Posts Tagged ‘algorithmic trading’

More Observations On HFT’s Tyranny Of Stock Markets

More Observations On HFT’s Tyranny Of Stock Markets

Courtesy of Tyler Durden of Zero Hedge

Anywhere one turns these days, bashing HFT is the new market normal. Having written 150 articles on the topic, beginning in April 2009, we are happy to have brought the world’s attention to this most dangerous of market aberrations. Yet until the SEC finally bans the practices of micro churning, quote stuffing, positive feedback loop chasing, flash trading, subpennying, DMA accessing, and all other aspects conceived merely to provide some market participants with an unfair advantage over everyone else, the fight against HFT must continue.

Which is why we draw your attention to two items: the first is a paper by Bluemont Capital "The Marginalizing of the Individual Investor" in which the authors question if HFT has distorted true market valuation (yes) and to what degree. Some relevant soundbites: "Unfortunately, high-frequency trader interaction with computerized algorithms of large-cap financial institutions is providing opportunities for high-speed, virtually undetectable market manipulation", "At a minimum, computerized high-frequency and algorithmic trading are undermining traditional value investing strategies. Short-term liquidity and data movements are distorting information on real business performance", "Essentially, high-frequency trading platforms function as positive feedback loops. Engineers treat positive feedback loops as inherently unstable, as each positive response generates stepped-up repetition of the same actions. Positive feedback loops result in an ever- expanding balloon, but like all balloons, the risk of bursting increases with the balloon’s size." It concludes that the "continuing advances in computerized trading pose challenges for regulators throughout the world—and leave individual investors marginalized… Regulators should not only seek to assure that markets are able to continue to function under stress, but they also need to devise remedial actions that protect individual investors who have fundamentally different objectives from the high-turnover objectives of high frequency traders and computerized algorithms."

The other notable item is the appearance of our friends at Nanex on ABC radio over in Australia, where firm founder Eric Hunsader discusses the previously highlighted concepts of latency arbitrage as a potential progenitor to the May 6 crash, as well as possible ways that the NBBO arbitrage could have provided for unfair and illegal mispricing opportunities for a select few.

Bluemont Capital "On the Marginalizing of the Individual Investor":


Full August 29 interview with Eric Hunsader on Latency Arbitrage
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Goldman Subpoenaed by FCIC after Sending Billion Pages of “Rubbish” to Panel

Goldman Subpoenaed by FCIC after Sending Billion Pages of "Rubbish" to Panel

Courtesy of Mish

The Financial Crisis Inquiry Commission (FCIC) is annoyed at the prospect of wading through billions of pages of "rubbish" that Goldman sent in response to an inquiry.

Here’s the result: Goldman Subpoenaed by FCIC After Panel Says Firm Hindered Probe

Goldman Sachs Group Inc. was subpoenaed by the Financial Crisis Inquiry Commission after panel members said the most profitable firm in Wall Street history engaged in a document “dump” to hinder a probe.

Goldman Sachs sent more than a billion pages of documents, FCIC Vice Chairman Bill Thomas said on a conference call with reporters today.

“We did not ask them to pull up a dump truck to our offices and dump a bunch of rubbish,” said Angelides, 56, who previously served as California’s treasurer. “This has been a very deliberate effort over time to run out the clock.”

Thomas said the panel’s requests to Goldman Sachs go back “several months.” Information the firm turned over didn’t comply with what was asked for and has put FCIC investigators in the position of “searching through the haystack for the needle,” he said.

“We expect them to provide us with the needle,” he said.

Federal prosecutors in New York are also investigating transactions by Goldman Sachs to determine whether to bring charges, people familiar with the matter said April 29. The company hasn’t been accused of criminal misconduct.

