The Nature of Spikes

J

JonnyT

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Hi folks,

You are probably aware that I am trading the FTSE futures using IB and a little Java app to fully automate the process. This has been sucessfull so far, gaining 65 points net last week for example (a minor bug cost me a futher 21 by reversing a trade when it shouldn't have :eek: )

However as yet I haven't catered for spikes that go against an open trade.

I do use limit orders to enter trades to protect myself, but feel I'm at risk with my disaster stop. i.e. if the price moves x points against my position enter a market order to get out quick. If the market move is real then fine I can take it on the chin, but from time to time we get false spikes.

The question really is are these spikes real? Would I likely get an undesirable fill if I entered a market order on one? How long do they tend to last? Anyone have any time and sales data from one?

The hope is I can write some sort of defence mechanism, whether it be a time filter or other method (could leave me open to real disasters then :confused:

Any thoughts much appreciated.

Thanks

JonnyT
 
Hi JonnyT,

This is a tricky one to answer as I have been taken out by spikes when trading futures on IB that literally lasted a few seconds. I think that the only way you are going to be able to address this is to get time and sales data. I have recently changed my trading from futures and intend to trade primarily Nasdaq stocks and you also get spikes on these if you look at the chart. But on the level II screen the market just doesnt trade at thses spikes and it is normally shown on the time and sales as a one off trade by a specific MM.

Your suggestion of using a time filter to knock out these short term spikes may well work but you need to be careful. I remember in 2001 and I think it was March when the Nasdaq future jumped 350 points in less than 10 seconds after an unexpected interest rate cut by the Fed. This could be seen as a spike but it wasnt and even if you used a time based filter the move was real. I know the FTSE doesnt move like that but I would at least bear it in mind.


Cheers


Paul
 
JonnyT said:
feel I'm at risk with my disaster stop. i.e. if the price moves x points against my position enter a market order to get out quick.
Click to expand...

Do I read that right, are you saying you have no stop order resting in the market whilst in your position? If so, isn't your greater risk that your program or PC crashes and whilst you're getting it going again the market moves against you big time?

H.
 
Hi Henry,

No I do not have a stop order in the market at present. Would this not guarentee a fill on a spike, exactly what I'm trying to avoid? i.e. The market could move 200 points past my stop before a fill.

My PC is stable, the application has been tested to death and has never crashed. I check my positions every so often so could manually adjust things if required.

I'm not overly concerned if I were to lose 100 FTSE points on some event a few times a year if the PC were to crash etc.

The protection I'm after is for that 200 point plus spike.

JonnyT
 
To tell if a futures spike is real you can look at the actual index or at individual shares (such as TBS's FTSE 12) to see if that is/they are moving. If the spike is just an aberration then the index/shares should not move or should move only slightly (as people take advantage of the arbitrage opportunity).

cheers
 
JonnyT said:
Would this not guarentee a fill on a spike, exactly what I'm trying to avoid? i.e. The market could move 200 points past my stop before a fill.
Click to expand...

I guess you could use a StopLimit order, and then if a spike occurs perform some kind of check as you or mmillar have suggested to see if it is real, and if it is, get out on a market order as your StopLimit probably wont trigger then. Of course, if the spike is not real you will get stopped out which may not be what you want, so if you're not concerned about technical problems I suppose there is no advantage to doing this anyway! :)

H.
 
<i>Hey Johnny; you got that program ready for sale yet</i>

£10,000 and it's yours, warts and all

JonnyT
 
<i>Give you £10 (+VAT if you are registered)</i>

OK provided we cut the profits 50/50, and you take all the losses.

JonnyT
 
<i>Give you £10 (+VAT if you are registered)</i>

Done, down 59 points (£590 + costs) today when I switched the effing thing off. :eek:

JonnyT
 
Know what you mean mate. I copped 2 wronguns. Just tried to sell, too slow it's gone....
Tomorrow's another day.
 
<i>Oops - back to PnF?</i>

The system back tested well, still in profit trading so it's something I have to put behind me.

These things are here to test us.

JonnyT
 
JonnyT, hope you don't mind if I hijack your thread! Fascinated to hear that you have got an automated system selling on IB. I want to do exactly the same - but it will be a much simpler system as I am more of an investor than a trader and my buy and sell rules are riduculously simple. What language do you recommend I use - I know C and that is about it. Would you be able to show us a snippet of your code? Is the IB help on this subject useful and finally how much would you charge per hour to implement my system for me?

Many thanks,

John.
 
Hi John,

If you know C then Java's easy.

IB support both C/C++ and Java and even provide demo apps.

Have a look in the c:\jts directory installed when you implement Trader Workstation with the API download http://www.interactivebrokers.ch/download/tws40_install.exe

Additionally IBs forums have a great thread under TWS API http://www.interactivebrokers.com/cgi-bin/discus/discus.pl . There is also a class definition page somewhere http://www.interactivebrokers.com/html/tws/api/releaseNotes/index.html

JonnyT
 
jls483 said:
JonnyT, hope you don't mind if I hijack your thread! Fascinated to hear that you have got an automated system selling on IB. I want to do exactly the same - but it will be a much simpler system as I am more of an investor than a trader and my buy and sell rules are riduculously simple.
Click to expand...

You could also have a look at TSim+ (www.tradingsimulation.com) which does the automation for you. Bracket Trader can do auto trading as well. Obviously neither will necessarily be as good as a bespoke system, but if your requirements are simple they may suffice. Works for me anyway :)

H.
 
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