[Trader's Handbook] Draft articles, "out of pocket" discussions - page 30
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At hrenfx's request I'm making a small announcement -
as his nickname is in a ban, he cannot reply to your private messages to him on the forum.
...
Aug 15, 2011 at 4:03 AM
In the entire history of the existence of the US stock exchange, the last couple of weeks have been the most sinister and powerful exit from long positions, in terms of trading volume, even slightly surpassed the worst week in 2008. By the way, if you look at volatility, there were only 3 analogues in 100 years. This is the 30s during the Great Depression, it is 87 during the famous stock market crash and of course 2008, and in terms of the frequency of intraday fluctuations, only 2008 can be compared. Like this! )) In terms of the strength and speed of the fall, it was again the leader for a few days in 2002 and 2008 and now August 2011. In a couple of weeks, at least $ 7 trillion of global capitalization of stock markets was washed away, many markets updated records for the speed of falling and reached the lowest levels since 2009 - the same CAC40. Therefore, August 2011 is a historic event and remember this time for a long time. In fact, August 2011 is the most significant exchange event in 50 years! What causes investors who are not burdened by margin obligations to dump shares?
I would single out 3 factors.
1. This is a general depressed state for many investors and for some, even in the subconscious, a feeling of a coming storm, anxiety for the future. Such uncertainty, uncertainty about the future. Blurred prospects and fears of the second wave of the crisis lead to the fact that at the slightest breath of the breeze they are ready to part with what they have acquired quickly and without hesitation. Those. there are no large buyers in the market, apart from banks. There are none. There is no one to buy the market. Either there is no money, or they are afraid to take risks, or they fold at the first opportunity. Previously, about 5 years ago, they were calmer.
2. It's a liquidity bubble. Those. such a powerful fall of the markets, in principle, confirms the thesis that the growth of the markets in these 9 months was based on monetary factors and had no fundamental basis, in contrast to the growth, for example, in 2004-2006. Bah, the influx of money ended in the system and the bubble burst.
3. An increase in the share of algorithmic systems, robots and short-term speculators, which, although they do not form a trend, but strengthen the movement.
Well, now, the main thing! I have long wanted to discuss one topic and clarify. Perhaps many will pass by and forget, and for some it will format the brain to the fullest))) So, here we go!
The attitude of the public to the topic of manipulation in the financial markets brings me into shock and awe. I am somewhat surprised when I see with my own eyes when smart, mature and seemingly adequate people put a reinforced concrete barrier in front of this topic. They declare a taboo, a ban on any talk related to manipulations in the financial system. Even those who understand with their minds that this is possible and acceptable, but are still embarrassed to show it to the public. Even Yegor Susin, as the smartest and most talented economist and analyst in Russia, still tries to omit this topic. The fact is that the general public does not accept it. And in the scientific community, all the more so, in addition, they can take for a madman who, in all seriousness, talks about something that contradicts classical economic laws and axioms. So I don't recommend even trying! ))
Usually opponents of manipulation reduce everything to the fact that before people could not explain some natural, physical phenomena and reduced everything to a deity, mythology, and now imperfection in knowledge and understanding of what is happening is attributed to puppeteers and so on.
There are no gods, there is money and power, and now everything is in order! ))
But if we consider this issue from a philistine point of view, we get a funny incident. Well, for example, you will not argue with the fact that there are drug dealers, prostitution, the arms trade business, after all, corruption. To whom, but to the Russian-speaking reader, the topic of corruption is more than well known and there are enough facts, both from the words of acquaintances and from their own experience. For example, no one is surprised how a gang can control a district police station or a local police station, it is not surprising to anyone how officials can cover up blatant facts of fraud and theft of state property, and so on. You ask, why all this written heresy? You are not surprised and you are used to what you see with your own eyes every day, but in the above examples we are talking about millions of dollars, billions, and in the case of drugs, tens of billions of dollars, but the financial system is more than a THOUSAND times larger than all this and requires other methods of influence and control.
