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Seems like most every time the price action Log jams up against my position and eventually breaks the opposite way aggressively no matter the market conditions or contract.
Am I just off?
Can you help answer these questions from other members on NexusFi?
I believe I'm experiencing the liquidity dropping off at different parts of the 24hr trading day and even more so into the week. With the lack of catalyst all across the board and throughout the different exchanges it's too easy to get stopped without momentum follow-through even from ideal levels among other factors.
It's all across the board, commodities and currencies. Haven't watched the indices and I figure it would be the same with them albeit less in the NY session.
When there's no directional volume the hunting algos take over and they get you every time. It forces you to trade loose and isn't conducive for momentum/break/scalp traders that position themselves around their stops.
I think your right about the algos. I haven't researched the percentage of algo/bots to non aglo traders at different times of day but I think an argument could be made that there is a higher ratio of algo to non algo during the NY night session for example.
To put it easily, the discretionary traders get out once the they're stopped or profited. These algos are vicious, they're there from open to close and through each session.
What is totally crazy is all these trading forums and not ONE has a thread on how to beat them. These things are so pervasive in the market now and in every utensil. What's more amazing is how this got passed the regulators and congress. They have destroyed the markets for everyone especially the shorter term trader. Just ten years ago the scape was no like it is now.
These outfits and institutions and HFT outfits that are running these algos are extremely tight-lipped and involve attorneys to guard their secrets and NDA's.
The people that develop these things understand the fine nuances of market liquidity and use it to their advantage.
I've even pitted two against each other and created a mini NFP day all on my own during the wee hours of the trading day...it was unreal.
The market is a giant overlay of different algos mashed up against each other. There's tools you can subscribe to (think the nasdaq or whatever they're called now) to see all the aglos stacked up over each other around the price. Pretty sickening if you ask me.
If you haven't noticed these days you either position trade and white knuckle the swings or you try to scalp moves that seem to shorter and shorter.....either way without sufficient volume and catalysts you are game for these algos.
TLDR version: Be very mindful there's gonna be sufficient volume around key areas where there's going to be other traders making their decisions and do it with the right catalyst so the move will continue. The market is chock full of ghost moves that look very tempting. The market algo's prime directive is to trap, drive and induce stop out. This is how range is created.
As an example, if my manual strategy is working fine under my risk - reward tolerance in MARKET REPLAY MODE, does that mean that the same strategy will have difficulties working in a LIVE MARKET because these algos will be running after my stops?
If THIS is the case, then the market replay mode is absolutely redundant because this is just a game of algos hunting after your stops?
Without a SHRED of DOUBT this is why replay and back testing DOES NOT WORK. As a short-term trader, you cannot base a decision on a historical market when you were never part of the equation to begin with. As a live participant, your position is either a backstop or a hurdle once executed, your stop you entered with your broker is a target.
Take away all other participant positions in your specific market regardless of the general overall market(s) triangular bias (I use this term to describe the mathematical and mercurial bias of all the markets together) so you have just your long/short position and your associated stop....What is the algo going to do now? Well you just gave it a map and the finish point..."X" marks the spot - your stop. YOU have just created the range - A by-product of this process that you see played out again and again.
Another part of the above scenario to add is if another UNSUSPECTING participant seeing the market moving to drive your position into the negative by inducing a rising or falling price...that participant enters the opposite side of the trade chasing that move. BOOM...he then stops the move because HE in-turn has become the polar opposite side of the range and is left scratching his head wondering, "why the market stop ripping as soon as I entered?".
Now is where triangular bias and the over-all breadth of the market comes into play that dictate direction after that and who's stop or even both will be taken out...
What I just gave you in a nut-shell is how the market-making algo works to induce "volume" into the market. This is how they "make-money", by being your counterparty and of course the spread. Gone are the days of open outcry, this modern method is much more efficient and deadly. I liken it to Ridley Scott's Alien - an ultimate killing machine.
Now add all the other types of algos from different institutions, hedgefunds, retail bots and discretionary traders and you have the mish-mash mess that the markets are today....a giant shitt storm that, on a chart, looks easy to trade.
So again to answer your question, back-testing is a feeble attempt because the market is REACTIVE to your position. Much of the markets are purely ghost moves. You cannot input something into historical data and say "I'm (X) and if placed my entry there I would've made money"....it just doesn't work that way, but people still believe it.
If you look at the retail sector, especially currency traders, you can see the market for bots is huge. They all work invincibly on paper and some do live for a term, but they all go bust eventually live. The ones that do have unrealistic draw-downs that you would not commit more than a few bucks.
I highly doubt that trading one contract in a live market like the ES, after being successful in replay mode, would significantly impact the market's behavior or attract attention from algorithms. While there’s no guarantee of success in live trading after simulation, adding one more contract in the live market is unlikely to be the reason for not being successful. Replay and back testing may not have worked for you, but that doesn't mean it applies to everyone "without a shred of doubt". I know several successful small-volume traders who would disagree with your experience.
I know thousands of traders that have backtested and it did not work for them. The numbers show it. The market is not a static environment. If you feel otherwise then more power.
On the eurusd thursday afternoon my singular contract was the top for four hours till it reversed and I stopped out. Yesterday on a single WTI contract my pending order for a breakout just below the previous low in WTI executed and held the price up all the way to close. I can't recall how many times my positions have done this.
