Feb

27

Very happy. February 26, 2015: Exactly unchanged to open and from open to close. Anyone who trades loses the bid asked spread and more through stops.

Paolo Pezzutti writes:

There cannot be a forecast at any moment, but there are technical situations in markets that stimulate non random moves. These patterns occur over time. Although cycles are everchanging and all good things eventually end. You have to listen to the inner music of the market, the hidden messages that it sends at certain times of the day, certain days of the week, when it moves from point A to point B in a given time and magnitude. Behaviors are recurring because of regulations, operational technicalities of big players, effects of fear and greed on the herd, impact of margin calls, announcements, rollovers, etc… It is up to your creativty, intuition and ability to scan the markets finding the hidden jems that can provide you with a meal for a lifetime. Unfortunately, this is not enough to be a profitable trader. Similarly to other endeavours in life, I would say that the technical edge is never enough.

anonymous writes: 

Imagine the 1000's of shorts looking for their profit target on a day like today– "missed by a tick or two". Price moves back to breakeven– "Never turn a profit to a loss, time to exit". Price reacts down again– "but I can't afford to miss the overdue correction, It's now been confirmed". Then stopped out once again, to be repeated at the end of the day. If it held it overnight, it will gap up big the next morning for maximum capitulation. 

Gary Rogan writes: 

But is this intentional (teleological to get all philosophical) or just a day out of many days in which this particular relationship between the open and close holds? Almost all the other days are different, so how should one view this particular day: a totally random occurrence, somebody's clever plan, or the market itself deciding through some collective thinking process to play a practical joke on all the short-term trading participants?

Ed Stewart writes: 

Gary, if for a short-term trader there are questions that leads to meals for a lifetime if studied and answered, that is one of the better ones I have seen.

anonymous writes: 

The round number magnet effects must be exacerbated by the fact that many options strikes are at round numbers. Pin risk and gaming risk of options are real. Exotics make the numbers hidden but draw in large capital sometimes.

You can't see the motivations if the options are OTC and not listed. Recall the story of the large macro manager who got into a lawsuit with his exotic option brokerage firm. He was able to get prices to go just one momentary tick beyond his barrier knock-out/knock-in strike and the prospective payout was so large that the breaking of the barrier on the single tick was contested by the parties.

One of the parties offered unlimited supply on the offer to stop the breach of the strike. –Can't recall seeing who won that lawsuit. Still the fact that large players often think in terms of hidden strikes, could lead to defending and attacking of certain price levels on a given day. The exotic expirations are customized as well.

anonymous writes: 

A word about round numbers & option strikes in the OTC markets.

It is interesting to consider, study & think about the following;

1. What is the 'real' round number. Consider the currency markets. As I type, the AUD USD spot FX rate is 0.78244. The June 2015 AUD futures contract is at 0.7773. The forward FX points that one adjusts the spot rate by the get the outright forward are merely interest rate differentials expressed as FX points. So, if the futures price rallies UP through the 0.7800 round then the spot market will likely be around 0.7845/50 - arguably a 'nowhere' price.. So, because the futures price incorporates the forward does that 'round' have any significance at all. Arguably, the important 'rounds' are only relevant to the core market. It is an interesting null hypothesis that currency futures rounds of a given expiry are 'artificial'… Something to chew on there.

2. Another point about the 'Strike Price Heat Maps' that our magnanimous friends in various market making institutions provide in 'research' pieces/ updates. Be aware that many, many flows are NOT included in these due to wording in various Prime Brokerage agreements, other legal documents and sometimes courtesies given to, for example, institutions in mercantilist high growth non English speaking parts of the world. So you end up just looking at poor quality partial information infected by contractual, confidentiality & 'cover my posterior' bias.

For the avoidance of doubt and to pre-empt the snipers on the list who pop their heads up when a sacred Taboo of theirs is breached, I am specifically referring to OTC markets, incomplete information provided by market makers & bias that anyone who has tested the information will have seen in out of sample results.


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