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There is a key piece of information missing in order to sniff out people's position. You can see resting limit orders, and you can see market orders matching against those orders. You cannot see who was on each side of that trade. If we were on an open outcry trading floor then you could watch individual traders, and calculate their exact positions. On the floor the big traders would get around this by splitting their trades among smaller players that nobody would suspect.
The next best thing would just be live open interest data. You wouldn't be able to attach orders to specific traders, but you could determine if volume was resulting in open positions increasing or decreasing. There are some markets in China for instance that provide this kind of information, and there is some evidence to suggest that it provides some edge. On the CME this information is only provided to us a week late.
The problem with many of the theories retail traders have about the market trading against them is that they're really still looking for a pattern. The idea being that you should be able to know that the market maker will go for retail traders, and try to trade in that direction with them. The truth though is that the market really is quite random. There are statistical qualities about markets that differ from a random walk. For instance momentum and volatility effects. There are also stylized behaviors visible in the order book such as higher liquidity at round numbers, auto correlation in order signs (whether the trades are market buy or market sell), the square root law of metaorder impact, and liquidity holes. So it's useful to keep an eye out for for these behaviors and try to use them to optimize your entries with them. There's lots of competition for these edges though so you probably won't make money on these ideas alone unless you're an HFT. I've never seen any empirical evidence that there are more likely to be stops at specific price levels or situations.
I often find that the truth is more disturbing than the conspiracy theory. The truth is that the HFT's don't have to target you or look for your stops. The structure of the market just screws you over on its own. The market is essentially rigged against how most retail traders want to trade. The robots make their trades based on mispricing's they've found. So regardless of whether you use a limit or market order you're always getting a price that the algo thinks is disadvantageous at the time. That's why a retail trader will tend to lose. The only way that a retail trader can overcome that disadvantage is if they have information that will predict the future orders that the rest of the market hasn't picked up on yet. So from that perspective it's maybe useful to just pretend the market is trading against you. Before taking a trade I always ask "if everyone in the market knew that I opened a position there, would I still open the position?" If it's not a situation where I know what's going to happen and would be happy to see less informed traders try to trade against me, then it's probably not a very good trade.
A simpler answer is granularity and the availability of information. The market may be random, but it's random to different degrees on different levels. When Sam Bankman-Fried worked at Jane Street, he developed a crypto arbitrage strategy that exploited price differentials on different exchanges. Why was he able to do this? Because Jane Street provided the computing power and think tank environment to enable him to do it (he would have been better off sticking with that strategy!). The information he needed was made available to him and others at Jane Street.
It's all pattern recognition but on different levels depending on the amount of information available to YOU as a trader. It's information manipulation that screws with traders' heads. I argued with John Grady about the concept of pattern recognition in the markets and the Jigsaw platform. He believes there's no pattern recognition involved at least to the extent that a trader can exploit it. But resting limit orders and the scenarios that occur on the Jigsaw platform is pattern recognition. The trader is attempting to exploit some setup that's proven profitable in the past. I personally think Jigsaw is old technology because it has no capability to analyze the past. Volumetric bars at least provide relative and absolute values that can be used to analyze past behavior. What we're looking at is market statistics with very wide standard deviations. Observing values like relative and absolute volume deltas provides more information IMO than fake numbers on Jigsaw.
At the very least, you have something to work with historically.
As far as who's doing what in the market i.e. HFTs, banks, funds, robots - all that nonsense, if you think you can identify those characters, good for you. I can't. And I don't care because regardless who's placing the orders or manipulating the numbers, I have no control over them and what they do. Therefore, even if I knew for sure that VIRTU HFTs were screwing with the market on a Monday morning, as a retail trader, I have no capability to exploit that information.
A concept that people sometimes fail to understand is the difference between closed and open systems. The laws of thermodynamics are based on adiabatic systems i.e. CLOSED systems. They're basic, fundamental. The market only gives you the open, close, highs and lows in an open system. There is no closed, fundamental system. Open systems, like the market, include hidden variables i.e. information which is not, and never will be, available to us. But I believe there is enough information to work with as long as you're prepared for a flexibility check once in a while.
Sabine Hossenfelder uploaded a YouTube this morning which fits in with this conversation. It's about the concept of chaos control and what progress has been made. Substitute the market for the scenarios which she describes and you get an idea of how open systems can be manipulated. Scroll to 10:18 and she uses the word "pattern". Patterns, setups, call them whatever you want - but all our observations of market behavior are ultimately targeted at discovering some exploitable pattern.
Anyway, Sabine is an outstanding science communicator as well as a working scientist. Lots of interesting stuff on her channel if you're interested in physics and how the world works.
I WANT my orders to be seen. How else can any one expect to find a buyer for the equity you want to sell or a seller for what one wants to buy? Unless it is a huge order and you want to hide the size of the order.
In that case just use a platform/broker that allows one to hide the size. But I seriously doubt that a retail trader ever needs to hide the size of the order.
Trading: Primarily Energy but also a little Equities, Fixed Income, Metals and Crypto.
