The Nature of Spikes

JonnyT

Senior member
2,560 22
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
 

Trader333

Moderator
8,655 981
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
 

Henry

Active member
177 2
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.

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.
 

JonnyT

Senior member
2,560 22
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
 

mmillar

Guest
330 5
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
 

Henry

Active member
177 2
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.

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.
 

JonnyT

Senior member
2,560 22
<i>Hey Johnny; you got that program ready for sale yet</i>

£10,000 and it's yours, warts and all

JonnyT
 

JonnyT

Senior member
2,560 22
<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
 

JonnyT

Senior member
2,560 22
<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
 

oatman

Senior member
2,879 22
Know what you mean mate. I copped 2 wronguns. Just tried to sell, too slow it's gone....
Tomorrow's another day.
 

JonnyT

Senior member
2,560 22
<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
 
 
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