Jun

8

 One notices that crude has been building a nest around the level of 10250. One wonders whether nest building has anything to teach us about markets. Apparently its a biological imperative for birds and others.

Ed Stewart writes: 

How could the nest be defined. I noticed (including today) a sequence of 4 CL closes within the day's range that was prior to that. Is closing price proximity a good measure of nest building– if defined relative to the recent past. Gold seemed to be a very well built nest– just before the break.

Hernan Avella writes: 

I found this article about ant nests very interesting.

Despite some "agents" beliefs that the numbers themselves have any significance, volume/time/activity clusters are all results from local interactions, . In the ever-changing cycle of consolidation-expansion, the consolidation phase is like a living architecture building process (nests). Researches have discovered three main rules of nest building in ants: "The ants picked up grains at a constant rate, approximately 2 grains per minute; they preferred to drop them near other grains, forming a pillar; and they tended to choose grains previously handled by other ants, probably because of marking by a chemical pheromone". One often sees the liquidity asymmetry games (big bid, small offer) as the building blocks of this structures. Traders (algos), like the ants, follow the patterns of the bid/offer and consolidation begins. This process has moments of high predictability and increase competition.


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