I don't see how mentioning "retail" or "inexperienced" traders in any price theory regarding massively liquid instruments like the ES is relevant, given that their volume is negligible. And I don't know realistic it is to assume that at any moment in time one "BSD" can pop the market up and down for points at will.
The ES, in my opinion, is mostly a vehicle for speculation. This is highlighted on those days where the market swings 10 points one way, then 10 points the other way and ends up right where it started at the end of the day. Not only that, the cumulative delta does the same thing too.
What you see on these days was not people establishing new positions but rather a lot of short term speculative positions being taken that were unwound by the end of the day. Everyone that got in also got out. In short, it's gambling.
It's a bit like a game of tennis where the market is going from one side to the other, running over some people and enriching others on the way. This is what the ES does most of the time. It's short term speculation, you have a bunch of people trying to make an intelligent assessment about what the crowd will do. In fact, almost everyone in the crowd is trying to guess what the crowd will do.
Watch a trading range for a while, watch how people still pile in at the 4th, 5th hit of the extremes and watch them get run over. Watch the order flow when this happens and how the market looks weak but yet selling can't push the weak market down. Icebergs on the bid are absorbing the selling. These are traders that don't know any better or are too caught up in the fact they've shorted this level 3 times already today. Talk to an ex-pit trader about running over stuck longs or stuck shorts. Watch people buying the top of a volume spike. The footprint of trapped traders who should know better is all over the markets.
Now - in terms of a BSD being able to pop the market up and down at will. I never said that. I said they can set up a sucker play by enticing people to sell and then popping the market up but I didn't say they can do it AT WILL.
There are times when this can be done and times when it can't. You wouldn't try and flip the market if it is roaring in one direction on a trend day. Apart from getting run over, there's no-one to sucker in at that point in the market anyway. Suckers exist at highs & lows. Even better in a tight range on a low volume day. Sometimes you will see a "flip" being set up at a high but no-one sells into it. They don't get suckered and the flipper gives up.
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I don't think this is true. You're assuming the majority of traders or volume that speculate one way are the same traders that speculate the other way. According to a paper, ES traders can be classified as HFT, market makers, fundamental buyers, fundamental sellers and opportunistic (index arb, misc speculators) traders. HFT and market makers (45% of volume) keep a near neutral position and flatten before the close. Only fundamental buyers and sellers (25% of volume) speculate into the close, but they don't speculate both ways. Some fundamental buyers (sellers) may sell (buy) during the day, but in very negligible amounts. The remaining 30% is opportunistic who can hold either direction, but even their overall maximum net position in either direction during the day is not close to the extent of the fundamental buyers/sellers'. And <1% are noise traders, i.e retail.
Last edited by grimReaper; December 3rd, 2012 at 01:58 AM.
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You are entitled to your opinions. I can only say that your observations with statistics to backup of why this should not work are not borne out in the my actual trading world where these markets are gamed by people with deep pockets.
My beliefs come through training, observation, trading and discussions with a number of professional traders, some of them old pit hands from Chicago.
On any given day the percentages you quoted will vary. On trend days, longer term players are in control but on a regular day, it's not fundamentals driving the market unless you believe that the underlying fundamentals change every 90 minutes. It's mostly speculation that drives the intraday swings.
HFTs and MMs are speculators too and to a great extent are neutral in terms of direction. Saying that, you may need to review your opinion on Market Makers because these are the people doing a lot of the nudging.
On trend days, it goes one way because OTF players are repositioning. This is driven by fundamental factors. Different day, different drivers. There is no consistent daily mix of trader types.
The ES is gamed, whether you believe that is up to you. I know it is gamed because I have my eyes on this daily. All markets are gamed to an extent. In fact, I find it hard to imagine a scenario where the markets are not gamed. Why would those with deep pockets NOT game the market? You might be a minnow but there are carp, salmon, sharks and killer whales swimming in these markets.
You can't spoof 1000's of contracts at 3 or 4 levels unless you have an extremely large account. Spoofing is usually given as a reason that the order book is useless. I look at it another way. If this activity is not useful for the spoofers, then it would cease to occur. As it is, they continue to do it, putting hundreds of thousands of dollars at risk in the process.
I doubt we will see eye to eye on this but I think this is an interesting discussion.
These may just be your rationalization of what's going on. Pit trading strategies may or may not be relevant to today's market.
Fundamental traders have buy/sell programs that function throughout the day.
The percents I mentioned may change a few percentage points here and there, but fundamental traders are always trading.
I never said the market participants don't play games among each other... I wasn't responding to anything about "gaming." You said how the market can down 10 points, then recover 10 points, and that overall as a result no new positions are established, and that all of the positions were unwound. That view is not inaccurate.
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With all due respect, please don't turn the discussion in this thread into an argumentative one, ok?
This is DT's thread and I appreciate his perspective and beliefs on R&S levels..
Looks like you have made a Freudian slip..
You may be right on both counts and I won't disagree with you. But it'll be better to start your own thread on this and I'm sure many of us will value your views. The markets are so large and players so diverse that I'm sure they accommodate all kinds of views, before stop hunting wipe the majority out...
Last edited by fourtiwinks; December 3rd, 2012 at 10:45 PM.
Reason: Reply to post #49
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