Finra Finds "Widespread Use Of High-Speed Algorithmic Trading" Was Likely Cause For Flash Crash

Zerohedge reports Finra Finds "Widespread Use Of High-Speed Algorithmic Trading" Was Likely Cause For Flash Crash

From Reuters: "Regulators probing the mysterious May 6 "flash crash" in the stock market are unlikely to find a single cause, though the widespread use of high-speed algorithmic trading was in general likely behind it, the head of the Financial Industry Regulatory Authority said on Monday. "We won’t stop until we finish the analysis. But I think the answer is there is unlikely to be a single cause," Finra CEO Rick Ketchum told Reuters on the sidelines of a conference here. "It is much more likely to be a proliferation of algorithmic trading that was all subject to the same triggers and didn’t have the same controls."

Unfortunately I cannot find any external reference to that quote from Reuters or anywhere else. The only

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The Fattest Finger Ever

The Fattest Finger Ever

Courtesy of Joshua M. Brown, The Reformed Broker 

High Frequency Trading, Algorithmic Trading, Fat Finger Errors.  Call it whatever you want, we just saw the largest intraday point drop in Dow Jones history, a drop of 998.5 this afternoon.  We closed higher, but I’m disgusted.


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The Missing Volume

The Missing Volume

By Ilene

The Missing Volume
Interview with Nicolas Santiago
Who Is Responsible For The Non-Stop Market Rally Since March?
Zero Hedge reports on Evaporating Market Liquidity
The Big Picture’s Barry Ritholtz’s Disbelief in Conspiracies
Are retail investors and non-professional stock market traders still actively involved with investing and trading their accounts?  Phil sent me an article on the subject, “Where Has All the Volume Gone?” by Nicolas Santiago at his Rant and Rave blog, and I called Nicolas up to talk with him about it.    
As background, Nicolas teaches stock trading and is an expert in technical analysis. He’s been trading stocks since 1991, watches the market daily, and is an accomplished technician in the studies of Elliot Wave, Gann Theory, Dow Theory and Cycle Theory. In 2007, he partnered with Gareth Soloway to form InTheMoneyStocks.Com. Currently, he trades and teaches his stock trading methods. 

The Missing Volume – with Nicholas Santiago 

Nick writes in Where Has All the Volume Gone?   

Let’s say the market is in an economic recovery and the financial crisis is behind us. Normally one would expect the trading volume in the stock market to increase. This has not been the case. Volume for the month of November and December 2009 have been lighter than August of 2009. Remember August is notoriously the lightest trading month of the year. Hence the term ‘summer doldrums.’ January is usually a very high volume month, yet it has started off the New Year even lighter than the last two months of 2009.
Light volume markets are very difficult to short. Hence the old saying, ‘never short a dull market’. This is as dull of a market as we have seen in many years. While there are some stocks such as Apple (NYSE:AAPL), and Amazon (NASDAQ:AMZN) that have traded with respectable volume the bulk has come from government owned names. Stocks such as Citigroup (NYSE:C), American International Group (NYSE:AIG), Fannie Mae (NYSE:FNM), and Freddie Mac (NYSE:FRE), have often accounted for one third, and sometimes

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More on the Massive Trading Volumes in Troubled Financial Stocks

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Growing evidence, number trails and a culture of greed support a connection between high frequency program trading and market manipulation and, by all appearances, the pumping up of stocks of troubled financial companies… – Ilene

More on the Massive Trading Volumes in Troubled Financial Stocks

By Brett Steenbarger at TraderFeed

Brett's chart at Trader Feed, short interest and float, proportion of trading volume
short interest and float, proportion of trading volume - aig, fnm, fre
This story began with simple reader inquiries concerning a stock market indicator called TRIN and their perceptions that TRIN was "broken". For the uninitiated, TRIN assesses the proportion of stock exchange volume that is going to advancing stocks to the volume attributable to declining issues. When TRIN is below 1.0, it means that volume is relatively concentrated in rising shares; above 1.0 means that volume is concentrated in declining stocks.

TRIN appeared to be broken because we were getting huge swings in its values from moment to moment in the market. It would swing wildly, sometimes going far above 1.0 and sometimes far below. I pointed out that, from a purely mathematical vantage point, this could only occur if a disproportionate share of NYSE volume was occurring in one or a handful of stocks.

