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Who Are You Trading Against?
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Who Are You Trading Against?

  #21 (permalink)
Market Wizard
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grimReaper View Post
To answer your question, approximate volume breakdown of the ES: 35% HFT, 10% market makers, 12% fundamental/consistent buyer, 12% fundamental/consistent seller, 30% index arb/misc speculators, 1% noise (few lots per day).

Thanks for sharing. Do you have a source for this?

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  #22 (permalink)
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kevinkdog View Post
Thanks for sharing. Do you have a source for this?

The correct number is around 55%.

<deleting this part because it is irrelevant>


Last edited by artemiso; December 26th, 2012 at 08:54 AM.
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  #23 (permalink)
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Has anyone answered...


yourself? The market will do what the market does. The question was not who is your typical counter party, right? Yet all of the answers that I've read are answering who is the counter party. I thought the question was asking what forces work against you...sort of meaning oppositional viewpoint...is that list not always headed by "self". You guys remember the two evil fears that all the pundits type about..."the fear of missing out" and the fear of"losing".

Guys, you trade against your own emotions...mostly fears. The market is just the backdrop by which the fears are judged.

Credit to @DionysusToast


Last edited by wldman; December 26th, 2012 at 09:06 AM.
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  #24 (permalink)
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artemiso View Post
Differences

@artemiso

1. The human mind is subject to cognitive biases. A program is not.
2. The minimum resolution of human reaction time is in the order of 10^-1 seconds. The minimum resolution of reaction time for a program is in the order of 10^-9 seconds.
3. Most trading problems are in polynomial, asymptotic time complexity class, where programs solve problems faster than humans.

A good algorithm should not defy your intuition. A program can land billion-dollar spacecraft in treacherous conditions hundreds of millions of miles away, where vision is not available because it takes 10~11 minutes for a light-propagated signal to return to Earth and another 10~11 minutes for a signal to be transmitted back.

These are correct, interesting and good discussion points.\

Cognitive bias, is that "discretion"? Interesting that the words "subject to", in my mind implies that this is a negative.

My reaction time is much slower, I'm sure, but my absolute minimum time frame is 3 minutes. What is typical 3 min ATR versus say 3 micro second ATR. I gain more by laying out limits and collecting the liquidity rebate. BUT I do from time to time lose an entire tick to reaction time on a market order.

I do not know what asymptotic time complexity class is, but I do know that every product has a range to put in and that if under current volatility it looks like I might not get another chance at the level I wanted that I can trade it here or I can wait for the next one.

DB

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  #25 (permalink)
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wldman View Post
These are correct, interesting and good discussion points.\

Cognitive bias, is that "discretion"? Interesting that the words "subject to", in my mind implies that this is a negative.

Yes. I've posted this before and asked if anyone can tell apart the real data set and the fake one from these two:

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My computer can do it instantaneously with 99% confidence. But I don't think a regular person can tell them apart by the eye, much less draw accurate conclusions from things such as ATR/moving averages plotted on the data or patterns such as head-and-shoulders.


wldman View Post
My reaction time is much slower, I'm sure, but my absolute minimum time frame is 3 minutes. What is typical 3 min ATR versus say 3 micro second ATR. I gain more by laying out limits and collecting the liquidity rebate. BUT I do from time to time lose an entire tick to reaction time on a market order.

Sometimes we need to write out the full zeros to make sense of it.

It takes about 250~300 nanoseconds to decode a FAST packet and no more than 600 nanoseconds to decode a FIX message with basic hardware (no FPGA-based UDP network stack). Given, say, the median stock in US equities is held for under 20 seconds, isn't choosing your minimum time frame as 180000000 nanoseconds rather incapacitating by choice? That is like driving with only a pinhole of vision in your windscreen.

You lose an entire tick to reaction time on some of the trades you make. But you lose millions of ticks on the trades you couldn't make.


wldman View Post
I do not know what asymptotic time complexity class is, but I do know that every product has a range to put in and that if under current volatility it looks like I might not get another chance at the level I wanted that I can trade it here or I can wait for the next one.

Yes, but how many products can you watch at one time?



By the way, both data sets are fake.

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  #26 (permalink)
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Well...

I choose to trade only two products. ES and 6E.

artemiso, it would seem as though we are on different paths up the same mountain.

I can not tell you which data set is false but I could tell you where I'd have tried to trade it...lol

I understand what you mean on the millions of ticks from trades I've never made. Trading is not a game of perfection for me, rather I'm trying to take the most based on a limited amount of risk...risk being the first consideration, not an after thought.

Perfection being the cumulative of all the ranges formed by all the ticks for the period...yes millions of ticks. I'm looking to take a number of ticks equal to or a little more than the sessions range. I do typically buy the low or sell the high within say 10 ticks, sometimes both. The day though, is usually defined by what I do in the space between.

So perfection is off the table for me and I understand that our theoretical basis is vastly different. We should trade a method that suits us. For me personally, I can not compete in many of the various venues...sole prop HFT being one of those. I'm not suited to that "game" but I recognize the players and I attempt to consider their likely actions when preforming in my venue.

