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Does the market know your positions?


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  #81 (permalink)
 
bobwest's Avatar
 bobwest 
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bkool View Post
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....


SMCJB View Post
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.

Regarding ChatGPT:

It does create easily-read English language text. But it's basically just sort of word salad. All the sentences make grammatical sense and mostly sound all right, but there's really not much to it. It seems to have assembled a collection of phrases it found on the internet into something that seems like it addresses the question, but that actually are just pasted together and sound like they are saying something of substance, but aren't.

There is also the issue of factuality that @SMCJB references. And as a trader, I found this "discussion" of the issues in this chat to be relatively empty, much like something written by someone who doesn't know what they're talking about, but who can sling the words pretty well and can use Google.

This does not mean it's not a very interesting achievement, but it isn't a meaningful post in the forum, within the meaning of what this forum is here for, which is discussion between traders.

It's somewhat like a particularly good spambot. We normally just delete those.

Since this post was clearly marked as having been generated by the program, there's no problem with it, but going forward I'm going to ask that members do not post chatGPT output as part of posts in regular threads having a trading subject matter, even when labeled as bot-produced.

The problem is that they've got no real content, could easily lead someone astray who takes them seriously, and are not the actual informed thoughts and experience of real traders. They are an amalgamation of things the bot found on the internet, hashed together and presented as if written by a human being.

It would be perfectly all right to start threads devoted explicitly to machine learning or to this particular program within machine learning, or to some application of the program, and to explore these interesting topics. Just not in threads that do not have that type of inquiry as their subject.

Also, probably someone would be able to spoof people into thinking that bot output is regular human output, made by a real member. There's not much point of this, in terms of what the forum is intended for, and clearly would not be appropriate here either.

Basically, if someone wants to look into this type of machine learning as a subject of investigation, that is fine, but not as part of the content of a post on a separate trading-related topic. Any thread topic specifically about chatGPT or similar programs would be fine. We should just keep the topic distinct.

Thanks.

Bob.

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-- Cervantes, Don Quixote
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  #82 (permalink)
 
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 trendisyourfriend 
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@bobwest

I have asked chatGPT to summarize your last comment...
---
The text discusses ChatGPT, a machine learning program that creates easily-readable English language text. However, the text generated by ChatGPT lacks substance and is not based on fact. It is composed of phrases found on the internet that are pieced together to appear to address a question, but do not actually convey meaningful information. It is suggested that ChatGPT output should not be included in posts about trading, as it could mislead readers and is not the product of real traders' experiences and thoughts. It is suggested that threads specifically about ChatGPT or similar programs would be appropriate, but that such content should not be included in threads about other subjects.

---
can you condense it further.
---
The text discusses ChatGPT, a machine learning program that generates English language text. However, the text lacks substance and is not based on fact. It is suggested that ChatGPT output should not be included in posts about trading, as it could mislead readers and is not the product of real traders' experiences and thoughts. It is suggested that threads specifically about ChatGPT or similar programs would be appropriate, but that such content should not be included in threads about other subjects.
---
can you condense it even further
---
The text discusses ChatGPT, a machine learning program that generates English language text that lacks substance and is not based on fact. It is suggested that ChatGPT output should not be included in posts about trading, but that threads specifically about ChatGPT or similar programs would be appropriate.

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  #83 (permalink)
 
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 bobwest 
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trendisyourfriend View Post
@bobwest

I have asked chatGPT to summarize your last comment...

This is pretty good. The AI condensed it down well, and in the subsequent shorter versions it did even better.

The whole thing is interesting and in another context could be a good subject for discussion and exploration. But AI output in a trading thread is probably not something that we are going to consider as appropriate, for the reasons stated.

We may formalize this policy after some internal moderator discussion, but in the meantime let me just ask for members to not intermix AI output in normal trading threads. At a minimum, any AI-generated content needs to be identified as such (as it has been here), and there needs to be a useful purpose for it (which is why I suggested keeping it in threads devoted to AI, rather than to normal trading.) Certainly, "useful purpose" is always a matter of judgment, so for now let us say that just displaying the abilities of this AI to create chat does not fall into that category, on a trading forum at least (on an AI forum, that would be different.)

I'm not criticizing and I'm not being close-minded or obstructing technological progress either, I hope, but let's just keep the use of AI's separate from normal non-artificial conversation between actual real traders. Real traders talking about real trading is the point here, after all. The whole discussion of what chatGPT would say on the topic, and of chatGPT itself, is very off-topic here.

Bob.

