We have a concept called, ‘Resumption’.

Resumption is when the rate of change of order flow resumes in the direction of a trend.

By layering when the rate of change of order flow resumes in the direction of the trend onto a range bar, a trader can tell in real-time when good entry locations arise.

Which is a pretty cool thing to know.

For ‘resumption’ we use MacDaddy to represent the rate of change in order flow for futures contracts for the S&P 500, the Dow 30, the Russell 2000, Crude Oil, the EUR\USD, Gold, the STOXX 50, and the DAX.

In an uptrend, a trader should look for range bars where the close of the current MacDaddy bar is greater than the close of the prior bar, and also where the close of the prior bar was less than the close of the bar before that.

In pseudo-code a long entry into an existing uptrend looks like this:

MacDaddy[0] > MacDaddy[1] and
MacDaddy[1] < MacDaddy[2].

In pseudo-code a short entry into an existing uptrend looks like this:

MacDaddy[0] < MacDaddy[1] and
MacDaddy[1] > MacDaddy[2].

Insight 01 | Since we are using range bars, which always end when price trades beyond the set size of the range bar, we are looking for MacDaddy to resume when one bar closes and a new bar is formed,  in order to determine the entry.

Here is an example in today’s trade in the forward e-mini S&P 500 e-Mini futures contract on a 4 tick range of what long ‘resumption’ looks like:

Here is an example in today’s trade in the forward e-mini S&P 500 e-Mini futures contract on a 4 tick range of what short ‘resumption’ looks like:

This phenomenon re-occurs over and over again.   It is highly recommended that you scroll through a month or so of data and visualize this behavior for yourself so that you can readily train your eye to catch this in real-time.

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21st Century Tape Reading is the synthesis of:

  • Price Levels
  • Price Action
  • Tape

…sceeto Tape Reading Example | 04-APR-2014 | Selling Resistance

Price Levels

1. Resistance 1885 – 1887 | Published @ followthebots.com/s-p-500-market-map

2. Support 1878 | Published @ followthebots.com/s-p-500-market-map

Price Action

3. Triple Top

Tape (Order Flow & HFT Traffic)

4. Multiple Order Flow Events

1. Buy Programs Waning

2. Reversal in Equities HFT

3. Offers Replenished

4. Strong Tape Imbalance

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21st Century Tape Reading is the synthesis of:

• Price Levels
• Price Action
• Tape

Learn more about the synthesis of Price Levels, Price Action, and Tape here.

…sceeto Tape Reading Example | 02-APR-2014

Price Levels

1. 1878 & 1886 published @ S&P 500 Market Map
2. Minor Pivot Resistance | Established

Price Action

3. Right Shoulder
4. Engulfing

Tape (Order Flow & HFT Traffic)

5. Exhaustion Selling Coming into Support (See Trading Bot Rotation)

6. Bids Replenished @ Support | ~1878

7. Pullback in WIND @ Support | ~1878

8. Transactional Volume > 2 Standard Deviations (Blue Ball

9. High Frequency Buy Surge Breaching Minor Pivot Resistance

10. Price Acceleration Accompanied by Higher Highs in MacDaddy

Hope this helps…

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The cost of trading adds up quickly, especially when you trade in various markets with multiple brokers. So why not let FXCM™ give you a hand?

Click here to find out how to get FXCM™ to pay for your NinjaTrader™ software license, saving you $180 per quarter!

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The life of an algorithm – from seed to harvest…

In March, we will be releasing a few new algorithms that have made it through the long process from ‘R&D’ to ‘Wow, that changes everything’.

There is quite a long road between the genesis of a trading idea and the actual release of an algorithm to the public.

Most new ideas generally start with a morning thought.

You know that time between sleep and awakening when you are still channeling your more exponential consciousness?

This thought can follow you out of bed and to your desk where its germination will accelerate with your first cup of coffee.

The thought flourishes as you hit the keyboard and all other work is shunted off to the side as you rip through the latest brainstorm.

This is where it all starts…with the wild rush of energy and passion and curiosity.

But this is only the beginning.

Bringing it to life

The idea has to be fleshed out.  The idea has to be fully documented.  A design specification for the actual software that will manifest managing this idea has to be created and vetted.

Once the design approach for a new algorithm is completed the software development tasks can be divvied out and the actual development can begin.

Once the software development is completed (or mostly completed) the testing of the code can commence.

The testing will always find bugs which need to be fixed.

Uh-oh, more complexity

The testing will always create more questions around why we took a specific design approach and can we do better?

The testing will shed light on how the output of this new class of algorithms inter-plays with other data and from this, new ideas will emerge.

This inter-mingling of data will make the nurturing of the next round of ‘brilliant’ ideas that we want to implement to ‘tune’ the algorithm exponentially more complex.

..and we will work and we will plow through the details.

And then the dust will settle and the broader team will get their head around the core concept…and we will see that it wasn’t such a great idea after all.

Uh-oh – that’s no good

Next up, it has holes.  It doesn’t stand up to disparate market conditions.  It only works once in a while.  It is not as efficient as something we already have in place.

Or, it just plain doesn’t work.

So it is back to the drawing board.

R&D is expensive…but R&D is the core of Algo Futures’ DNA.

We do many things here at Algo Futures such as software development, proprietary trading, and analysis; but the main reason we exist is to maintain an entity that allows us to manifest our trading thoughts into viable pieces of software.

Most thoughts don’t work out, or are too expensive to build (algorithmic R& D is quite expensive) but sometimes sparkling jewels shine through…and when they do, we put them to use.

Not all of these sparkling jewels will make it out to the public though.  Some of them are simply to complex, or have too high a maintenance overhead, to warrant putting out in the marketplace.

