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Webinar: Real-world Order Flow Strategies & Setups w/Scott Pulcini & Bookmap


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Webinar: Real-world Order Flow Strategies & Setups w/Scott Pulcini & Bookmap

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  #41 (permalink)
Scottdale Arizona
 
 
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artemiso View Post
If it helps calm everyone down, I'll weigh in and assert that almost everyone here in this thread is using "icebergs" incorrectly. I'm happy to be proved wrong, the world is a happier place when everyone learns of their own lack of knowledge.



Myth #1: 100% or near 100% accuracy.

I take it that this claim implies either 0% false positive rate or 0% false negative rate, both of which are fictitious claims.

Whether you're using MBO or MBP, it's always guesswork whether there exists any remaining reserve quantity at a level. For CME, whenever a reserve portion of an order gets revealed, that's after-the-fact and there's nothing guaranteeing that there's any remaining reserve portion to that order. MBO provides more information than MBP so you can make a slightly better inference, but it still withholds the aggressor's tag 210 so it is impossible to deduce with 100% certainty the remaining portion of an order until the price level has been fully cleared - which is the special case where you are 100% sure the remaining portion is 0.

In fact if a vendor truthfully claims they've done the hidden order detection properly, they should be advertising the opposite of 100% - very few hidden orders detected at 0% false positive rate, i.e. a high false negative rate. In practice I've seen as few as 29 hidden orders in a single day on an active ticker (like 6E) when calibrated to 0~% false positive detection.







Myth #2: Icebergs are mostly used by big firms, to hide big orders.

Actually no, the opposite. You will find that an overwhelming portion of hidden orders on CME are attributable to net liquidity providers (market makers) with small size rather than net liquidity takers with big size. On CME the most common hidden order displays 1 lot and has a reserve portion of 1 lot... not 10%.

I think this myth creeped into futures lore because the behavior you're describing is more prevalent on Inet-based matching engine architectures (like NASDAQ, Cboe FX, Australia), European MTFs, or interbank ECNs.

Myth #3: The market is going to run away from them, so they use icebergs to avoid that.

The main use case for icebergs on CME has never been to hide your size, but rather to allow market makers to provide liquidity at a more aggressive spread. This has been the case if you look as far back as 2006, and they only recently made changes to reduce the benefit to market makers in Q1 2019.

If you don't believe me, you can run the statistical analysis yourself. Averaging across all of a given size VWAP (which is exposed to price improvement from hidden liquidity), you will actually see less realized slippage than the instantaneous sweep estimate (cumulating the visible book till that given size, which will not take into account hidden liquidity). What this means is that your average slippage is actually smaller trading against an iceberg, so on aggregate the hidden orders are actually tightening the spread for you.

The above analysis contradicts Myth #3. What Myth #3 perpetrates is that the average user of the iceberg uses it to reduce their slippage, which in turn means their counterparty trading into the iceberg will experience increased slippage. This is a simple conservation law - you can't have both parties of a trade reducing their slippage.

So if you've been listening to some vendor advertise that you should follow the same direction as the iceberg, they're wrong. The opposite is more likely to be true even though it may seem unintuitive: the truth is, it's usually better to trade into an iceberg.

Myth #4: artemiso is lying to you, check our example on lead month ES.

It puzzled me for some time why vendors like to display their "iceberg detection capabilities" on ES. For obvious futures tickers, I would expect the iceberg-adjusted risk for the market maker is greater on FESX (Eurex) than ES, so it would be a better place to demonstrate the allegedly adverse effect of trading into an iceberg. Why ES? I'm going to make a bold claim: it's because there's so many trades on ES that they can get away with making nonsense up and disguise the worthlessness of their indicator behind large volume of random noise.

So, I can construct 2 edge cases which serve as a lie detection test.

1) Ask your vendor to compute the backtest average 10 second unrealized profit of buying/selling in the same direction as every detected iceberg on ZN. Why ZN in particular? Historically the iceberg-adjusted risk for the market maker is smaller on ZN than ES, meaning a market maker is more willing to tighten their spread using an iceberg, so it's going to be more obvious that your vendor got the sign wrong.

2) Ask your vendor to demonstrate the iceberg detection on a low trade count, high average trade size, high institutional activity product, which should be an even more ideal environment for demonstrating both the accuracy and usefulness iceberg detection than ES. There's a few perfect candidates for this. Let's try the 6E:XF:EURUSD:M0 (tag 55) FX-Link spread i.e. Globex ID 205799 on June 1, 2020 which had a trade volume of 1,130 and 27 trades.

LOL. No one ever said that one should trade in the direction of the iceberg. What I said in my webinar is the icebergs are the smart money and are right more than they are wrong. I also said in both webinars that even when the icebergs are wrong, the area is meaningful.

And if Icebergs aren't meant to be hidden orders then you may want to ask the CME why they state this on their site:

Iceberg OrderIDs
Exchange-assigned OrderIDs are unique per order and are consistent for the life of the order. When CME Group-held iceberg orders (referred to as native icebergs) have displayed quantity refreshed, the refreshed order will have the same OrderID as the original order.

For those concerned this function gives other participants greater ability to detect presence of iceberg, we recommend evaluating third party offerings that include ISV-held iceberg orders (synthetic iceberg where total quantity is managed off-exchange by ISV server).

