Apr

8

 It is interesting to consider if, in addition to the statistics, one should consider the environments in which it makes relatively more or less sense to lay traps for certain types of prey.

For example, up until just a short time ago, it made eminent sense to lay traps for lumbering momentum strategies close to opens and closes as these firms were forced to use the (very well known) volume distribution to get set (you can accept it or you can reject it but these firms are too large by an order of magnitude). Nowadays many of these strategies have started using either bank provided or internal 'execution algorithms'… The seeds of destruction are planted. N.B. For the purposes of this post the efficacy or otherwise of these strategies is not under discussion.

Things keep changing. So here are are few thoughts:

1. Note the restrictions (notably integer time and linear volume accumulation restrictions of many bank/broker supplied execution Algos)

2. Note the distribution of quotes sent from HFT versus actual trades transacted and how this changes during the day.

3. Note the unusual behavior for the 2-3 weeks a year when London and NYC have a 4 hour time difference rather than the usual 5.

4. Note the several 'openings' in the FX markets each day.

5. Note the more 'persistent' price action in relevant markets ahead of governmental debt management and issuance.

6. Note the lack of a zero bound in some markets and very high Kurtosis for higher frequency data in some markets.

7. Note short term counter trend strategies buying sharp moves down almost every day in stuff……🆘

These may all be helpful in big game hunting.

All the different beasts roaming the market jungle all have a habitat. Now, they do try to change things but the camouflage is never perfect ( large players need to get volume done ).


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2 Comments so far

  1. James Swinburn on April 8, 2015 7:30 pm

    Great post.

    Notably large players need to get volume done cheaply I.e without slippage.

  2. Paul Marino on April 8, 2015 9:25 pm

    I have certainly noticed the several daily openings in the FX markets, the USD rallied strong on volume at 8pm and the JPY and CHF fell out of bed.
    Excellent thoughts on other points as well.

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