Nausea from HFT price action

[petetrades]

I've been trading futures unsuccessfuflly intraday for the past three years. I usually trade CL or the ES. I tried trading NQ today and entered a total state of vertigo and got nauseous watching the price move in a near-random way, maybe because it's the day after FOMC. I exited my long from the globex session at a major loss at the low of the 2nd 5 minute bar, the low of the day, and reversed into a short position that I ended up taking a major loss in this afternoon.

Does anyone have any advice how to cope with HFT price action? I've tried 15 minute bar trading, hourly charts, none of that works enough to trade for a living, once HFT algorithms interpret news / cross-market arbitrage / orderbook changes price moves randomly and I get stopped out or exit at the market for signifigant losses.

Look at the closing minutes of the Nasdaq futures today, totally random price movement that will make discretionary traders soil themselves.

 

[piphoe]

you can't beat the *******s! (can i say "*******s" here??)

 

[tomorton]

I know a lot of people trade intraday because they take the view that it avoids the risk of holding trades overnight and it offers a better reward over each longer-term period, say a month or a year.

I do think this single choice alone is responsible for the majority of blown accounts.

You've given daytrading a fair crack of the whip, with 3 unsuccessful years. But how long before you have to step out of the game? A change to end of day trading using daily and weekly charts will radically change your approach to trading. You've nothing to lose by trying it.

 

[piphoe]

HFT has definitely added 'noise' to the PA. Made it more erratic, greater chance stops taken out etc. I try to compensate but can't out-trade em.
That's a stone-cold FACT.

 

[timsk]

. . . Does anyone have any advice how to cope with HFT price action?

Hi pete,
Welcome to T2W.

You blame HFT for your lack of success to date. Whether or not HFT is actually to blame is neither here nor there, because the game is what it is and HFT is major feature of it. The other thing to say is that you give the impression that you switched to NQ on a whim, so perhaps the way it moved is normal? In other words, just chopping and changing instruments without studying how they move is kinda asking for trouble! Sorry if that sounds harsh, but perhaps you need to take a step back, re-jig your trading plan and then test it out on demo.

In your shoes, I'd look to do this in a number of ways. Tom has mentioned one way - i.e. panning out to take a macro view of the markets which is good advice, IMO. The other way is to stick with intraday, but to change the way you view the market. You mentioned 'bars' - so I assume you're watching either bar charts or perhaps candlesticks? Try switching to a non-time based chart such as Point & Figure, Renko or 3 Line Break. Just as a magician says 'abracadabra' - you'll find that much of what you perceive as random price movement will magically disappear. If you've not seen it already, take a look at dentist007's PnF thread and get a feel for what the guys are doing there. They trade the Dax mostly, but also the S&P, oil and a few forex majors.

HTH
Tim.

 

[petetrades]

My main reason for day trading instead of swing/position trading is due to limited capital and the goal to reach 80-90% intraday trading win:loss ratio while keeping losses minimized as much as possible.

I think it's highspeed trading algorithms, maybe not microsecond HFT programs located near the exchanges. I've noticed the British Pound futures moves at similar speed to what I thought were the fastest futures markets, NQ and CL. The price action is not totally random, when I switch from minute charts to tick charts I can see pullbacks and support and resistance, it moves so fast and chaotically that it appears random to discretionary day traders in realtime. When these algorithms take over sometimes I just cancel my stop and assume price is going to bounce back. 95% of the time it does, sometimes I'm left with huge drawdowns on single trades.

I'm close to consistently profitable after 3 years of fulltime futures trading but I spend too much on commissions and have some large losses that take out a good % of the profits I make on scalping. I'm thinking about switching to options or stocks once my finances allow it to avoid the HFT/algorithm price action in futures markets. I think it's a big myth that a futures market like the ES allows retail to trade with size while avoiding stop runs. The resting orders on all futures markets are small and suggest to me that there aren't many retail futures traders who do this for a living.

 

[Dowser]

My main reason for day trading instead of swing/position trading is due to limited capital and the goal to reach 80-90% intraday trading win:loss ratio while keeping losses minimized as much as possible.

