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I am trying to detect stop loss orders using the CME MDP 3.0 MBO (Market-by-order) feed. I have a crude idea on how that could be done. Need more help with it.
So when we tick up into a recently untraded level and after the first buy trade at that new offer any buy orders that come in within 0.1s after the first trade are considered stops.
We should be able to see how many stop orders were filled by tracking their order id, which should stay the same for a single stop order.
Can you help answer these questions from other members on NexusFi?
Trading: Primarily Energy but also a little Equities, Fixed Income, Metals and Crypto.
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You mean the exchanges don't sell this data. I've been told that the 'big guys' have a separate price feed that shows all the stops on it?
Seriously stops are real and people do use them, especially small retail traders. People also use stops to enter the market (ie a breakout) as well as exit. So if your trying to 'guess' where stops 'may be' think about how people use stops. For example consider a 50 day breakout systems. Probably means there are stops above (below) the 50 day high (low). If there's been a recent breakout then there could be PnL protection stops $1000 or $2000 or 1 ATR or 2 ATRs (etc below) the entry price. Unfortunately this probably creates a limitless number of potential 'stops'.
The following 3 users say Thank You to SMCJB for this post:
I've thought about this quite a bit, people use arbitrary numbers for their stops. Most trading books will talk about 2% account risk from entry or worse a (X) dollar stop loss from entry. At least using an ATR variable attempts to align with volatility, but the multiple of ATR and the length are both arbitrary numbers. But all these methods at best are random and arbitrary and have little consideration to the market playing out in front of you. They are based on psychological comfort levels- like not wanting to risk more then $1,000 on a trade etc... But what if, in an attempt to avoid a large loss, your stop is too tight and actually results in more whipsaws and you actually risked more, having to enter the trade multiple times ...... what if a $1,200 stop loss would have kept you in the trade till profit?
The next issue is back testing to find optimal stop levels ... This has all the earmarks of curve fitting and optimization, and we know the pitfalls of that, as markets, like history, rarely repeat but often rhyme ...
Certain stop levels become self fulfilling prophecies- trend followers buy breakouts at daily, weekly or monthly highs- and if enough of them place stop entries there- the market will move up, at least temporarily, based purely on those stops being triggered.
The older floor traders considered stop placement a true art form and would use levels dynamically changed with the palpable information flow they could sense, if they got it right, they turned a profit, if not .............
My system trades with stop entries and exits, but I oddly find a comfort level of hiding my stop levels on the Interactive Brokers servers, rather then having it sent to the exchange...
Hidden Orders
Investors wishing to hide large-size orders can do use by applying the "Hidden" attribute to a large volume order to completely hide the submitted quantity from the market. ........ Your order is submitted but evidence of the order is hidden from the market.
