Program Trading

[infobull]

I attended a seminar hosted by David Anderson(Crocodile) sometime ago and he gave an excellent introduction on computer program trading used by the big institutions.

I would be most grateful if someone could point me to the right bulletion board discussion threads or external sources on the following:
1. Anything related to program trading(not auto-trading strategies we build ourselves but the methodology/logic/etc used by the big banks and how one can spot them)
2. I was told there was someone who once described a new way of drawing sloping support and resistance lines on the bulletin board some time ago, and I believe he was selling it as a service at the time.
3. Any research on inter-dependency/price movements among on the indices(esp. the US).

Thanks.

 

[stevet]

you can spot them when you see fast moves in the market with high volume

 

[jmreeve]

There are different types of computerised trading, including tranch(iceberg) orders, index arbitrage programs, market making programs and a whole range of strategic trading programs.

There is some information at: http://www.programtrading.com/

But these systems are proprietory and so you won't find that much in the public domain.

 

[olwenh]

jmreeve,

I'm really interested to find out what exactly is meant by 'iceberg'. I have recently identified trades which are taken off the order book below the bid/offer , therefore leaving the price unaffected (shorterm). I asked a question on another board & was told it was an 'iceberg' but no further details were given.

My own deduction is that if you identify an 'iceberg' you should trade in the direction of that iceberg as there is serious buying/selling which they are attempting to hide.

Am I correct in my deduction?

Many thanks in advance

olwen

 

[theknifemac]

Olwenh

An iceberg order is where the trader sends a large order to the market but only shows a proportion of the order on the order book. If an order hits the order book which would hit the bid / lift the offer then more than the initial display amount will be executed

e.g. market is 1 1000 100 101 1000 1
meaning one buyer of 1000 shares at 100 and 1 seller of 1000 shares at 101

and the trader sends down a buy order for 1000, but icebergs it to show only 1000 (so as not to show the market there is a bigger order there), the best bid & offer would look like:

2 2000 100 101 1000 1

Then a sell order at 100 or cheaper would match against the first 1000 shares already on the book plus some or all of the 10000 shares the trader iceberged.

This practice is used in a lot of European markets, and means when calculating an average price when going down the order book that you will get the price you worked out or a better one if there are icebergs there.

Really its a device to make life easier for the trader and / or their trading system so they don't have to keep sending waves of 1000 shares to the market.

In the US the same concept exists with reserve orders or the display amount field.

Hope this helps

Mac

 

[mmillar]

This may be useful...

http://www.indexarb.com/

 

[NingNangNong]

first post... I would have thought that it's all well and good to get the latest gizmos (programs, charts, crystal balls etc.), but the bottom line is that the only way it works is trust what you know, and take a punt on it

 

[Trader333]

NNN,

It depends on how you view "taking a punt". To me trading is about reducing risk at entry to absolute minimum and having a potential reward that is vastly greater than my risk. After that it is all about statistical probabilities.

So if you are fortunate enough to have a trading method that yields you 50% winners and 50% losers and your winners return 3 times as much in profits as you would risk in a losing trade then over time you will make money. The reason for this is that the more trades you make then statistical probabilities become more accurate.


Paul

 

[jmreeve]

olwenh-
On trading around icebergs. If you trade very short term you can trade in the same direction.

On a longer time scale, they can be spotted when the market is moving and suddenly reaches a level where it flat-lines for a period ranging from 15-mins to a day or two. The bigger orders can absorb all the buying/selling and turn the market. Other times it flat-lines for a bit and then sales straight through. One approach would be to leave stops either side of the narrow price range to take advantage of the break.

Also, if you have a position and see one of these running you can tuck a stop on the far side of it as the stop is unlikely to get hit unless the market is going to go much further against your position.

As well as icebergs there are basket orders that start up on a range of stocks, often the top 20. Some of these are quite spectacular can run for a 15-mins or more moving the cash and futures markets off by 20 points or more.

 

[Grey1]

Trade333,

Quote " It depends on how you view "taking a punt". To me trading is about reducing risk at entry to absolute minimum and having a potential reward that is vastly greater than my risk. After that it is all about statistical probabilities. "


SPOT ON

 

[olwenh]

thanks to everyone who's taken the time to explain what might be going on.

I've been watching L2 for quite a long time & thought I had a handle on it. Seems there is much more to learn so I may be back asking more questions......

Regards

Olwen