Hi PT, is a 80-90% win:loss a realistic goal? What are you running at now? What is the typical R:R on your trades?

 

[petetrades]

Hi PT, is a 80-90% win:loss a realistic goal? What are you running at now? What is the typical R:R on your trades?

I am around 75% now. Risk is usually twice to four times reward, stop placed or flatten position below swing low or previous day's low. This works really well on ES, especially if you can scale into a losing trade. I got overconfident on CL during this month's crash and lost all of my month's profits by holding a trade overnight with a 150 point stop. I no longer believe in support and resistance on futures markets because these trading bots break below/above those areas to run stops before they reverse, it's foolish to place stops anywhere near where the bots trade. It's so much harder to manage risk in futures than in large cap stocks like AAPL.

 

[Signalcalc]

Where are you getting your daily range from? Are you using ATR, ADR or some other measure and using a percentage of that for your targets?

If so then you might want to try using a percentage of that for your stops also rather than picking obvious turning points that have stop runs on them?

 

[DionysusToast]

Before you attribute any market activity to HFT, can you explain:

- What strategy these HFTs are employing?
- Why it causes the action you attribute to it?
- Where they enter and exit their positions (especially important if you think they 'moved' the market). To move a market you have to throw contracts at it and to take profits you have to do the same thing which (with all other things being equal) would move the market back to where it was and leave them with $0 profit.
- What market conditions they engage in this activity and why?

and maybe

- Which firms are actually executing these algorithms.

Because if you can't answer any of the above, all you are doing is seeing movement in the market and blaming HFTs.

HFTs are much more likely to cause movement by their absence than their presence.

 

[DionysusToast]

Hi PT, is a 80-90% win:loss a realistic goal? What are you running at now? What is the typical R:R on your trades?

It depends on the type of trading.

The best win rate you will achieve is with scalping.

I know a scalper that averages 85% wins, 10% scratches and 5% losses. He also averages well under 30 seconds trade time.

Sounds great but there is a HUGE gotcha - he's playing the spread. It is by nature a high win rate activity. It is also by nature a high cost activity. Fees are a large percentage of your profits.

The activity would simply not be profitable without the high win rate.

For your average directional trader, it's not going to happen. Nor does it need to.

If your goal was 90% profitable trades in a directional outright trading strategy, then you have fundamentally misunderstood what trading is.

In the world of professional trading, if you ask someone trading outrights what the most important thing is. It won't be win rate, it'll be cutting trades the moment you know you are wrong. Being wrong itself is absolutely fine.

 

[DionysusToast]

My main reason for day trading instead of swing/position trading is due to limited capital and the goal to reach 80-90% intraday trading win:loss ratio while keeping losses minimized as much as possible.

I think it's highspeed trading algorithms, maybe not microsecond HFT programs located near the exchanges. I've noticed the British Pound futures moves at similar speed to what I thought were the fastest futures markets, NQ and CL. The price action is not totally random, when I switch from minute charts to tick charts I can see pullbacks and support and resistance, it moves so fast and chaotically that it appears random to discretionary day traders in realtime. When these algorithms take over sometimes I just cancel my stop and assume price is going to bounce back. 95% of the time it does, sometimes I'm left with huge drawdowns on single trades.

I'm close to consistently profitable after 3 years of fulltime futures trading but I spend too much on commissions and have some large losses that take out a good % of the profits I make on scalping. I'm thinking about switching to options or stocks once my finances allow it to avoid the HFT/algorithm price action in futures markets. I think it's a big myth that a futures market like the ES allows retail to trade with size while avoiding stop runs. The resting orders on all futures markets are small and suggest to me that there aren't many retail futures traders who do this for a living.

Moving from Futures to stocks to avoid HFTs would be like moving from London to Bangkok to avoid hookers.

 

[timsk]

Moving from Futures to stocks to avoid HFTs would be like moving from London to Bangkok to avoid hookers.

Well hello stranger.
I mentioned you in a post earlier in the week and commented that you no longer frequented T2W - the perfect cue for a clutch of posts from you!
Tim.

 

[petetrades]

It depends on the type of trading.

The best win rate you will achieve is with scalping.

