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The human brain vs. an algorithm. Who wins?
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The human brain vs. an algorithm. Who wins?

  #1 (permalink)
Tel Aviv, Israel
 
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The human brain vs. an algorithm. Who wins?

I have a relatively simple strategy, I'm all about chart patterns and price action, mainly support/resistance and supply/demand levels.

No indicators or anything besides the occasional glance at volume profile.

That's how I trade.

My question is... will the Big Money Algos interfere with my trading?

Are they trying to take my small 1-2 lot positions out of my pockets?

Or are the hedge funds and banks worrying about bigger fish to fry?
(Such as OTHER banks and hedge funds)

What do you think ?


Last edited by mzelixon; August 10th, 2018 at 09:54 AM.
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  #2 (permalink)
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  #3 (permalink)
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Small example of what I mean

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The human brain vs. an algorithm. Who wins?-screen-shot-2018-08-10-4.50.00-pm.png  
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  #4 (permalink)
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Hey man...

Complex questions there.

I will say, as a former market maker...screen and floor...that nobody gives a shit about how or where your orders are. I hear and see a great deal of angst about "running stops" and such. What happens is participants will take advantage of where liquidity is...it has nothing to do with the level or who is there. The professional community hunts and exploits liquidity.

What happens is "dumb money" retail participants rest limit orders. If they are server side they are discovered by algos...if they are displayed, they are visible in the book. Also as noted there are "mental stops" that can be anticipated around specific price points. Those prices are determined by prior volume or by indicator "levels" where a propensity of eyes are focused...like a fib level or universal MA level.

A beneficial shift in typical thinking is: Where is the smart money? As retail traders we will do infinitly better if we are "with" smart money. Predator, rather than prey.

In the graphic you posted: Are those resting orders in the book? The entire world can see that. Think of playing poker at a table where some of the players down cards are face up visable to everyone. When the table knows your cards the only way you can beat them is by the luck of the draw. It's still a game of chance but one side is relying on luck while the other side has a verifiable "edge" in knowing what other players hold.

I hope that helps.

Dan

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  #5 (permalink)
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Example...

That dashed line is VWAP, perhaps the most watched squiggly line currently. You can see a confluence or a reversal at the VWAP or at the std dev lines. In fact 6 for 6 since the open. This is effectively showing where there is a difference of opinion OR where new orders have come in.

R2 is also @ 39.25

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  #6 (permalink)
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wldman View Post
Complex questions there.

I will say, as a former market maker...screen and floor...that nobody gives a shit about how or where your orders are. I hear and see a great deal of angst about "running stops" and such. What happens is participants will take advantage of where liquidity is...it has nothing to do with the level or who is there. The professional community hunts and exploits liquidity.

What happens is "dumb money" retail participants rest limit orders. If they are server side they are discovered by algos...if they are displayed, they are visible in the book. Also as noted there are "mental stops" that can be anticipated around specific price points. Those prices are determined by prior volume or by indicator "levels" where a propensity of eyes are focused...like a fib level or universal MA level.

A beneficial shift in typical thinking is: Where is the smart money? As retail traders we will do infinitly better if we are "with" smart money. Predator, rather than prey.

In the graphic you posted: Are those resting orders in the book? The entire world can see that. Think of playing poker at a table where some of the players down cards are face up visable to everyone. When the table knows your cards the only way you can beat them is by the luck of the draw. It's still a game of chance but one side is relying on luck while the other side has a verifiable "edge" in knowing what other players hold.

I hope that helps.

Dan

I absolutely love poker analogies to trading (they kinda go like peanut butter and jelly don't they? )

The orders you see there were for a short position, buy LIMIT on the lower side, and a buy STOP on the upper side... do the algos / pros see both of these ??

But yeah... I get your drift either way.
Be the hunter not the hunted.

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  #7 (permalink)
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Yeah...

Those orders are seen by anyone that looks.

I do not know with any detail how granular "huntable" data is these days.

Through the late 90's as a NASDAQ market maker I could see fairly deep into counter-party data. The top of funnel was do the actual trades match that desks position in the NBBO and what they may or may not be saying on the telephone. When the ECN's were created participants gained a way to maintain anonymity. You could display on one side of the inside market and be active on the other side at the same time.

So on granularity...rather than starting another entirely new story. I don't know how retail firms route orders or what the contra party can see right away. The metrics that were common 20 plus years ago were manual and complete dinosaurs compared to today's world where server co-location give a speed edge that people build a business model on.

Here is my Jurassic era rule that still applies.: Don't give up information unless doing so helps my position or plan. I know guys will disagree and they may be correct, but for me, resting limits are lazy and an unnecessary give up of information. I cant be concerned with who might be looking or how because I can not compete on that field...so I don't show unless there is a separate purpose.

Rest assured though that super smart Physics guys that are total whips at programming and genius computational finance guys will find a way to take a penny from you until doing so is limited by rule or eliminated by a faster better penny swiper.

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mzelixon View Post
I have a relatively simple strategy, I'm all about chart patterns and price action, mainly support/resistance and supply/demand levels.

No indicators or anything besides the occasional glance at volume profile.

That's how I trade.

My question is... will the Big Money Algos interfere with my trading?

Are they trying to take my small 1-2 lot positions out of my pockets?

Or are the hedge funds and banks worrying about bigger fish to fry?
(Such as OTHER banks and hedge funds)

What do you think ?

Think about what you are asking. Retail traders make up such a minuscule portion of the average daily volume traded. Do you think an investment bank is taking the time to hunt down your one lot? It doesn't make any sense. Trading is hard enough without putting these boogie men in your head. No one is out to get you, no one cares what you're doing. Carry on.

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Yes, they will take every dollar from you. But not because they care about you it is just what the market designed to do. Transfer your funds in to their account. Think about it, the lion isn't concerned about the sheep, it just eats them as it finds them.

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Everything you see on the charts is institutional money. As @wldman mentioned, price seeks liquidity, which is found above highs and below lows... and where most retail traders have "learned" to place their stops. Convenient, no?

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