Price Acceptance / Value

[joshdance 10]

Although I wouldn't go as far as to say that this edge is always present, it's the existence of edges of this type that the HFT firms tend to exploit. The market doesn't leave this type of edge open to all participants, though.

 

You're not reading quite clearly what I wrote: the poster I responded to was wondering whether one market always led the other. This is the impossibility that cannot exist. What does exist, and what I think you refer to, is arbitrage between correlated markets. This is exploitable by those with the technology and geographic location to do so. So two correlated markets can move in sync, but one will not always lead the other -- they will "switch" or "flip flop".

[joshdance 10]

HL Camp & Co - The Secret World of Program Trading

 

Also arbi in the pit between eMini and large.

 

Possible content of this company's HFT seminar: "HFT exists; programs exist designed by very smart people paid hundreds of thousands or millions of dollars to hide their activity, located at the exchange to remove any latency whatsoever and to ensure that they get to do their business before you ever see a quote; unless you do the same you cannot engage in this activity, but we thought you would like to know!" ;-)

[BlueHorseshoe 10]

You're not reading quite clearly what I wrote: the poster I responded to was wondering whether one market always led the other. This is the impossibility that cannot exist. What does exist, and what I think you refer to, is arbitrage between correlated markets. This is exploitable by those with the technology and geographic location to do so. So two correlated markets can move in sync, but one will not always lead the other -- they will "switch" or "flip flop".

 

You're probably correct and I hadn't read through the earlier posts clearly enough - I was certainly talking about 'generally' rather than 'always'. I wasn't referring to arbitrage, however, which would suggest buying the one and selling the other, but to simply using the futures as a leading indicator for the cash index.

[BlueHorseshoe 10]

Possible content of this company's HFT seminar: "HFT exists; programs exist designed by very smart people paid hundreds of thousands or millions of dollars to hide their activity, located at the exchange to remove any latency whatsoever and to ensure that they get to do their business before you ever see a quote; unless you do the same you cannot engage in this activity, but we thought you would like to know!" ;-)

 

I made this same point in another thread last week, and received a very aggressive response from a guy claiming he operated a successful self-built HFT system from a server in a closet. I didn't think at the time to ask whether the closet was located in the CME building or not - perhaps he's a janitor there?

 

[joshdance 10]

I intended to post the following on this thread earlier, but I only posted it in N's Eminis thread on Wednesday (1/25) after market close ( http://www.traderslaboratory.com/forums/e-mini-futures-trading-laboratory/9773-day-trading-e-mini-futures-52.html#post137305 ). I'll attach the chart here that shows us the view at that time.

 

The premise was that perhaps after developing value for so long (about 5 days) in such a tight range (about 7 handles, give or take), and then moving north of that, that the market would return to test the real willingness of buyers to truly accept that as higher value than the year's prior established area of value (1270s). After all, the market moved up on fed news anyway, and did so in a sort of a panic buying frenzy, which sometimes must be retraced to see if it's for real.

 

And the market did not disappoint -- buyers strongly supported 1307 time and time again, despite the willingness of sellers to try to take it lower. 1307.50 was the sunday globex open, 1308 is the new VPOC for the year, and it's pretty much smack in the middle of the prior area of value. See the first chart for an example of how the market retested 1270s and found buyers.

 

This time it's quite different though, compared with the earlier example in the 1270s. The buying off of the 1307 did not have nearly the conviction that it did earlier in January. The market just did not seem truly willing to pay up, and given how many times 07 held, and how important the 1305-1311 zone has been, if the market were truly super bullish, I would have expected it to buy, and buy fast, and buy heavy. But it didn't. So I'm a little cautious about the direction from here; bulls have the upper hand technically (just look at the year so far), however, the sentiment on Friday did not have the same bullish energy that I have seen recently.

 

Lastly, I'm not a big delta volume watcher, but perhaps it's noteworthy that a retracement of 80% in price (1329 to 1307, from a low of 1302) only resulted in about a 50% retracement in delta volume.