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Anyone find any edge with activity based charts over time based charts?


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Anyone find any edge with activity based charts over time based charts?

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  #21 (permalink)
charlotte nc
 
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Hi MiniP,

Thanks for expressing interest in this area...

I am not aware of any material that covers the topic of price levels clearing and provides statistics / historical information.
Everything I have learned on subject I have had to learn it the hard way by trading, collecting the right meta-data, then analyzing it later. (Plowing through tens of million rows of level 2 data in SQL, etc.) I suppose what we are really talking about here are the statistics underlying micro-structure. There are plenty of books on micro-structures generically but none that I am aware of that share the statistical outcomes. Here is what I am referring to, and this will get you thinking the right way about it.

We all know that if you pick the wrong (bid / ask) side to place your limit order, you will get filled. You will always catch a 100% fill rate if you are on the wrong side. (Volume goes to 0, the price level breaks. Since your order was for at least 1 contract, you had to get filled for it to go to 0)

What we don't know obviously, and what a good deal of my research is based on now days, is around optimizing for how far up in the queue you need to be to get filled on the side that actually wins: So if the Bid goes to 0 first and breaks, then how many people got filled from the Ask queue. The top 10%, the top 50%, the top 75%? What are some historical data points across different instruments, markets, volatility levels, etc.

What most people assume are "good signals" in the market are actually causing them more harm then good, and here is why. Your fill rate on the losing side will be 100%, but your fill rate on the winning side will be extremely low if you get there late. A good bit of order flow traders get killed by reading the transaction level.... seeing that one side has 2x or 3x the volume of the other and then jumping on the side that has the higher volume. This seems like a safe bet, they are picking the side that will win surely. But in practice, because they are late, the only fills they will get, will be toxic fills. So even if there is an edge to seeing obvious volume ratios on the transaction level, acting on this will play out like this:

1. Fill Rate From being on the side that loses: 100%
2. Fill Rate from being on the side that wins: Very Very low because you are late. Maybe 10% or < depending on how late you decide to join the party.

So if your "so called edge" I.E (the bid volume is 3 X the Ask volume.... Join the bid queue) actually leads to the market moving higher by 1 tick on the next price level 70% of the time, and it is wrong 30% of the time (I am being generous here with the edge ratio). Here is how it will play out for you.

Full Expectancy: over 100 trades
1. 30% of the time your bet is wrong, but because your bet was wrong, everyone in the bid queue including you got a toxic fill: So out of 100 trades, this = 30 trades that were losers, all of which you got filled on.
2. 70% of the time your bet was right, the bid side won! But, you were late to the party and only got filled 10% of the time. so 100 trades * 70% bet was right * 10% order was filled = 7 trades you won on.

So you will end up with 30 losers and 7 winners. So that is how the full expectancy of this so called "good bet" works in practice. And everyone is doing it just like this and they are all getting killed.

The first thing I suppose you should research are toxic fills, and understand how these are impacting your trading. This is one of the least obvious, but most important aspects of trading that I think everyone overlooks, or just doesn't understand. But I just gave a high level explanation of it, so hopefully it helps.

I haven't seen any threads here that cover these types of topics in detail, so I may start one if there interest and cover this type of thing in more detail.

Happy Trading!

Ian






MiniP View Post
This is EXTREMELY interesting to me, honestly I understand about 85% of what you said above the last few points kind of ran together, any chance you have some recommended material/starting point for understating this?


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  #22 (permalink)
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I think it's quite a bit easier to see the concepts which ian speaks of in a thicker market. I don't know about the statistical bid/offer stuff. Large players can bait either side with ease and you need to understand the context of the moment to be able to reliably read it.

Toxic fills, however, are the absolutely bane of my trading existence. I trade ZN which is very liquid and often slow. I use a 2 tick stop and I usually look to make 3 or 4 ticks, for example. When I'm bid/offered at some price and the market sweeps through me and I'm immediately looking at a -1, this is usually my sign that I'm already dead in the water and that I made the wrong call. Again, it's situational and it depends on the read, but if I'm passively looking to interact with the market, I never want the market to tick against me. I want to be filled long and have 3000 bid behind me which I can hit into if something changes.

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  #23 (permalink)
Market Wizard
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iantg View Post
Hi MiniP,

Thanks for expressing interest in this area...

I am not aware of any material that covers the topic of price levels clearing and provides statistics / historical information.
Everything I have learned on subject I have had to learn it the hard way by trading, collecting the right meta-data, then analyzing it later. (Plowing through tens of million rows of level 2 data in SQL, etc.) I suppose what we are really talking about here are the statistics underlying micro-structure. There are plenty of books on micro-structures generically but none that I am aware of that share the statistical outcomes. Here is what I am referring to, and this will get you thinking the right way about it.

We all know that if you pick the wrong (bid / ask) side to place your limit order, you will get filled. You will always catch a 100% fill rate if you are on the wrong side. (Volume goes to 0, the price level breaks. Since your order was for at least 1 contract, you had to get filled for it to go to 0)

What we don't know obviously, and what a good deal of my research is based on now days, is around optimizing for how far up in the queue you need to be to get filled on the side that actually wins: So if the Bid goes to 0 first and breaks, then how many people got filled from the Ask queue. The top 10%, the top 50%, the top 75%? What are some historical data points across different instruments, markets, volatility levels, etc.

