Trading FTSE based on Dow close

[Nero Tulip]

Is not about punting, its about trading fixed odds contacts.. options if you like. there is an array of differing styles of traders on there.. scalpers, swing traders...as well as any strategy you can think up, fading, spoofing etc no where does punting actually come into the equation, unless you count the initial decision to take a position a punt, in which case this forum is as much about punting as any other. There is a lot of money to be made on there, sometimes very easily, though it is getting harder... To give you an idea my bank roll has increased 300% this year. thats making trades on average £500-1000 a time, exposing less than 1% of my bank at a time. mostly on financials, but also cricket. Liquidity is low on financials at present, but building.

Bigbusiness, betfair has its own forum but it is full of nonesense, possibly posted by those that aught to be looking for a GA meeting. The financials section has some experienced traders on there who post occaisionally. If i'm honest though, i dont think there would be enough interest in a betting exchange forum on here. Maybe in time... i'm enjoying reading your posts and others :cheesy:

 

[Bigbusiness]

sidinuk, surely Nero Tulip is trading to win. There are lots of people who treat the stock market like a big casino. There are probably many similarities between successful stock market traders and successful sports traders. I see it as just another market. If there is a good opportunity to make money, I think it is worth discussing. It is also apparent that there are many post on these boards about paid for sports gambling systems that don't seem to work very well. Having an open discussion about these might save someone some money.

 

[Nero Tulip]

Exactly Bigbusiness, the markets on there are like any other, supply and demand rules apply just like any stock market... human nature remains the same regardless of where you ply your trade. I was simply bringing to attention the fact that there is an alternative vehicle to IG's binarys and indeed any other investment strategy you may have. The use of technical methods is as prevalent on there as elsewhere, on financials this is the analysis of charts to form ideas on where to post a price, on sports it can be argued its the analysis of the scoring structure of what you are trading - to place your sell at the potential price highs or vice versa.. if you know what you are doing trading wise as most on here do, then you should find plenty of opportunities on there. My intention was not to turn this thread into an advert for it anyway, just to open a few eyes so you can investigate. Having alternative markets to use to hedge is very useful.

 

[sidinuk]

I take your point, there is a fine line between gambling and trading. The difference comes down to whether you have an edge, ie over time that edge will play out and you will make money.

For example Ladbrokes or William Hill have an edge over their customers. The odds are set that way, over time the edge will play out and they will make a profit. Occasionally someone will get lucky and win big, but that will not affect their edge over time. The bookies are running a business, they are not gambling. Gamblers live on hope. They know the odds are against them, but hope that they can pull off one big win against the odds.

Take the futures markets. The underlying purpose of a futures market is to enable hedging against future risk. I.e. a farmer may which to use the futures market to hedge against a possible fall in the price of his crop. A food producer on the other hand may want to hedge against a rise in the price of corn. Futures markets have a purpose, to spread risk. In order to provide liquidity to the markets, traders are encourage to speculate in these markets and effectively make the market.

The nature of futures markets means that their are two type of 'market maker', traders and gamblers. Traders have an edge, they trade consistently according to a plan and take their business forward, realising their edge over time. Gamblers have no plan and no edge but they hope that they'll make a profit, over time they lose to the traders.

The betting exchanges try to emulate a futures market, but the crucial difference is that their is no underlying purpose. The market creates it's own risk to satisfy gamblers. Just like a bookie creates a market in a horse race with fixed odds so a betting exchange creates a market. It is impossible to create a plan to 'trade' such a market and over time the only participant with an edge is the betting exchange itself who takes a cut of all the bets made.

 

[Nero Tulip]

It is impossible to create a plan to 'trade' such a market and over time the only participant with an edge is the betting exchange itself who takes a cut of all the bets made.

We'll probably have to agree to disagree here, but i'm not sure what you mean by your last sentence ? its impossible to make a plan ? I'm trading on what the ftse is doing.. that is the same market you are trading isnt it ?

And yes you are correct, the market is formed specifically for betting, trading, making a profit on whatever the market is on. I'm not sure what difference that makes, it has a purpose and it has the same cross section of differing users as other markets. But I'm not sure what your point is ? It might be impossible for you to form a plan to trade such a market, but to generlise it as impossible for everyone is wrong. I have a plan(s), i execute it everyday, 5-10 hours a day depending on what i'm working on, and I do well at what i do.

People win, people lose everyday on the futures markets.. the talented traders take their profit, some hedgers or less talented traders and gamblers lose on futures. The same is true on Betfair, who take their cut as commission in a similar way as your broker does. I don't see the difference.

 

[Nero Tulip]

I'm here reading and posting on this board because i trade the same way you do. I buy and sell the same, i cut my loss the same way and i take my profit (hopefully) just like you do. I work hard at getting a better idea of where the markets are going like everyone on here does.

 

[sidinuk]

Well fair enough. You are obviously able to exploit the less well prepared players on betfair and make a profit, good for you that's what it's all about.

 

[Alfaman]

Getting back to the origin of this thread - today worked well (if only I'd trusted the embrio system enough - Dow up yesterday, binary odds on FTSE were 36 to go up at 7:00 am this morning - a £3 stake would have given £222.

That'll do nicely, ching!

 

[Nero Tulip]

Well done Alfaman. I also bet on up this morning. I got a few pennies on at 2.25 (equiv to buying 44) and then £2000 on at 1.7 (a buy at 58.8).. i had a really good day today. Also sold FTSE Weekly 4200-4250 Binary for £100 a point at 75 just before the Non-Farm data came out fancying a bit of volatility, it was much better than i could have dreamt of.