Banks can be divided into traditional, conservative, which have a profit from issuing loans and from commissions on payments and transfers, and there are banks that exist by distributing money in the financial system and this distribution is their business, their territory. It would be naive to consider the system "clean" and "law-abiding", where the amount of liquidity exceeds tens of trillions of dollars, not counting positions in derivatives.
Again, the task of the largest banks is to legally develop, implement and operate a mechanism for the successful distribution of liquidity, which formally does not belong to them. The only profitable instrument, apart from credit margin and commissions, is the investment division, which, in turn, is divided into dozens of areas, ranging from arbitrage, conservative investments, combining options and futures strategies, ending with extremely risky positions and playing on exchange rate differences.
Given the size of the banks, they do not have the ability to trade with methods and principles that apply to all other participants in the system. In principle, the markets are now sufficiently liquid for any fund to enter the market with minimal slippage in the shortest possible time. This is applicable for a fund that operates between $1 billion and $10 billion per instrument or market segment, but not applicable for those who have several orders of magnitude more money.
If the largest investment banks followed the widely accepted trading paradigm of rising-buy, falling-sell, they would always, I emphasize - always be at a loss. An entry into the market of 100-200 billion dollars will cause a powerful upward impulse, after which the average purchase price of a bank will be close to the maximum market prices and without the possibility of realizing such a volume for sale. Losses would always be!! Therefore, the largest banks sell exclusively on the growth of the market and buy on the fall. If they say otherwise, they are lying. This is the law of the market for any major player. Selling on a rally, buying on a crash.
How to implement this - I think it is clear to everyone and everyone. With a rally, there should be sufficient external demand, with a collapse, there should be a sufficient flow of sell orders. If on a specific example, then we look at the S&P 500 chart and market phases.
1. The phase of accumulation of positions. May-August 2010. Usually a few months, given the amount of funds from primary dealers. Usually the period is accompanied by maximum fear in the market. Many are waiting for the second wave of the crisis and are selling.
2. The phase of the primary growth of the market and the activation of the most insightful and risky funds. September-October 2010. Here, the mechanism of "market buoy" is activated by the primary dealers. This is when the market buys back and maintains whatever happens. The task is very simple. I would call it "magnetic pole shift". Those. cause confusion among investors and disruption of the chains of cause and effect. In other words, so that the interpretation of the news background goes only in one direction - growth is always, no matter what happens. Bad news is growth, good news is also growth. It is important that the new ideology, the new normality of the market, be developed by the bidders on a reflex level. So that it is firmly planted in everyone’s head that the market is bullish, it is redeemed, and most importantly, the market is always growing. Those who were there at that time are well remembered.
3. Phase of secondary growth. Entering the market of conservative investors and funds. On the S&P chart, this is November 2010 - February 2011. 4 months. Major purchases are in progress. Funds usually operate with some lag. Ask any manager and he will say that they put the portfolio in full long when the trend becomes steadily upward, when the news background is neutral-positive, when all resistances are broken and the market grows. In this phase, primary dealers no longer buy the market! Their task is to make the “market buoy” become a self-sustaining mechanism and function on its own on the market crowd. For the market to redeem corrections.
4. Consolidation phase. Usually used for meat, i.e. for retail. March 2011-June 2011. This is the time when the professionals exit the market. During this phase, primary dealers are required to close all their positions that were open at the time of the trend. It is this period that is final and it is here that the final profit is formed. The market is still strong, but due to the fact that sales are stretched out in time and supported by the influx of bids from speculators and small funds
5. The return phase. On the chart, July-August 2011. This is where all the fun happens. Usually the market starts to go down at a rapid pace. Primary dealers release the market support that existed before and aggravate the news background for a more aggressive reset. It is extremely important for them that at this moment the funds and long-term investors are fully loaded into long. For this, such a long and necessary rally was needed. The maximum load in the long provokes the most powerful reset of positions at the bottom. This is required! The same powerful flow of sell orders, which is provoked through massive margin calls, supported by market fear and horror.