I know a scalper that averages 85% wins, 10% scratches and 5% losses. He also averages well under 30 seconds trade time.

Sounds great but there is a HUGE gotcha - he's playing the spread. It is by nature a high win rate activity. It is also by nature a high cost activity. Fees are a large percentage of your profits.

The activity would simply not be profitable without the high win rate.

For your average directional trader, it's not going to happen. Nor does it need to.

If your goal was 90% profitable trades in a directional outright trading strategy, then you have fundamentally misunderstood what trading is.

In the world of professional trading, if you ask someone trading outrights what the most important thing is. It won't be win rate, it'll be cutting trades the moment you know you are wrong. Being wrong itself is absolutely fine.

You never know you're wrong in trading, you FEEL you're wrong. A lot of that is illusory because of the way highspeed algorithm trading works. Check out a 15 second chart of CL during EPI reports or in the last 5 minute of RTH, that as to be the result of HFT price action, lstop-runs are the way those firms make money.

If I sold every loss I had on the ES for -4 points or -30 points on CL because it felt like price could go lower I would be insolvent. There's no way you can cut losses frequently intraday and remain solvent, costs of trading are too high. If you try being cautiious like that you have to end up developing a trading product for income. I want to trade for income.

 

[dbphoenix]

You never know you're wrong in trading, you FEEL you're wrong.

And this is why you've been trading unsuccessfully for three years. Three Years. Not only do you not have an edge, you don't even have a useful plan, much less the discipline to follow one.

If you can't take it seriously, you may as well just stop. You'd have more fun playing poker.

 

[petetrades]

And this is why you've been trading unsuccessfully for three years. Three Years. Not only do you not have an edge, you don't even have a useful plan, much less the discipline to follow one.

If you can't take it seriously, you may as well just stop. You'd have more fun playing poker.

I have an edge, my win rate is high, 100% on Friday. You're selling something if you think commissions dont' eat up futures trader's profits when they try to tightly manage risk with so much algorithm-generated noise.

 

[dbphoenix]

I have an edge, my win rate is high, 100% on Friday. You're selling something if you think commissions dont' eat up futures trader's profits when they try to tightly manage risk with so much algorithm-generated noise.

If you had an edge, you would be consistently profitable by now. You would have been consistently profitable before now.

The winrate is irrelevant if you can't control losses.

But good luck anyway.

 

[DionysusToast]

You never know you're wrong in trading, you FEEL you're wrong. A lot of that is illusory because of the way highspeed algorithm trading works. Check out a 15 second chart of CL during EPI reports or in the last 5 minute of RTH, that as to be the result of HFT price action, lstop-runs are the way those firms make money.

If I sold every loss I had on the ES for -4 points or -30 points on CL because it felt like price could go lower I would be insolvent. There's no way you can cut losses frequently intraday and remain solvent, costs of trading are too high. If you try being cautiious like that you have to end up developing a trading product for income. I want to trade for income.

Of course you know when you are wrong.

Let's say I am scalping EuroStoxx 50. I see the market is overall in a down move. It ticks up and trades 5000 contracts into the offer and can't tick up any more.

At that point I join the offer and am lucky enough to get a fill. In effect, I am leaning on the area where the offers absorbed buying and am trading the fact that if it goes 2-3 ticks past that point, the sellers will stop out and I am wrong.

This is just one example of where you absolutely know you were wrong. You thought there was size holding the market and they weren't/they got run over themselves.

You know, there is no doubt about it whatsoever.

Your problem is that you don't know why you are getting in, therefore you don't know when to get out.

 

[DionysusToast]

Well hello stranger.
I mentioned you in a post earlier in the week and commented that you no longer frequented T2W - the perfect cue for a clutch of posts from you!
Tim.

My ears were burning....

 

[DionysusToast]

I have an edge, my win rate is high, 100% on Friday. You're selling something if you think commissions dont' eat up futures trader's profits when they try to tightly manage risk with so much algorithm-generated noise.

To be fair - the people I know that trade professionally are paying about 1/10th of what you pay in commissions.

But there are instruments where that is not an issue - some of the US interest rate products have very favorable tick values compared to the fees.