increasing around 2007.

About the same time as the Subprime collapse, the Sovereign debt crisis...etc..

This is a hopeless joke.

 

[random12345]

Common sense.. walking.. visual identification as if imitating the human iris - not one of these has anything to do with profiting from range-bound squiggly lines. They are GCSE level debating arguments of humans vs machines. Not one of them is relevant. In no way are we asserting machine superiority over humans in general, but if you think you can out-trade a decent institutional automated system using channels, S&R, legs, key areas, box breakouts, higher timeframe swing hi/lows, then you're, respectfully, near enough clueless of what goes on in your own supposed industry. As Liquid says, no HFT or long term algorithmic code has ever hit the internet in full (and it never will because many of the core libraries are heavily obfuscated - the UBS and Goldman thefts were only partial - only individual python and java classes will be known inside out by one individual).

Why is there no human equivalent of Kasparov at the top of a modern institution defeating Deep Blue over and over...?

 

[new_trader]

Common sense.. walking.. visual identification as if imitating the human iris - not one of these has anything to do with profiting from range-bound squiggly lines. They are GCSE level debating arguments of humans vs machines. Not one of them is relevant. In no way are we asserting machine superiority over humans in general, but if you think you can out-trade a decent institutional automated system using channels, S&R, legs, key areas, box breakouts, higher timeframe swing hi/lows, then you're, respectfully, near enough clueless of what goes on in your own supposed industry. As Liquid says, no HFT or long term algorithmic code has ever hit the internet in full (and it never will because many of the core libraries are heavily obfuscated - the UBS and Goldman thefts were only partial - only individual python and java classes will be known inside out by one individual).

Utter B.S!

There is nothing different now than 5 years ago, 10 years ago etc..Even Jesse Livermore wrote about it almost 100 years ago. He was amazed at how the public never learns its lesson from being whipsawed by the market. I don't have the book with me right now, but when I find it I can quote you the page and you can read it for yourself.

 

[wackypete2]

Why is there no human equivalent of Kasparov at the top of a modern institution defeating Deep Blue over and over...?

Becasuse the experiment is over. Deep Blue beat the best human at the time. However it was programmed SPECIFICALLY to beat Kasparov. If someone comes along with Kasparov's abilities but much different style they can beat Deep Blue unless it is reprogrammed.

Peter

 

[Liquid validity]

I have historical data for the ES from approx 1998 - 2007 and I have been trading the ES since 2005. I see no difference whatsoever in all that time even compared to historical data...If anyone claims that it is computers running the markets 'now' then I'd like to know the precise date they took over because to me it is indistinguishable. If HFT has had a direct impact on the market then I should see it in the volumes

http://www.trade2win.com/boards/dis...you-see-not-what-you-think-6.html#post2071888

Started around 2007 when your data ends.
You won't see it in the overall daily volumes.
When I said computer are responsible for most of the volume,
I didn't mean increased volume, just proportion of daily volume.

I’d like them to point out specifically how it has (or should have) impacted my trading.

As I recall you don't use the order book, so wouldn't have noticed much there.
The primary visible effect is increased volatility.
If that hasn't affected you or benefited you, then as you say
it doesn't matter.

Notice how the RIV was quite steady up to the start of 2007
which coincided with the final roll-out of Reg NMS and the birth of High
Frequency Trading (HFT) as we define it. Since then, the average intraday
volatility in SPY has more than doubled, and was nearly six times higher in August
2011, and the peak intraday volatility in August 2011 was 10 times higher than it
was in 2006. The second chart is scaled to the 20 period moving average to show
detail. Note that the RIV already includes a volatility component (the daily
trading range).

 

[random12345]

My own eyes!

Let me put it this way. I gather you are more of a system trader so I don't think you go right down to the nuts and bolts level of analysis that I do...I have historical data for the ES from approx 1998 - 2007 and I have been trading the ES since 2005. I see no difference whatsoever in all that time even compared to historical data...If anyone claims that it is computers running the markets 'now' then I'd like to know the precise date they took over because to me it is indistinguishable. If HFT has had a direct impact on the market then I should see it in the volumes, AND I DON'T! If HFT doesn't impact the market then it is irrelevant, it’s like arguing about how many fairies can dance on the head of a pin. HFT is just typical T2W "headline of the day" hysteria.