And then everything repeats again. I am writing this simply because many people have completely forgotten how the markets work. Many panicked and dumped positions, randomly shorted the bottom, or did other stupid things. If you follow this concept, then after disorderly selling there will be market consolidation. Usually several months, where the banks will buy up the market on the lows, preparing for a new rally, i.e. after the rebound, we can test the bottom again. The fact is that now large longs of funds have left the markets and will not return soon. After such a collapse, the market will still be weak for some time, but in the short term they can be caught in a short squeeze.
By the way, for many I can throw an interesting topic. For the sake of interest, then correlate the DOW or SIPI chart with the news background. It is enough to take the headlines of the largest news agencies from the archive and you will see a suspicious contraption. At the moment of maximum panic, all the shit comes out, literally everything. Sometimes you think, well, where did you get so much shit from ?! )) Here is the political crisis in the USA, with debates for half a year, here is the revision of the S&P rating, here is the debt crisis, another attack on Italy and Spain, plus much more. Here the question arises, what is the causal relationship?
Maybe the market is falling just because of the bad news?! But, look and you will understand that the correlation is different and the news only supports the fall, and does not provoke it, and as soon as the market turns around, all the news shit and fears will disappear. Here, many will exclaim that the market type on expectations does everything in advance. And fail again! There is simply no time to paint, then everyone who is interested will do it themselves. Those. I mean, the market shapes the news, not the market news. There is a price and the news is already coming out on it, and not vice versa, please do not confuse this!
Friends, this is a huge business, trillions of dollars. If with an example about a small district gop. grouping and the local precinct everything is simple and clear, then here are more complex methods and significantly more money. Here, the US GDP flies in a day at the auction! )) Cool, yeah?! )) If in the drug trade they put cancer on several officials, unfastening them for pocket expenses, then in this environment politicians and presidents are put on cancer. Politicians are people too, they want to eat, drink and rest, and they also need money. No need to be surprised that Wall St controls the courts, the legislature and the executive, no need to be surprised that Congress, the Fed and the president are dancing to the tune of the bankers. You don't need to be surprised. This is the harsh truth of life. It is painful to understand and admit, but money and power decide a lot in this world. For 100 bucks they are ready to kill at the entrance, and for 1 trillion they will arrange a world war. Just different rates and different amounts.
They will stop at nothing to defend their power and influence. The one who emits money - he does not care about the laws. He is the only law and he has all power. This is the world of the monetary system. Severe, cruel, with its own traditions and rules. Another world. They staged a crisis for their own survival and profit and will organize another one if they see fit. So dangerous audience. The banking system is not a charitable organization, it is a business with a super high turnover of liquidity with its own laws and regulations, which are far from what is commonly believed in the public.
Well, as for the mechanisms of influencing the market, it is technically difficult, but doable. You may ask, is it possible to stop and reverse such a large market as in the USA with an accuracy of 1 point? Yes, you can, and that's how it's done.
Previously, this was not due to technical reasons. There was no Internet trade, there were no powerful computers and data centers. But now it's like this:
Dealers have data centers, a staff of mathematicians and programmers. There is not a single economist! )) In short, the task is to collect a market profile and process it statistically. What is it? Segmented market analysis. Who, with what amount and in which direction is in real time. They are brokers and know all the positions in the market.
Knowing how many positions are long on the CFTC every Friday doesn't mean anything. It is important to know, firstly, who is worth and how much. One thing is 10 thousand speculators with one contract (=10 thousand contracts), which is a little predictable chaos, like a flock of moths, and another thing is a big fart with 10 thousand contracts. In this way, one can estimate the likely movement of the market after an instigated move against or on the position of this big fart. Not even for a market forecast, but in order to estimate how much dough is needed to fail or lower the market and how much money is needed to turn the market around. Having a map, a market profile, knowing the accounts of all clients and their actions, then no insider information is needed, because. this is the grail-insider. Those. they know exactly at what levels there will be margin calls and from whom exactly, and they can assess the strength of external influence. In other words, they know for sure whether any major buyer from outside will appear. All this information makes it quite easy to manipulate the markets. Market makers. It translates how to make a market, and in fact it is! They keep this market and they make it.