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I've known about this for several years. Trading Technologies used to have their own trading group as well, to 'test' their software. I gather TTs group lost money though. Reading the article though it says "limits risk in the markets it trades in by hedging its futures trades with offsetting transactions in the spot and forward markets, according to CME filings" which would imply that they are just making a market in the futures based upon the carry to the spot. Why would the CME have any interest in "forcing trades to squeeze people out of positions"?
In our last Chat - GPT may have shed some light on MM manipulations:
Are you familiar with market makers deliberately squeezing out traders ?
Yes, I am familiar with the concept of market makers deliberately squeezing out traders. Market makers are firms or individuals that facilitate the buying and selling of securities by providing liquidity to financial markets. They do this by continuously quoting both bid and ask prices for a particular security and then making a profit on the difference between the two prices, known as the bid-ask spread. In some cases, market makers may use certain tactics to manipulate the market in order to squeeze out traders. This can include aggressively buying or selling a security in order to drive the price in a particular direction or providing false or misleading information to trick traders into making certain trades. Such tactics are generally considered unethical and may be illegal in some cases.
Do they perform this only on specific instruments, or is it a general behavior occurring all over the marketplace ?
Market makers can potentially engage in tactics to manipulate the market for any financial instrument for which they make a market. This can include stocks, bonds, currencies, commodities, and derivatives such as options and futures. In some cases, market makers may focus on particular instruments or sectors in which they have specialized knowledge or a competitive advantage. It is important to note that not all market makers engage in unethical or manipulative behavior, and such tactics are generally considered to be the exception rather than the norm. However, it is always a good idea for traders to be aware of the potential for market manipulation and to approach their trades with caution and due diligence.
What you'r suggesting implies that there are ways to recognize such manipulative behavior in specific instruments. Can you focus on these ?
There are a few signs that traders can look for that may indicate that a market maker is attempting to manipulate the market for a particular instrument:
Abnormal price movements: If the price of an instrument is moving in a way that seems unusual or out of line with fundamental news or other market conditions, it could be a sign of market manipulation.
Large trades or volumes: Market makers may try to manipulate the market by placing large trades or creating the appearance of heavy trading activity in order to influence the price of an instrument.
Changes in the bid-ask spread: Market makers typically profit from the difference between the bid and ask price, so if the spread suddenly widens or narrows significantly, it could be a sign of manipulation.
Unexpected changes in the order book: The order book is a record of all the buy and sell orders for an instrument. If the order book is suddenly flooded with orders that are all the same price or there is an unusual concentration of orders at a particular price point, it could be a sign of market manipulation.
It is important to note that these are just a few possible signs of market manipulation, and it is not always easy to detect such behavior. Traders should be vigilant and use a combination of technical and fundamental analysis, as well as common sense, to identify potential manipulations.
Could you name a few Futures where this may be happening ?
It is difficult to identify specific futures contracts where market manipulation may be occurring, as such behavior is generally illegal and therefore not openly advertised. Market manipulation can potentially occur in any futures market, including those for commodities such as oil, gold, and agricultural products, as well as financial futures such as those for interest rates and foreign exchange rates.
It is important to note that the vast majority of futures market participants, including market makers, act ethically and do not engage in manipulation. However, it is always a good idea for traders to be aware of the potential for manipulation and to approach their trades with caution and due diligence. This may include using a variety of tools and resources, such as technical and fundamental analysis, to help identify potential manipulations and make informed trading decisions.
Please elaborate on "due diligence" means.
Due diligence is the process of carefully and thoroughly examining something in order to confirm the accuracy of information or to ensure compliance with legal or professional standards. In the context of financial markets, due diligence is the process of examining a potential investment or trade in order to understand the associated risks and potential rewards. This may include reviewing financial statements, analyzing market trends and conditions, and seeking the advice of financial professionals or experts.
For traders, due diligence is an important part of the decision-making process, as it helps to ensure that trades are based on accurate and reliable information and are in line with an individual's risk tolerance and investment objectives. This can help to minimize the risk of making poor investment decisions and can improve the chances of success in the market.
Could you name a few Futures involving in such behavior ? My guess is that various NASDAQ derivatives, in particular the NQ Futures are suspects .
It is not appropriate for me to name specific futures contracts or markets that may be engaging in unethical or illegal behavior such as market manipulation. Market manipulation can potentially occur in any futures market, and it is not possible for me to accurately identify specific instances of such behavior without further information.
It is important to note that the vast majority of market participants act ethically and do not engage in manipulation. Market manipulation is generally illegal and can result in serious consequences for individuals or firms found to be engaging in such behavior. It is always a good idea for traders to approach the market with caution and to use due diligence in order to minimize the risk of being affected by manipulative tactics. This may include using a variety of tools and resources, such as technical and fundamental analysis, to help identify potential manipulations and make informed trading decisions.
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Reads well but very short or referenceable facts or any specific examples. As I said elsewhere...
To expand on that, there are more and more concerns about it especially when it comes to fact checking! It's also notoriously poor at math and logic. Have an interesting twitter thread somewhere which highlights it making assertions that are wrong and using/referencing supporting research reports that literally do not exist.