Interesting that one of the guys formerly active in the Chicago collaboration did have me convinced that "discretion" could be coded into, at the least, a series of "graybox" strategies. I do not doubt that is true. BUT with the intellectual and financial resources available to the elite organizations I have a hard time rationalizing why they are not yet in possession of all the money in the world. It is naive for me to say that that "way" is chasing the wind. To do so is to say that my "way" is also chasing the wind.

To each what works for them? Or is it something else that allows individuals or organizations to remain consistently profitable applying different ideas in the same dynamic market?

DB

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  #27 (permalink)
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artemiso View Post
Yes. I've posted this before and asked if anyone can tell apart the real data set and the fake one from these two:

[IMG]

[IMG]

My computer can do it instantaneously with 99% confidence. But I don't think a regular person can tell them apart by the eye, much less draw accurate conclusions from things such as ATR/moving averages plotted on the data or patterns such as head-and-shoulders.



Sometimes we need to write out the full zeros to make sense of it.

It takes about 250~300 nanoseconds to decode a FAST packet and no more than 600 nanoseconds to decode a FIX message with basic hardware (no FPGA-based UDP network stack). Given, say, the median stock in US equities is held for under 20 seconds, isn't choosing your minimum time frame as 180000000 nanoseconds rather incapacitating by choice? That is like driving with only a pinhole of vision in your windscreen.

You lose an entire tick to reaction time on some of the trades you make. But you lose millions of ticks on the trades you couldn't make.



Yes, but how many products can you watch at one time?



By the way, both data sets are fake.

I think both approaches have their strengths and weaknesses.

Imagine the market (Hundreds of bars. Hundred thousands of ticks and contracts. The fight of fear and greed.)
to be a novel (Hundreds of pages. Thousands of paragraphs. Ten thousands or more words and letters. One story.)

A program can find typos by magnitudes faster and (probably also by magnitudes) more accurately. It can tell you the probability of the next character being a "K" at any given time based on past pages, the probability of the next word being a verb and many other things.
But it will never understand the story. A human will, or at least often can (unless the novel is complete rubbish of course). A human on the other hand needs things a computer often does not, like page numbers, indexes and tables of contents in order to at least partially mitigate his shortcomings.
As the human has the advantage of understanding the facts beyond the letters and words, he also might sometimes have an advantage when guessing what will happen next. This is especially useful for unprecedented events or similar e.g. fat tails.

vvhg

Hic Rhodos, hic salta.

Last edited by vvhg; December 26th, 2012 at 11:05 AM.
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  #28 (permalink)
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vvhg View Post
No matter how much you improve or debug your system, it still will lack any common sense. You still need to monitor the system and start and stop it manually according to circumstances. Guess what, that's discretion.
And I passionately disagree that every trading system can be programmed, you will not code the invaluable intuition of a master trader into any strategy. What you percieve as the weakness of discretionary trading can and should be its strength.

I don't know how to respond to this other than to suggest that you may be underestimating the power of computer programs. I don't claim to be best programmer, but there's been many times where I thought certain things couldn't be possible (because of "human intuition"), but later realized that wasn't true.

At the end of the day, charts are all based off of each line of the tape, i.e concrete data. Charts and patterns are all abstractions of that.



vvhg View Post
I don't know why you wouldn't want to trust the human brain on evaluating the performance of its ideas. As long as you have a thorough and and solid methodology there should be no problem.

Unless you have a sample size, what may be a solid methodology may not be in practice.


vvhg View Post
You in fact do the same when evaluating automated systems. You use your brain to tell you if it is a good equity curve, you run Monte Carlo simulations and eyeball equity curves weigh them against many performance metrics until you make a discretionary decision which system is the best and if it is good enough to take it to the next level.

Because data is objective, scanning charts with your eyes is not. Trading sim can also be subject to subjectivity.


vvhg View Post
I can not see any disadvantage of a discretionary trader adapting over time. All the serious automated guys do non stop maintainance aka adaption. There is no set and forget holy grail strategy.

Yes, and upon adaption you backtest and cross-validate to make sure your improvements are truly improvements, not just some anomaly you noticed over some local period of time.

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  #29 (permalink)
Trading for Fun
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In my opinion, it doesn't matter who is trading. The only thing I see is price and that's the only thing that matters. Admittedly I am a 'newbie' compared to other people here, but in my two years of day trading crude oil, I basically approach it with a handful of general observations about price behavior and I don't care whether the other traders are computers, institutions, discretionary, etc.

it seems to me that even among the 'big' players, there should be a bunch of different competing algorithms and the combined effect would be unknown to anybody, so what's the point of trying to figure that out?

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  #30 (permalink)
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kevinkdog View Post
Thanks for sharing. Do you have a source for this?


artemiso View Post
The correct number is around 55%.

http://www.uic.edu/cba/icfd/20110826_Kyle_UIC_07.pdf

Slide 24/54.

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