Further inquiry revealed that this was, indeed, the case: I found that, not only were the trading volumes of such stocks as C, AIG, FNM, and FRE elevated, as noted the by Big Picture blog, but that their composite volumes (their volumes traded across all exchanges) exceeded that of all other NYSE stock trading! Indeed, I discovered that the 20-day TRIN was at its lowest level since 2000 because volume was highly concentrated in rising stocks. This was not just unusually heavy volume; it was unusually heavy to the buy side.

Since this volume was directional--all of these stocks had made spectacular percentage gains--and because the highly unusual activity was unique to troubled financial firms (not stable companies such as GS and JPM), I surmised that something might be afoot: a systematic attempt to bolster the shares of taxpayer supported companies that--for political reasons--could not return to the bailout well. Why such an attempt? Perhaps to reimburse the largest shareholder of the institutions and position these companies to raise capital on their own. They certainly weren’t going to raise their own capital as languishing two-dollar zombie…
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Buddy, Can You Spare $5 Trillion?

Is Japan turning into Zimbabwe?  And if you see green shoots after this one, let me know what you’re drinking! 

Buddy, Can You Spare $5 Trillion?

$5 trillion shortfall, need a drinkCourtesy of John Mauldin

This Is Outrageous
The Land of the Setting Sun
Buddy, Can You Spare $5 Trillion?

There is no doubt that the US is in financial trouble. Those talking of a strong recovery are just not dealing with reality. But the US is in better shape than a lot of countries. This week, we begin by looking at Japan. I have written for years about how large their debt-to-GDP ratio is, yet they keep on issuing more debt and seemingly getting away with it. But now, several factors are conspiring to create real problems for the Land of the Rising Sun. They may soon run into a very serious-sized wall. And it is not just Japan. Where will the world find $5 trillion to finance government debt? We look at some very worrisome graphs. Those in the US who think that what happens in the rest of the world doesn’t matter just don’t get it. There is a lot to cover in what will be a very interesting letter. I suggest removing sharp objects or pouring yourself a nice adult beverage.

This Is Outrageous

But first, I want to direct the attention of those in the US finance industry to a white paper written by Themis Trading, called "Toxic Equity Trading Order Flow on Wall Street." Basically, they outline why volume and volatility have jumped so much since 2007; and it’s not due to the credit crisis. They estimate that 70% of the volume in today’s markets is from high-frequency program trading. They outline how large brokers and funds can buy and sell a stock for the same price and still make 0.5 cents. Do that a million times a day and the money adds up. Or maybe do it 8 billion times. It requires powerful computers, complicity of the exchanges (because the exchanges get paid a lot), and highly proximate computer connections. Literally, the need for speed is so important that to play this game you have to have your servers physically at the exchange. Across the river in New Jersey is too slow. Forget Texas or California. This is a game played out in microseconds.

The retail world doesn’t get…
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Phil's Favorites

Will #deletefacebook become a thing?


Will #deletefacebook become a thing?

Courtesy of 

It’s always hard to tell whether or not people will follow through with these sorts of memes…

This is the cover of the new Bloomberg Business magazine:

And here is the accompanying story from Paul Ford.

This tweet is getting a lo...

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Zero Hedge

What Happens Next In The Global Trade War: A Q&A With Goldman Sachs

Courtesy of Zero Hedge

Today, according to Politico, the White House will unveil its plan to hit China with tariffs and other trade restrictions, one day ahead of schedule as President Trump is slated to outline the results of U.S. Trade Representative Robert Lighthizer's investigation into allegations that China violates U.S. intellectual property rights by forcing American companies to transfer valuable technology to Beijing.

Lighthizer’s office has determined that the US loses at least $30BN a year to China’s alleged forced technology transfers, and the administration is weighing a package of tariffs equivalent to that amount of Chinese imports; according to Reuters it could be as high ...

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Insider Scoop

20 Stocks Moving In Wednesday's Pre-Market Session

Courtesy of Benzinga.