For Public Consumption

For a piece of software to viable for traders outside our shop it has to be an ‘all-weather’ algorithm.

It must be easy to interpret, easy to implement, and it must be easy for traders to figure out how to include in their trading.

With this in mind, in March, we will be releasing a few new algorithms that could dramatically help your trading.

The focus of these new algorithms is ‘noise reduction’.  We have been getting much better at filtering out noise.

We have extended our use of digital signal processing filters and have been able to apply them so that traders can more readily know which side of the market to be on.

Being on the right side of the market is a treat.  It makes everything easy.

Here’s something that could be very useful

For many years, traders have asked us to create the most basic of ‘Red-Light \ Green-Light’ approach for market direction.

Though ‘Red\Green’ may seem simple, it is actually quite a tall order.

Though a tall order, it is intriguing.  It is the brass ring.

Wouldn’t it be great if you knew which side of the market to be on?

Couple this insight with inside behavior of how electronic markets trade and the rich order flow data that they provide and you have an entire new level of trading.

Look for announcements in this space and on www.sceeto.com and www.FollowTheBots.com for more information as we start our release schedule in March.

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Buying known support is a standard trading practice.  Sometimes support holds, sometimes it’s breached.

By using …sceeto a trader has real-time information on how to know whether a trade to buy known support is likely to hold or not.

Also, once support is bought, …sceeto provides traders with insights into whether the market will continue higher.

Here is an explicit walk-through of the 21st century tape reading inferences of how we, and other …sceeto traders, knew to buy and then hold, the 1832′s.

We understood that support was at 1832, and that other traders knew that support would be at 1832 as it was published in the Follow The Bots, “Daily morning Briefing“.

Currently the key support level is prior resistance at 1828; with the globex holiday low at 1832 acting as minor support.”

By monitoring ‘the tape’ at and around 1832 via …sceeto, we noticed the following telltale signs:

1). Retail MacDaddy tucked below Institutional MacDaddy, and hence retail was more ‘bearish’ than insititutional.   As retail traders tend to be wrong at the wrong place at the wrong time, we took this as a sign that support at 1832 would hold.

2). WIND also strongly revved upwards at the 1832 low.  This inferred that the equity trading bots had ceased selling.

3). Just after the low was put in, …sceeto’s Order flow Monitor algorithm surfaced [EQ-HFT-REV] which indicated that the equity trading bots had quickly gone from selling to buying.

4). After the low was put in, traders had tangible information that the move up would continue as MacDadddy showed not only steady buying, but also posted a series of Higher Highs.

Read the tape & take advantage of the bots by joining us on Follow the Bots & at …sceeto

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Using WIND to infer a ‘Tell’ from the Trading Bots

We use WIND quite a bit to tell is a longer term, intra-day swing trade has completed a tradeable pullback.

WIND monitors the level transactional alignment of trading bots across all of the component S&P 500 stocks.

That’s a lot of data – and this data can often give you a inside ‘tell’ into what the forces effecting Supply & Demand are doing.

When we see momentary ‘blips’ of color in WIND, we know that the equity trading bots have rotated either from selling to buying (Red ’blip’ or ‘spike’), or from buying to selling (Green ’blip’ or ‘spike’).

WIND - Trading Bot Alignment

Here are some examples from this week, when WIND indicated that the trading bots had spun aroound, and thus gave  you insight into the liklihood that the curent trend had resumed.

Fibonacci Retracements | Which Level Will Hold?

If you trade fib levels, then you often wonder, which level will hold?  Which is tradable?  We use WIND to help determine this.  After the volatility that came into the market with Friday’s Unenployment number, you can see that WIND provided a ‘blib’ or ‘spike’ at the 38.20% fib retracement level.  This indicated that this low in the 1774 area would hold.

What the red spike infers is that the bots had momentarily aligned to the sell side and then flipped back to buying.  Note that WIND is looking at the bots across all of the components of the S&P 500, so it is reading contrails in GOOG, F, MSFT.  This is a powerful aggregation of data.

Unenmployment Number - Fib - Red Spike

On Thursday, February 5th, we see a very clean spike that did not register a color (you can set color thresholds within the WIND indicator – I genearally keep mine at 86).  Regardless of the lack of color, the underlying trading bot behavior is the same, the bots aligned momentatily to the Buy side, then immediately flipped to the sell side.

05-FEB-14 - WIND Buy Spike

And here is the prior day (Feb 4th)…not as pristine, but still incredibly helpful real-time information.

04-FEB-14 - WIND

…and day prior shows more examples, including ‘Shadow’ spikes:

03-FEB-14 - WIND

…and the trading day prior was the previous Friday (31-JAN-14):

31-JAN-14 - WIND

There are plenty more examples, and other applications for using WIND in your trading.
Pick up a free trial of …sceeto and see what we see.

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The Evolution of Participation In The Electronic Markets 1980-2014

The Evolution of Participation In The Electronic Markets 1980-2014

So this is where we are in 2014.  The HFT revolution is no longer a revolution, just another part of the process.

Algos are getting smarter, and the independent trader is able to earn back his street creds.

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We frequently trade price acceleration points.   What is important when trading acceleration points is to know which ones are likely to follow through, and which one won’t…and to know this in real-time.

The acceleration points that follow through, are the ones that are accompanied by corroborating order flow.

The graphic below spells out the distinctions amongst:

  • A poor acceleration point
  • A decent acceleration point
  • An awesome acceleration point.

Acceleration With & Without Order Flow Follow Through – 3 APs”]We use real-time insights gleaned from order flow via …sceeto to help us with this type of trading analysis.

Hope this helps.

sceeto banner

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