Daily Speculations
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James Sogi
Philosopher, Juris Doctor, surfer, trader, investor, musician, black belt, sailor, semi-centenarian. He lives on the mountain in Kona, Hawaii, with his family. |
9/14/2005
Lobagola, by James Sogi
It's fun to look at the tops of the Lobagola moves and imagine who the actors are in the firmament. I like to imagine my place in the firmament just as a kid does staring into a starry sky. Who were the smart ones to sell the top? Who were the unlucky ones to buy the top tick? Who sold 1627 contracts at the top? What were they thinking? Why did they do what they did?. Why did the market move the way it did? Is there a way to predict it from the available data, as it happens? The data follows and reveals some of the workings of the Globex algorithm and the 9 point move, up and down. Why did it do that? Is there something before or during that would allow quantitative prediction at any point in the move? Someone has figured this out already.
It is a Bayesian Martingale model that adjusts prices in a manner to keep the appearance of fairness, but to keep the money flowing and extract the largest amount of vigorish possible. That is why CME is so successfully. Why? Each piece of information, trades, orders is placed into a learning formula that adjusts the price up or down and registers the trades in an ordered mechanical manner updating as each piece of new information comes in to the system by way of transaction or order. The price does not clear the orders at a price level, but moves with orders remaining. Why? What is the weighting of the prior trades and the orders. How are they weighted as to price, as to time and size. Recent proposed rule changes against pulling orders indicates that the gaming is throwing off the system to their detriment. In the same manner Wolfram attempts deconstruction of the simple rules of automata, the deconstruction of the Globex algorithm might have been accomplished, for it is only automata. Is there more hidden data? This is our opponent. Its is good to keep your enemies close and to know them.
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Jim Sogi, May 2005
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