 

[sandpiper]

sidinuk,

Interesting posts.

Don't want to get away from the point of the thread too much, but, in no particular order:

Isn't a large part of what we all do about exploiting those who are less prepared, or avoiding being exploited ourselves, no matter what the market?

The us stock index futures markets are clearly traded by lots of people who have no idea where the limits are, or what the procedures are, or where the trading curbs come into play on the cash indices. Their lack of knowledge is exploited regurlarly (less so nowadays, I grant you with fewer limit moves) by those in the know.

To illustrate: "We wait for the "public" open, let 'em in...let 'em all in. If they're greedy they have put their whole position on, volume decreases after the opening trades are done. We move against them inflicting pain, confusion, doubt". Taken from something I picked up from a pit trader.

With regards to fixed odds bets, they are just binary options, which are clearly just another financial instrument. If they suit your trading style then so be it. However, I grant you that fundementally they serve no legitimate purpose other than as a speculative instrument.

I would say that it is difficult, but not impossible to create a "trading plan" for such markets/instruments. The pricing mechanism for binary options is disconnected from the underlying market sufficiently that it can be difficult to assess potential "targets" where you might exit a trade. i.e. a move in the ftse of 5 points frequently leads to a disproportionate move in the price of the binary option.

Generally speaking I think that profitable trading in binary options or fixed odds financial bets is about being a buyer and seller of volatility with price being secondary. As such, if you have a trading plan based on trading volatility then clearly these instruments are as usefull as traditional options. If like me, your trading plan, and risk/reward matrix is based on price movement then these instruments would be largely inappropriate. Horses for courses, I suppose.

A betting exchange is no different than any other market. In the same way that Chicago impose a levy on every lot traded, an exchange charges commission (only when you win, so doesn't apply to me very much.....). However, Chicago also has locals in the pit that control the "auction" and price discovery process a great deal of the time. Some of these guys make money by scalping, some by trading as we know it. But additionally, they employ various techniques such as leaning, up-ticking, call 'em what you will for giving them an "edge". An experienced user on a betting exchange uses lots of similar techniques to similar effect (and just as profitably).

Would I choose to do it? No.... it simply wouldn't suit me. However, that fact that some people do wouldn't put me off using an exchange, if it's appropriate, anymore than getting a lousy fill in the S&P pit.

 

[sandpiper]

wideboy,

Back to the original topic.........

You've really two threads in one. Your original thoughts on a "system" and then the viability of binary options as an instrument for trading the system.

Regarding your system. Clearly it's the start of a method. I know a few people who've gone broke trading it, mostly due to lack of any kind of money management it has to be said.

Traditionally, any market or commodity closing in the top end of its range would be expected to show some kind of follow on the next day. It seems to me that the ftse often opens and trades based on where it expects the US to open later that day, rather than purely on the previous evenings close. With that in mind, DOW up = FTSE up can often be refined.

Heres a few other "mini seasonals" that may help (or may not........), or may give you other ideas in your continued analysis. They are observations (not mine I hasten to add.... haven't had an original thought my entire life!!!!) largely based on the US futures markets.

First, daily:

Monday: Sets tone for week. Bonds/Gold higher on Monday if no weekend problems.
Tuesday: Top or bottom of move. 11:30 favorite time for tops and bottoms.
Wednesday: Most powerful trends of week. Big money decides how next week will play out on Wednesday.
Thursday: Evening up day as bigger traders already maneuvering for weekend.
Friday: Fear day. If low of week is Monday then high should be Friday. Small traders abandon losing positions on Friday.

Monthly:

1st Notice Day: Bullish as floor buys up.
1st 10 Days: Bullish as dividends, monthly salaries and government checks are all issued.
End of Quarter: Window dressing. Buy anything that’s done well. Sell anything that’s done badly.
End of Month: Brokerage effect. If your broker has had a bad month he will be trying to boost his monthly performance by getting you into trades that you really shouldn't be in.

Regarding the second part of your original thread, i.e Binary Options. I would just ask why? (not having a go, just interested in your reasoning). As I said on the previous thread, I've yet to discover any value in binary options over and above futures/sb in trading based on direction/price/volume.

Clearly, the sensible side to be on with options (6 out of 7 times) is to be the writer. Options are predominantly (not exclusively) a tool for trading or hedging/managing volatility. By using them to "trade" direction/price are you not giving up even more of your "edge" than with traditional spread betting? (the IG binary option spreads seem a tadge wide to me....).

If it's because of the limited liability, I can partly understand. However, since you can place guaranteed stops on your sb, maybe I can't.

Interested in your thoughts.

 

[sandpiper]

Nero Tulip,

Nice volatility play btw............

 

[Skimbleshanks]

Very useful descriptions of day and month tendencies, Sandpiper. Thank you!

 

[Alfaman]

Sandpiper,

Interesting thoughts. As to your question "why ?"

I am open to any better system you can suggest ( I am looking for a mechanical EOD system that makes regular profits and preferably doesn't leave the position open over night or rely on discretionary input) but from my calcs. the Binary system originally postulated by Wideboy would have given a profit this year of £18,650 for a £10/pt stake based on always getting 50:50 odds wheras spread betting the FTSE on the same basis also at £10/pt would have peaked at £11,800 in July and since dropped to £8900 by today.

Ok this assumes no stop losses on the spread betting which I will add to my model.

Any thoughts ?

Alfaman

 

[Alfaman]

Post script to last message - that was assuming a very small (ie 4 points) average bias by the spreadbetting companies. A bias of 9 points wipes the profit out completely for this year.