What most people assume are "good signals" in the market are actually causing them more harm then good, and here is why. Your fill rate on the losing side will be 100%, but your fill rate on the winning side will be extremely low if you get there late. A good bit of order flow traders get killed by reading the transaction level.... seeing that one side has 2x or 3x the volume of the other and then jumping on the side that has the higher volume. This seems like a safe bet, they are picking the side that will win surely. But in practice, because they are late, the only fills they will get, will be toxic fills. So even if there is an edge to seeing obvious volume ratios on the transaction level, acting on this will play out like this:

1. Fill Rate From being on the side that loses: 100%
2. Fill Rate from being on the side that wins: Very Very low because you are late. Maybe 10% or < depending on how late you decide to join the party.

So if your "so called edge" I.E (the bid volume is 3 X the Ask volume.... Join the bid queue) actually leads to the market moving higher by 1 tick on the next price level 70% of the time, and it is wrong 30% of the time (I am being generous here with the edge ratio). Here is how it will play out for you.

Full Expectancy: over 100 trades
1. 30% of the time your bet is wrong, but because your bet was wrong, everyone in the bid queue including you got a toxic fill: So out of 100 trades, this = 30 trades that were losers, all of which you got filled on.
2. 70% of the time your bet was right, the bid side won! But, you were late to the party and only got filled 10% of the time. so 100 trades * 70% bet was right * 10% order was filled = 7 trades you won on.

So you will end up with 30 losers and 7 winners. So that is how the full expectancy of this so called "good bet" works in practice. And everyone is doing it just like this and they are all getting killed.

The first thing I suppose you should research are toxic fills, and understand how these are impacting your trading. This is one of the least obvious, but most important aspects of trading that I think everyone overlooks, or just doesn't understand. But I just gave a high level explanation of it, so hopefully it helps.

I haven't seen any threads here that cover these types of topics in detail, so I may start one if there interest and cover this type of thing in more detail.

Happy Trading!

Ian

Ian,

I really think you should start a thread on this, what your saying makes perfect sense especially the not getting filled on winning trades.

Few questions i apologize if there are ignorant i don't trade remotely close to this way:
1) how do you see where in the queue you currently are?
2) bascially alot of what you are saying depends on the resting lvl of volume and where in line you fall?

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  #24 (permalink)
Oslo + Norway
 
 
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Good stuff, guys.

Related to this topic:

Do you guys have any preference with regards to what bars you use to display your charts?

Candlesticks? Regular bars? HiLo bars?

For my time based charts I have a clear preference for candlesticks. I like to observe wicks and consider large wicks/tails to indicate exhaustion at price levels. This is interesting.

But for faster charts, I might be interested in compressing my chart a bit and the wicks might be less interesting since there will be a 'lot' of bars anyway.

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  #25 (permalink)
Market Wizard
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LaissezFaire View Post
Good stuff, guys.

Related to this topic:

Do you guys have any preference with regards to what bars you use to display your charts?

Candlesticks? Regular bars? HiLo bars?

For my time based charts I have a clear preference for candlesticks. I like to observe wicks and consider large wicks/tails to indicate exhaustion at price levels. This is interesting.

But for faster charts, I might be interested in compressing my chart a bit and the wicks might be less interesting since there will be a 'lot' of bars anyway.

I use regular candle sticks, like you said i also like to see wicks and rejection areas.. ive been playing around with a 4500 tick chart with a line on close with a swing lvl indicator to show ticks and this is a very clean way to trade if you like P/A.

Will be testing this in the upcoming week.

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  #26 (permalink)
Oslo + Norway
 
 
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MiniP View Post
I use regular candle sticks, like you said i also like to see wicks and rejection areas.. ive been playing around with a 4500 tick chart with a line on close with a swing lvl indicator to show ticks and this is a very clean way to trade if you like P/A.

Will be testing this in the upcoming week.

Cool.

Would you mind sharing a screen if this isn't 'secret'?

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  #27 (permalink)
Market Wizard
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LaissezFaire View Post
Cool.

Would you mind sharing a screen if this isn't 'secret'?

Here is a look at yesterdays chart, it you see a floating set of dots in a line that is where the wicks end.

Still working on entries and exits but this seems to filter out some of the fluff

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  #28 (permalink)
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MiniP View Post
I ... with a line on close....

set it to bar HL instead then you won't have floating dots

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  #29 (permalink)
Market Wizard
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cory View Post
set it to bar HL instead then you won't have floating dots

Then it would be different then the regular 4500 candle stick chart, right now this lines up with my normal chart but I'll test it out and see how I like it

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  #30 (permalink)
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Looking at the daily high on the 14th of May using 1-minute, 30 second, 50 tick and 250 volume:



It basically looks the same to me.

There might be times where the difference is more obvious of course, but generally, I find that these type of charts end up looking fairly similar.

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