Games Big Boys Play

[TheBramble]

I'm interested in examining one of the plays the BIG boys use on LII. I did raise this on another forum (it was 'sort of' on-topic), but didn't get any response.

So I thought I'd ask the real LII experts over here.

Let's use a hypothetical NASDAQ stock - currently trading 57.76/78 with max bid/ask size of 10.

Let's also say there are a number of orders at each 1c level to 5c on both Bid & Ask.

We then see SCHB (for instance) come in with an Ask at 57.89 with a size of 500. That is, 50 times the size of 'normal' and at 11c higher than the inside ask.

What are we to think?

Here we go:-

Traders-1: The rank newbie (to LII) imagines that SCHB really do want to unload all that stock at that level (rather than just quietly sell small lots at the inside) and either stays out - or more likely, closes a long or goes short. The impact of this being that there is downward pressure on the price. He/She thinks SCHB want to sell. So they go short.

Traders-2: The next level up of experience player imagines that SCHB know what the Trader-1 players are going to do. They wait for SCHB (who are waiting for Trader-1 players to take the price down) to take their Ask away and start buying the now lower-priced stock in smaller lots at the inside Bid directly or through other ECNs.

(SCHB may not take their Ask away until their buying starts to raise the price to an extent that their spurious Ask of 500 gets closer to the (rising) inside Ask.)

At this point, the Trader-2 players also pile in, taking the price higher.

Traders-3: The next level up know that SCHB know what Trader-1 and Trader-2 players are thinking (and depending upon the strength of these 2 levels - relative to each other) wait for one side to win out before taking their view.

I'm I going too far with this? How many levels are there normally operating?

What level do the majority operate at?

What are the strengths of the levels relative to each other?

 

[harryp]

Tony

Do you play poker ?

 

[TheBramble]

I don't gamble Harry.

Is it that difficult or impossible to answer (other than by allusion to Poker of course)?

 

[trendie]

TheBramble,

I suspect that Naz may be the best person to ask, as he is L2 player.

You could PM him ?

PS: The reference to poker is not entirely invalid.
Many of the Market Wizards make references to the game, as a means to explaining their take on risk-management.

 

[Salty Gibbon]

Tony, if you have to ask yourself all these questions, how would you ever get to enter a trade ?

 

[TheBramble]

PS: The reference to poker is not entirely invalid.

Trendie, the reference to poker is EXTREMELY valid. I was just having some fun with harryp....

Tony, if you have to ask yourself all these questions, how would you ever get to enter a trade ?

Well, I read this book "Trading in the Zone"...just kidding...I'm still reading it.

On a (still) serious note, as a genuinely novice LII trader (watcher?) I really do feel that the majority of traders are working at 'Trader-1' level. Nobody in these boards of course, but 'out there'....

My question is genuine though. As you go further up the ladder, just how convoluted does it get? How many levels?

Or am I asking the wrong question?

Or a question that those who have the answer don't want to answer?

 

[harryp]

Tony

You do gamble. If you're a trader then you gamble.

Your question is .............. "how convoluted does it get" The answer is very convoluted , just as in poker you'll find that every time you move up a rung it adds a layer rather than removes one.

I deal with it by playing my hand and not concerning myself with the bluffers.

 

[TheBramble]

You do gamble. If you're a trader then you gamble.

No, I really don't.

Verb 1. gamble - take a risk in the hope of a favourable outcome

Hope doesn't come into it Harry. I trade probabilities. Very high probabilities.

I deal with it by playing my hand and not concerning myself with the bluffers.

That's exactly what I suspect. You just play your game according to what's actually happening - not how you think the various bods on the 'rungs' may 'interpret' what's going on.

Any other LII experts concur... or is there more mileage in this yet?

 

[Trader333]

Tony,

In my view you cannot take this scenario in isolation from what else may be seen and happening on the Level II screen at the same time. The only way I could really explain this is in realtime whilst in front of the Level II screens.


