Month: November 2013

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Sean Gourley: High Frequency Trading And The New Algorithmic Ecosystem

A good presentation on algos and their impacts on the markets we trade.

This presentation reminds me of a pattern I called VWAP Run that I take advantage of often. Many people who join me at my real-time chat room have heard me calling that out well ahead of time. Many are amazed how I do that. Well, it is not magic.

Consider the scenario where the bots all loaded up on the same side of the boat yet no stops are discovered which is necessary for these bots to exit their positions at a profit. By the time the market is about to close and that one bot chooses to just give up by dumping its position at market, the rest of the bots will follow and dump their positions all at the same time. They will go as far as dumping all the shares / contracts they acquired until the Volume Weighted Average Price of the trading day is reached.

This move is predictable if you know what to look for. For non-trained eyes, you would guess that someone was trying to shake you out of your positions, gunning for your stops, or controlling the price. The truth is much simpler than that. The bots collectively made the same mistake and choose to cut their losses at the same time.

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Kathy Lien: Forex As An Asset Class

Ms. Lien talks about the importance of diversification into other currencies.

In the old days, US dollar was king and that the currency environment was pretty static across the globe. There was no need to diversify one’s investment portfolio into other currencies. Investors with stocks in US, UK, Germany, etc. all enjoyed stable economic environment until late 1990s.

At this point, all these accepted knowledge of investing in books and investment classics are pretty useless if currency risk is not taken into account. You can pick the best stocks in your country and it will still worth nothing if your country happens to be Zimbabwe.

The truth is that most people in Asian countries and small European countries know about the importance of having multiple currencies all along. Holding multiple currencies has always been part of their investment common sense. It is about time for the people in major Western countries to learn more on this important investment concept.

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Kevin Slavin: How Algorithms Shape Our World

A great talk on algos and how they are shaping the financial markets in many ways surprising to most people.

The talk was done back in July 2011. Notice that the algo driven behaviour in financial markets has evolved even more surreal over the past few years.

Normal people assume things. Most people assume that they cannot compete against the bots. That’s true. Competing against the bots in their domain, speed, is a very stupid thing to do. But there are other ways to beat them just like any financial markets ever existed since thousands of years ago.

The bots are the crowd now. They are the stupid ones.

The micro structure of the most popular financial markets are getting more and more predictable as these algorithms in aggregation reinforcing their rule-driven, mechanical decision makings. Boldly speaking, I find this environment easier to trade than ever. Just accept the game as it is and look at it objectively. You will find recurring patterns everywhere that are exploitable.

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