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Many times when the price went ape shit on the dom and I submitted my order and got filled, suddenly those algo movement stops...is this just coincidence or is it really somebody/something knows that i'm interrupting the action? Any of you guys experiencing the same thing?
That's really good thinking. I trade ES and I do only trade 1 lot, thats why i found it really strange. Just reading from your answer, that many occurrences might be pure coincidence where i'm in at the same time with the bigger lot trader/s. Thanks!
The ES has been trading super efficiently the last few months. Based on my tape read, I think it is possible there might not be any discretionary scalpers trading in the market or they are trading with volume based stops or other advanced loss taking measures. These are very efficient markets. The traders are using bigger stops, using volume triggered stops, or using limit orders to exit trades. The market is very efficient. I think, yes, the traders are still there but not scalping.
As for why the ES would reverse on you, the ES is typically a highly mean reverting market. Order flow is typically mean reverting. If you are jumping in on a momentum move, you will get reversed often. This could be especially pronounced if you wait for any sort of confirmation or you are slow: the algos will be programmed to go off on any psychological biases that exploit traders. They will have quicker connection. So, if they know it takes 700 msec for a trader to see the momentum and they are able to execute in 5 msec then they might try to exploit that. Also, I suspect much of the volume in the ES is characterized of traders who are only seeking a tick or two of profit. This also makes the market reverse unexpectedly and very noisy to follow because an algo may put on a lot of size but only target a single tick or will cover the next tick.
Algos today in the ES run any of several typical algos: short on up tick, add depth to new low and blast in market orders, add depth in front of any limit order imbalances found in the book. I suspect the bigs do not show up in the book any more. So, they know that if smalls are in the book then they can run their stops. The bigs are also running market orders as percentage of delta to keep the delta flat. The way this works is say they want to sell X% then they will keep their volume transacted to some % of the total to keep the delta flat.
However, we know what a certain class of bigs are doing because they always do the same thing. Bigs always buy with limit orders as the market sells off. There are other bigs who do different sorts of things.
If you are mentioning stops, yes the market will target stops in all time frames. It is far worse then you think. It is not just the bigs hunting your stops: it is the entire market. Everyone is hunting everyones stops. But, yes your stop loss is being targeted but not individually: the same stop levels will be hit regardless of whether you place your order (as long as you are not too big).
@tpredictor what you said make sense, i do only trading one lot, rarely 2 lot, so it doesnt make sense if the momentum suddenly stop because a small trader entering market. I am still learning tape reading and many times when i entered the momentum I had my share of luck and got couple of points right away, many 1-3 ticks (this is when the action suddenly stop, i just get out, many times it will start again but many times also reversing), but also have many losers where it suddently reversed on me.
The question would be why even bother trading with dom if you can't beat the algo program in scalping as I understand your comments earlier? probably the answer would be from many years of experience as i currently dont have. Maybe you can share some tips and tricks?
@rintin2x Right, well there are at least two ways of trading off the tape. In the method I've had more historical success with, I read the tape but do not attempt to scalp but instead use those patterns as a way to formulate my sentiment and manage risk for bigger picture trades: trades that may yield a couple points or more. The second way of trading off the tape is attempting to scalp for some number of ticks. The latter is more difficult. I have seen some evidence suggesting it is possible to do: however, the combination of trade fees and frequent stop losses, as well as constant decision making, makes it very difficult to overcome break even trading. In order to overcome the break even nature of the game, I suspect you will need to either trade some larger size on the best trades or capture some runners. One also needs to be able to identify the different types of randomness in the market and be able to switch gears from limit order to market order scalping depending on the context.
Keep in mind that also if the risk/reward is good and your win ratio is sufficient you can still make money off a lower win ratio strategy. However, when buying momentum and assuming using a tight stop loss, you are not just attempting to capture the move but also you are attempting to time the exact jump point. If you think about it, when the market breaks out of a range that it will often times touch the extents of the range several times before jumping. So, if you are buying/selling at the extents of the range, you will have to either use a huge stop (on the other side of the range) or potentially take many small losers.
Speaking of risk/reward, in general, if you use a tighter stop loss then you need to use a tighter target to keep most strategies from completely breaking down. In general, when scalping, I only try to capture a couple ticks more then my stop loss but if the opportunity is available, sometimes I will attempt to capture much more but generally just taking what the market gives is best.
