Dow 10/11

Dow Market Profile chart 11-Oct-2006

I got Moore's Law slightly wrong. Here it is:

Moore's Law is the empirical observation that the transistor density of integrated circuits, with respect to minimum component cost, doubles every 24 months. It is attributed to Gordon E. Moore, a co-founder of Intel.

Source: Wikipedia

Lets get back to Market Profile for a second for the debate on floors vs electronic will rage for at least another 10 or 20 years if not longer. (oh and the thought comes to me that if shareholders will try to force these managements to extract further gains through cost savings then think again exactly how this translates into lower fees for the trading community - The exchanges have resolutely increased cost of doing business over the years in the face of falling brokerage commissions and the only genuine reduction to the trading community has been cross margining or span margining across all products somthing that prime brokers have offered their hedge fund customers for some time)

Back to MP
The new local ...the flippers ... the arcade traders ....who in my opinion add nothing except volatility to the trade have to be categorised as a new type of trader. There used to be the short time frame trader and the long time frame trader or in extrmely simplistic language the local and the paper. To this must now be added a new category of the flipper and these guys are there for literally as I heard one Traders Coach say this evening and I quote "my trades ....ie hers... last 3.8 minutes and amount to 40 or 50 per day". Well firstly I would say that on the face of it appears to be overtrading but from another point of view it could be classified as a trader seeking opportunity any which way they can
and so
the 3rd category of..... opportunity time frame trader is born to add to the short (local / day trader - tends to be CTi1) and long time frame traders (swing and position traders - tends to be CTi2)
so it begs the question then of where do these guys end up in the LDB and that clearly is CTi4 mixed in with CTAs and Funds

So the next question for the CME is will they dump the LDB or will they expand it.

How about redefining the LDB (Liquity Data Bank)?

The LDB is calculated by defining 4 levels of CTi and grouping their trades. If a CTi1 enters and exits a position in 30 minutes and then follows that with a trade that enters and exits over a period of 30 days they are still lumped in the CTi1 bin.

So perhaps a new LDB needs to be defined where we bin/bucket collections of trades by the time periods that they are open instead of by the perceived "type" of trader that is executing by them? Of course you then hit the large problem of how to allocate time periods to positions that are built by adding to them and then scaling out...

Liquidity Mirage strikes again !

http://www.tradingclinic.com/downloads/lm/lm_20061023.html

I have been variously reading about the "Liquidity Mirage" but still don't understand it. Can you possibly summarize it for me in simple terms in just 2 or 3 lines?

everyone believes that the advent of electronic trading provides continuous and copious amounts of liquidity that will always allow the minimum of slippage. They look at the market depth or book and say oh look in the ES i can see 5 prices up and down with thousands at each price. Well rememeber the old saleman's technique. Last one for sale .....and miracously they find oh look just for you I have found an extra one
the best way I can describe it is to post a video link
http://www.tradingclinic.com/downloads/lm/lm_20061023.html

Okay I follow your logic and agree with the salesman analogy. Good analogy by the way.

Say there are 200 contracts offered at each tick above the current traded price and we can see a depth of up to 5 ticks. If I now execute a buy at market for 1,000 contracts are you saying that some of those could be fake offers that I will not be able to get a fill on?

I don't think that he's saying that. If your market buy order is in the queue before anybody issues a cancel order on the offers then you will be filled on all the offers that you can see in your example.

Remember that what you see on your Depth of Market (DOM or DOME) screen could have changed in the seconds between when it was last updated and when you issued the buy at market order.

All orders, cancels, limits etc. go into a single queue and that depends on when CME (or whatever exchange) receive the order.

So going back to your example. If we assume that nobody pulled their offers between when you saw them and when you issued the market buy you will be filled at the "advertised" price.

Okay I see what you are saying. Those are fixed orders that will be available if they have not been pulled by the time my order gets there.

What is DOME? Depth of Market E... ?

DOME = Depth Of Market Execution. Basically it's a Depth Of Market window/ladder with the ability to Execute trades on it. TT Trader, Ninja Trader, PatSystems J-Trader and most trading platforms provide it. You're probably using one and just don't know what it's called.

Actually Elite it is available if you read the MP as it unfolds in terms of what used to be referred to resposnive and initiative activity. It does require a degree of subjectivity due to the fact that you cannot be 100% certain but it is good enough for the purpose of establishing the dominant trader and their influence on the value.
In other words the footprint is there you just have to understand what it looks like in terms of the patterns that unfold.
As to why they don't make such information available its because the commercials have no interest in disclosing in fact they would far rather remain these days hidden from view in reality they would for the volume not to be disclosed let alone the open interest. The exchanges still to this day actually report open interest one day in arrears. It used to be for the fact that it took time to collate the info. These days the excuse is possibly because all too frequently trades are missallocated and remain in limbo at the execution broker before being transferred to the clearing broker.
Rather than worrying what should be provided in the way of info it is better to just work with the tools available and be grateful that at least we have that amount of info available to us