The rest of your rant may or may not be true and it's not relevant to the way I trade. Why dont you also post my quote where I said when you want light in a room, you can reseach the exact scientific reason why the light works or you can just turn on the light. What it all comes down to is can you make money trading off of all your assumptions? I can using the important iceberg/stop run areas and that all I care about.

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  #42 (permalink)
Market Wizard
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ScottPulcini View Post
What I said in my webinar is the icebergs are the smart money.

I don't think you read my post properly. I said you reduce slippage by trading against an iceberg. It means an iceberg is more often dumb money.

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  #43 (permalink)
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I know not aimed at me but I think some important points....


ScottPulcini View Post
LOL. No one ever said that one should trade in the direction of the iceberg. What I said in my webinar is the icebergs are the smart money and are right more than they are wrong. I also said in both webinars that even when the icebergs are wrong, the area is meaningful.

Actually - this is what's being taught out there.

Right now - traders are being taught that you should buy ahead of icebergs. That MBO detected icebergs represent 'secret sauce'.


ScottPulcini View Post
And if Icebergs aren't meant to be hidden orders then you may want to ask the CME why they state this on their site:

Iceberg OrderIDs
Exchange-assigned OrderIDs are unique per order and are consistent for the life of the order. When CME Group-held iceberg orders (referred to as native icebergs) have displayed quantity refreshed, the refreshed order will have the same OrderID as the original order.

For those concerned this function gives other participants greater ability to detect presence of iceberg, we recommend evaluating third party offerings that include ISV-held iceberg orders (synthetic iceberg where total quantity is managed off-exchange by ISV server).

Of course icebergs contain hidden liquidity. But it's "back of the queue". MBO icebergs are just some icebergs. Hence using MBO iceberg data as a retailer presuming the following is totally flawed:

Presumption 1 - that the iceberg is part of a directional trade and not a spread
Presumption 2 - that the iceberg is initiating a new position
Presumption 3 - thaty the iceberg is part of a short term trade (and will be defended/more is to come)

These all need to be true for the "lean on the iceberg" posse to true.

The comment above "the icebergs are the smart money and are right more than they are wrong" is telling - what doesn "being right" mean?
- a hedger is right because he hedged well - but it doesn't mean price will go up from his hedge -
- a spreader is right because the legs of the spread moved his way
- along term trader is right in days, weeks or months time

None of these have any bearing on where price is going to move right now, or the next 5 minutes or the next hour. So even if someone with an iceberg order is right - they may not care about where the price on that instrument goes now, nor will they defend it, nor did they get in because they thought it would immediately turn around.

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  #44 (permalink)
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  #45 (permalink)
Scottdale Arizona
 
 
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Jigsaw Trading View Post
I know not aimed at me but I think some important points....



Actually - this is what's being taught out there.

Right now - traders are being taught that you should buy ahead of icebergs. That MBO detected icebergs represent 'secret sauce'.



Of course icebergs contain hidden liquidity. But it's "back of the queue". MBO icebergs are just some icebergs. Hence using MBO iceberg data as a retailer presuming the following is totally flawed:

Presumption 1 - that the iceberg is part of a directional trade and not a spread
Presumption 2 - that the iceberg is initiating a new position
Presumption 3 - thaty the iceberg is part of a short term trade (and will be defended/more is to come)

These all need to be true for the "lean on the iceberg" posse to true.

The comment above "the icebergs are the smart money and are right more than they are wrong" is telling - what doesn "being right" mean?
- a hedger is right because he hedged well - but it doesn't mean price will go up from his hedge -
- a spreader is right because the legs of the spread moved his way
- along term trader is right in days, weeks or months time

None of these have any bearing on where price is going to move right now, or the next 5 minutes or the next hour. So even if someone with an iceberg order is right - they may not care about where the price on that instrument goes now, nor will they defend it, nor did they get in because they thought it would immediately turn around.

Again, all your presumptions are that you are trading in the direction of the icebergs. I have said mutliple times in multiple webinars that icebergs (paper) is not always correct. What you are failing to mention or realize that there is someone on the opposite side of the trade which makes the area meaningful regardless.

You are entitled to think whatever you want about the why's and how's of iceberg and iceberg orders and convice yourself there is no "secret sauce" by using the information and I will just keep making money trading off of these important areas.

Thanks.

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  #46 (permalink)
Revali, EE
 
 
Posts: 29 since Aug 2015
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Does Bookmap API allows to utilize the MBO data?

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  #47 (permalink)
Scottdale Arizona
 
 
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Kuuluud View Post
Does Bookmap API allows to utilize the MBO data?

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Yes, they have the SI indicator. You can read more about it here: https://www.bookmap.com/blog/bookmaps-stop-iceberg-tracker-with-mbo-data/

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  #48 (permalink)
Revali, EE
 
 
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ScottPulcini View Post
Yes, they have the SI indicator. You can read more about it here: https://www.bookmap.com/blog/bookmaps-stop-iceberg-tracker-with-mbo-data/

So whats stopping me to devolop my own native iceberg and stoprun indicator and bypass the $178 paywall?

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  #49 (permalink)
Scottdale Arizona
 
 
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Kuuluud View Post
So whats stopping me to devolop my own native iceberg and stoprun indicator and bypass the $178 paywall?

Sent using the futures.io mobile app

Nothing at all, as can be said for most indicators. And the price is $89 until the end of June then its doubling.

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