Paul

 

[Mr. Charts]

Bramble,
I hear exactly what you are saying. It takes me a good hour or two to get over the essentials of level 2 verbally so I couldn't do it with my sad two finger typing, I'm afraid. I just don't have enough time these days for t2w, especially with some individuals present.
Basically your premises are inappropriate as you are constructing a somewhat unlikely scenario then saying how would a player react to your construction and for what reasons and how.
In addition, the whole interaction of level 2, price, volume, time and sales, support, resistance, different players - sometimes wanting you to think their motives are not what they appear - with different priorities at different times (yes they can and do change without notice!) creates a multi factorial dynamic scenario which requires considerable knowledge, time and experience to even begin to understand.
There are so many elements in all of this, different market makers (except that they are really more like providers of liquidity than what you think of as MMs) and ECNs behaving in varied ways. MLCO will often behave differently to GSCO, NITE and others. In fact don't "trust" SCHB to do anything consistently readable.
Your constructs are too analytical and your premises too unreal.
They are the signs of an intelligent person struggling to get to grips with understanding something which is essentially experiential.
In additional, there are so many people on these boards who prognosticate on this subject, as on others, who know precious little and constantly mislead the unwary and inexperienced because they "sound" better informed than the questioner.
The blind leading the blind, not even a Cyclops.

 

[Zenda]

If you can read the bluffers -

Tony

You do gamble. If you're a trader then you gamble.

Your question is .............. "how convoluted does it get" The answer is very convoluted , just as in poker you'll find that every time you move up a rung it adds a layer rather than removes one.

I deal with it by playing my hand and not concerning myself with the bluffers.

The poker winners are the people who can spot the bluffers and the novice - thats down to experience and actually playing not theorising - you have to be sat at the table...... 😎

 

[TheBramble]

OK Guys - Thanks one and all.

I'm getting the picture.

On a couple of occasions while trying to decipher LII it felt a little like watching the 'code screen' from "The Matrix".

I'm wondering if that's too far from the truth of it.

'Experiential', 'in front of the screen', 'sat at the table' - it seems very much more a hands-on rather than theoretical exercise.

Looks like it's all quite simple - get the training - put in the hours.

 

[SOCRATES]

And there you have it, Bramble.

 

[cj12]

Bramble Keep it simple, This is why most are not making money from this game, is they analyse the charts to death, just buy low sell high. or sell high and buy low and dont be gready,,

 

[blackcab]

One contradiction I haven't seen discussed - maybe there's no clear answer:

A. Many say it's all experience, practice, basically pattern recognition. The most discretionary style of trading. Socrates, for example, and others.
B. Many say develop a system, backtest it and stick to it. Develop the psychology and disclipline to stick to it.

Now a lot of B people base their system on indicators but let's forget about them - throw MACD, RSI, waves, moving averages out of the window. That still leaves a lot of B people who stick to a system rigidly, but who also belong to the no indicators set.

That's the contradiction - both sets eschew indicators but are polarised between extremely discretionary and extremely rigid.

Can you be both? Does the experiential, discretionary trader eschew "systems that you have the disclipline to stick to"? If so there is a schism between what I thought was essentially one set of traders.

 

[Strategic Trader]

there is a schism between the theorists and the psuedo philosiphers on one side, and on the other side - those simple folk who just trade each and every day for a living and use anything that works - and as they trade each and every day - they know what works and what doesn't and what might work another day

 

[blackcab]

Could the difference just be:

A. Discretionary traders - trade by understanding why price moves as it does. Price/volume is doing 'x' which is a sign that 'y' is happening, and the likely outcome in this particular instrument is 'z', so there's my trade, which is now subject to mechanical risk/management parameters. I know the outcome 'z' because I understand the reasons 'y'.

B. Mechanical traders - may or may not understand why price moves, but don't care. Price/volume is doing 'x', and the likely outcome is 'z', so there's my trade, subject to risk/management parameters. I know the outcome 'z' because I've watched it happen many times and backtested it. I don't need to know the reasons 'y'.

Both A and B are pure price/volume, or just price, traders and both are represented on these boards. The odd thing is I can't quite tell if the difference between them is large or small. I need more tea.

Anyone care to comment?

 

[roguetrader]

No, I really don't.

Verb 1. gamble - take a risk in the hope of a favourable outcome

Hope doesn't come into it Harry. I trade probabilities. Very high probabilities.

hope vti
to have a wish to get or do something or for something to happen or be true, especially something that seems possible or likely.

Whether you consciously hope or not, the fact that the outcome is not certain puts you in that arena. No matter how high the probability is.
Many traders seem to have an inherent fear of comparing trading with gambling. Gentlemen we play the biggest casino in the world.