http://spydell.livejournal.com/365495.html
http://forexsystems.ru/vsyo-o-fondovyh-rynkah-i-investorah/64723-marketmeikery-ili-kto-delaet-rynok.html
Question: can ECNs seriously move the market? #
A: You cannot move the market on forex unless you own a large hedge fund. Forex is an over-the-counter market, it has a different pricing methodology than the exchange. Here the price is set by vendor banks, which are market makers, and they can digest hypothetically unlimited volumes at any price without moving it. In an ECN you can only influence the price within the spread. Or, in ECNs, which withdraw gangs, for which there is an execution (although these gangs can return in the same second, giving only the impression of influencing the price) you can sort of eat liquidity, but it is all in most cases, only visibility, and for completely objective reasons.
Question: transparency (the ability to see your limits in the bet, and most importantly match them with other clients) will only be for clients within the company, from LP in theory you can slip anything you want? #
Answer: Yes you can. But he who has eyes will see. For example, in a market company the orders activated by spiel are usually not executed at spiel price, but at the normal market price. But if the company does not withdraw anything, then each spike eloquently shows it. Although, we must admit that sometimes LPs also execute, but this is the exception rather than the rule. There are quite a few such circumstantial points.
If you get the liquidity of the company's clients, you have to deal with LP and everything depends on the company's trustworthiness. If the company slips time after time unreasonably and yet does not give up on this "supplier", it's a reason to think twice. Plus, you have to measure slippages and execution times to be aware of how "they are working with you".
Why so sad. You dream of the alternative - to get redirect after redirect, but at better prices.
Within the client limits of this ECN - you do get the best price. If you run out of liquidity at the time of ECN execution, you will be transferred to liquidity from large LPs and then execute as a regular STP. Maybe there are some ECNs/STPs that practice prime clearing for their STP part, then you will get the best price on the STP as well (taking into account the clearing fee). Look into it if that's the only option that suits you.
In my opinion, it is better to simply split the execution (if the volumes are very high) into several ECN/STP sites, scooping only pure ECN liquidity (you can measure in advance by comparing quotes from different account types)
Make a market
15 Aug, 2011 at 4:03 AM
...
http://spydell.livejournal.com/365495.html
http://forexsystems.ru/vsyo-o-fondovyh-rynkah-i-investorah/64723-marketmeikery-ili-kto-delaet-rynok.html
Very informative, lots of buzzwords, all that's left to add is the call to "destroy to the ground and then..."
But all this describes the technology of the last century. It's also an old one (of course not literally, but it was discussed many times on this forum).
Right now (of the small traders) no one holds a position long enough for them to go from year to year.
By the time these monsters turn around, people have already made a lot of money on longs and shorts, and in the shorts on the canary :)
Dudes are talking about HFT algorithms and they don't give a shit about mega superstructures influence on the market, they make a full pile of profit with one lot.
So imho, leave all these conspiracy theories, it is not our business. When you're thinking about buying JP Morgan, that's when you get there.
When I was listening to an interview with a Russian American (a person who knows the world both here and there). When asked what makes us different he simply said that Russians are reasoners and Americans are doers.
from here
all this is eliminated by filtering not to enter above the master bye below the master village
Can you explain in more detail how to implement such a filter?
from here
Can you explain in more detail how to implement such a filter?
If the current price of the investment account is lower than the opening price of the master order +-delta, then enter, otherwise do not enter, i.e. the deal may be missed if the price goes sharply in the direction of the order.
The question was slightly different. Of course, I'm not very familiar with the capabilities of the signals service. Is it possible to make such conditions there?
the slippage allowed there is "+-delta".
to be more precise, it will be a point: "Execute within: n spreads".
Although as far as I understand it, it can still go lower, but only by a given value.