Traders have been ‘painting the tape’ and ‘wash trading’ since the stock market was created and certainly long before computers were invented, so how anyone can claim that computers have changed the game now is beyond me. I’d like them to point out specifically how it has (or should have) impacted my trading.

It doesn't need to have impacted your trading, as LV says, so long as price moves still, opportunities exist. I don't think anyone made that point. It simply became more profitable for most institutions to adopt algorithmic trading over human traders. And algorithmic trading is not all HFT - in fact most of the volume wasn't when I left my institution. One of the problems with new humans traders at banks was that when they get a fat old capital line, they go mental, and most come to the same conclusion, I KNOW, if I bet BIG, bet OFTEN and hold LONG, I'll always win EVENTUALLY. Some became superstars using nothing any more complex than this and the PL controllers were just the jokers of the floor. Hence the old adage about traders being sat on huge losses, sweating out the position and losing it all when the market goes down. The lifetime of a trader was a little under 7 years and they didn't have the luxury to learn all you may know about risk etc and the market never coming back since they needed more than just their LTIP to pay their way. Many were thick. Most are gone.

JPM have wrapped up ALL FX trading under Athena, long term and high freq plus inherited legacy systems. HFTs are typically used exclusively my smaller firms who specialise in development alone.

 

[new_trader]

http://www.trade2win.com/boards/dis...you-see-not-what-you-think-6.html#post2071888

Started around 2007 when your data ends.
You won't see it in the overall daily volumes.
When I said computer are responsible for most of the volume,
I didn't mean increased volume, just proportion of daily volume.

I said my HISTORICAL data ends in 2007. I've been watching the ES daily since 2005. You have provided no evidence of anything, just like a devout believer in GOD, you are inferring the existance by indirect means. "Look at these charts! My goodness, it must be computers!"

As I recall you don't use the order book, so wouldn't have noticed much there.
The primary visible effect is increased volatility.
If that hasn't affected you or benefited you, then as you say
it doesn't matter.

Spoofing has been going on since time immemorial.

 

[random12345]

Utter B.S!

There is nothing different now than 5 years ago, 10 years ago etc..Even Jesse Livermore wrote about it almost 100 years ago. He was amazed at how the public never learns its lesson from being whipsawed by the market. I don't have the book with me right now, but when I find it I can quote you the page and you can read it for yourself.

I said there was something different about the market in my post?

I didn't. There is something very different about who trades it however.

 

[Liquid validity]

About the same time as the Subprime collapse, the Sovereign debt crisis...etc..

This is a hopeless joke.

Obviously that is a factor as well.
No one is saying it isn't.
Algos are increasing that volatility, they aren't solely responsible

 

[BeginnerJoe]

Becasuse the experiment is over. Deep Blue beat the best human at the time. However it was programmed SPECIFICALLY to beat Kasparov. If someone comes along with Kasparov's abilities but much different style they can beat Deep Blue unless it is reprogrammed.

Peter

Hmmm, you must have been out of IT for a very long time. Deep Blue won on shear brute force search. It cannot be beaten. The look ahead capability of the machine in chess is now beyond humans. Style will not beat brute force any more than you can head butt a brick wall into submission using whatever style of head butt you prefer.

 

[random12345]

Becasuse the experiment is over. Deep Blue beat the best human at the time. However it was programmed SPECIFICALLY to beat Kasparov. If someone comes along with Kasparov's abilities but much different style they can beat Deep Blue unless it is reprogrammed.

Peter

Yes, I agree, but please name a few people at the top of funds or bank FX desks who are manually trading (for more than 50% of their exposure) the instruments traded by the T2W masses. Not met one since 2006 who worked at Mason Legg.

 

[new_trader]

Obviously that is a factor as well.
No one is saying it isn't.
Algos are increasing that volatility, they aren't solely responsible

I see...Algos...do you have similar charts from 1929 -1934 please...and 1907 and 1910 - 1911? They are Financial panics of the past. Let's see how they stack up.