Investment Banks Share the Same Trading Algo Code
Courtesy of EconMatters
Collusion on Wall Street
You ever wonder why the major Investment Banks rarely have a losing trading day? It is unheard of them ever having a losing trading month, because they aren`t trading against anybody at all, and surely not against another investment bank. They are just putting cash behind the same trading algo that they all share in a collusive fashion to make their daily, weekly, monthly and quarterly FICC nut.
Adaptation to Brave New World
Now not all is lost for the rest of the market participants because when you have collusion on such a grand scale it actually makes trading a lot easier to decipher. There are two ways you can in essence piggyback on this shared code, one is to do it the old fashion way and write down every 5 minute bar for the market that you are watching and participating in for the desired trading timeframe. Let's say the European open to the European Close where most of the action occurs, or let us say the US open until the US market close each day. Eventually you will notice the exact same recurring patterns in the market that you are trading in relation to the other markets, you will notice the same timestamp significance, and thus you will be discovering the programmed algorithmic code behind the market's price action.
The other way to accomplish this task is with a computerized analysis program that analyzes the price action and spits out the patterns of the code. The high frequency trading firms don't run the main show, but they are really good at exploiting and piggybacking on the coattails of the Investment Banks who are running the main show in the financial markets. Part of this means that anytime where there is a vacuum in financial markets they can come in and run parts of the show, usually during either very quiet periods like the holidays or very hectic periods like a full blown panic time in the market when the Investment Banks turn off their dominant trading algorithm.