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-- Cervantes, Don Quixote
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  #84 (permalink)
map367
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It's clear that the markets are manipulated, through a process called "gunning the stops." If your firm owns an order-execution desk, then it is simple to funnel stop information to your hedge fund. You then move the market toward the stops, which triggers automatic sell orders that move the market even faster on the short side.

It's why, fro example, Citadel owns Citadel Securities.

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  #85 (permalink)
 
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 AllSeeker 
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It does but in its view, we (well, I assume most of us here are retail traders) are too small to care about exclusively. We hardly blip on its radar.

On other hand, your broker does know your position and your broker also utilizes it in his advantage whenever he can, also he can easily take copy positions to you or against you. But that only happens with slightly shady brokers, and even then he only cares about you when you have been identified by its algorithm as a profitable account over certain period of time.

I can say that with certainty because I have brokers franchise, not too long ago I could even see positions of people who opened accounts under me in my broker backend terminal, but that is also gone now. But the point remains, they do have access to your trade data and can also utilize to their means, if they wish to.

So rather than worrying about markets trying to flip you upside down, worry about brokers.

I guess this has been said many times in this thread and on this forum in other discussions, but we are far too small timers to worry about these things. Even 100's hardly makes blip in a tape of instrument I trade.

Just my 2c.

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  #86 (permalink)
 SpeculatorSeth   is a Vendor
 
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phantomtrader View Post
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.

Funny you should mention Sam Bankman-Fried. The reason they got in trouble was because they were using arbitrage market making strategies, and lost their edge. Someone else was able to execute faster. So they started to make up for it by taking on more risk, and that's eventually what blew things up. I would not consider this pattern recognition. Rather it's looking for a pricing discrepancy. They know what the price should be based on prices in similar instruments, and adjust their bid/ask accordingly.

Not that a statistical inefficiency can't exist. There's some evidence that traditional technical strategies did work prior to the advent of computers in the 80's. Statistical inefficiencies get harder and hard to find as the competitive market eliminates them. To the point that you need a masters or phd level understanding of the stuff to even be competitive.

The larger problem though is that retail traders don't have the data or expertise to really verify if there's an edge there in the first place. The more fat tailed a distribution is the more data samples you'll need to see the true profitability. It scales exponentially. So for the kind of scalps that order flow traders try to do you'd probably need 10,000 samples over 5 years or more to get any meaningful data. Data providers usually don't provide order flow information beyond 1-2 years. I can backtest with tick replay in NinjaTrader 8, but I have some reason to believe that's not very accurate. That doesn't do historical market depth either. So better start recording it all yourself now, and maybe in a few years you can try to find a pattern.

As for the DOM, the information that I'm paying attention to the most is only found on the DOM. Some of the best empirically proven stylized behaviors of the order book have more to do with the latent liquidity. Many of the resting orders are just holding a place in line. Other liquidity providers don't put their liquidity out until it is about to trade. So you can't just look at the resting orders. You have to watch how the resting orders react to the market orders, and how much stacks or pulls each time an attempt to clear a price is made.

- SpeculatorSeth
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  #87 (permalink)
hibiki
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I guess it depends on the market you are playing with.


Big banks/Big brokers always hold a huge order book so they could know the position clearly, in turn, they could make use of it to make money, i.e pushing the price to the stop loss areas triggering moves.

Then we come to a question: what makes the extreme move during economic figures?
I guess no one could read all the information within one or two seconds, non they are confident about AI reading news headline and react.
What we always see is, when coming to economic figures/event, sometimes the market just go one way regardless of what the figure is, say USD going strong against all currencies given a dovish Fed members comment. And after that, news will just comment "priced in" or crowded position triggering trend reversal. etc

That might be a lot of stop loss orders in certain area and when the figures come out, the market just react in a kneejerk way and trigger further moves.

If we view from this perspective, we sometimes "feel" somebody is watching us but actually it is more like from crowded position or similar activities.

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  #88 (permalink)
OccamsRazorTrader
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https://www.toptradersunplugged.com/podcast/ttu125-michael-pomada-president-and-ceo-of-crabel-capital-management/

@32:00 Talking of order execution and HFT's- "the shorter you go, the more important it is to extract your alpha, without giving away your intentions to the market place, as soon as they figure out your intentions, they're going to come and get you ........... buyer beware"

This is a guy who is the CEO of a 8.7 BILLION dollar hedge fund ..........

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  #89 (permalink)
 
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 blackgrey45 
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I think the algos can sense your stop orders. When I get into the market the algos test the strength of my hand by taking my trade into the negative.

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