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Questions regarding algo movement!

  #6 (permalink)

North Carolina
Trading Experience: Beginner
Platform: NinjaTrader, Tradestation
Favorite Futures: es
Posts: 644 since Nov 2011


The ES has been trading super efficiently the last few months. Based on my tape read, I think it is possible there might not be any discretionary scalpers trading in the market or they are trading with volume based stops or other advanced loss taking measures. These are very efficient markets. The traders are using bigger stops, using volume triggered stops, or using limit orders to exit trades. The market is very efficient. I think, yes, the traders are still there but not scalping.

As for why the ES would reverse on you, the ES is typically a highly mean reverting market. Order flow is typically mean reverting. If you are jumping in on a momentum move, you will get reversed often. This could be especially pronounced if you wait for any sort of confirmation or you are slow: the algos will be programmed to go off on any psychological biases that exploit traders. They will have quicker connection. So, if they know it takes 700 msec for a trader to see the momentum and they are able to execute in 5 msec then they might try to exploit that. Also, I suspect much of the volume in the ES is characterized of traders who are only seeking a tick or two of profit. This also makes the market reverse unexpectedly and very noisy to follow because an algo may put on a lot of size but only target a single tick or will cover the next tick.

Algos today in the ES run any of several typical algos: short on up tick, add depth to new low and blast in market orders, add depth in front of any limit order imbalances found in the book. I suspect the bigs do not show up in the book any more. So, they know that if smalls are in the book then they can run their stops. The bigs are also running market orders as percentage of delta to keep the delta flat. The way this works is say they want to sell X% then they will keep their volume transacted to some % of the total to keep the delta flat.

However, we know what a certain class of bigs are doing because they always do the same thing. Bigs always buy with limit orders as the market sells off. There are other bigs who do different sorts of things.

If you are mentioning stops, yes the market will target stops in all time frames. It is far worse then you think. It is not just the bigs hunting your stops: it is the entire market. Everyone is hunting everyones stops. But, yes your stop loss is being targeted but not individually: the same stop levels will be hit regardless of whether you place your order (as long as you are not too big).

Last edited by tpredictor; July 2nd, 2017 at 08:12 PM.
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