  • Proteostasis Therapeutics, Inc. (NASDAQ: PTI) shares rose 12.4 percent to $5.80 in pre-market trading after the company reported withdrawal of equity offering due to market conditions.
  • China Auto Logistics Inc. (NASDAQ: CALI) shares rose 10.8 percent to $4.40 in pre-market trading after surging 15.41 percent on Tuesday.
  • Fennec Pharmaceuticals Inc. (NASDAQ: FENC) rose 8.9 percent to $10.38 in pre-market trading a... more from Insider

Digital Currencies

Why accountants of the future will need to speak blockchain and cryptocurrency if they want your money


Why accountants of the future will need to speak blockchain and cryptocurrency if they want your money


Courtesy of Anwar Halari, The Open University

If you haven’t already heard of Bitcoin, you either haven’t been paying attention or you’re a time traveller who just touched down in 2018. Because by now, most of us will have heard of Bitcoin and some of us have even jumped on the bandwagon, investing in cryptocurrencies.

But despite its popularity, many people still don’t understand the technology that underlines it: blockchain. In...

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Chart School

Bears Take Control

Courtesy of Declan.

More decisive action from bears today as markets lose support.  The S&P undercut the rising trendline and 20-day plus 50-day MAs in a move which looks like it could develop into a test of the February spike low and the 200-day MA again; support at 2,695 is looking critical here. Aggressive traders could look to buy at these levels but confidence in this holding would not be high.

The Dow also saw its 'bear flag' / consolidation triangle resolve to the downside. The two positives were the relatively light volume and the ...

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Peter Thiel: Need To Rethink Tariffs In Light Of Trade Deficit With China; SF Sucks, Bitcoin Rocks

By VW Staff. Originally published at ValueWalk.

PayPal cofounder Peter Thiel in a wide-ranging interview on President Trump’s trade tariffs, China’s economy, technology regulations and his outlook for bitcoin.


Check out our H2 hedge fund letters here.

Peter Thiel: Need To Rethink Tariffs In Light Of Trade Deficit With China

Peter Thiel On Leaving Silicon Valley For Los Angeles

Billionaire investor Peter Thiel argues Silicon Valley is is a ‘totalitarian place’ where people are not allowed to have dissenting views.


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Members' Corner

Cambridge Analytica and the 2016 Election: What you need to know (updated)


"If you want to fundamentally reshape society, you first have to break it." ~ Christopher Wylie

[Interview: Cambridge Analytica whistleblower: 'We spent $1m harvesting millions of Facebook profiles' – video]

"You’ve probably heard by now that Cambridge Analytica, which is backed by the borderline-psychotic Mercer family and was formerly chaired by Steve Bannon, had a decisive role in manipulating voters on a one-by-one basis – using their own personal data to push them toward voting ...

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How your brain is wired to just say 'yes' to opioids

Reminder: Pharmboy and Ilene are available to chat with Members, comments are found below each post.


How your brain is wired to just say ‘yes’ to opioids

A Philadelphia man, who struggles with opioid addiction, in 2017. AP Photo/Matt Rourke

Courtesy of Paul R. Sanberg, University of South Florida and Samantha Portis, University of South Florida


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Mapping The Market

The tricks propagandists use to beat science

Via Jean-Luc

How propagandist beat science – they did it for the tobacco industry and now it's in favor of the energy companies:

The tricks propagandists use to beat science

The original tobacco strategy involved several lines of attack. One of these was to fund research that supported the industry and then publish only the results that fit the required narrative. “For instance, in 1954 the TIRC distributed a pamphlet entitled ‘A Scientific Perspective on the Cigarette Controversy’ to nearly 200,000 doctors, journalists, and policy-makers, in which they emphasized favorable research and questioned results supporting the contrary view,” say Weatherall and co, who call this approach biased production.

A second approach promoted independent research that happened to support ...

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Swing trading portfolio - week of September 11th, 2017

Reminder: OpTrader is available to chat with Members, comments are found below each post.


This post is for all our live virtual trade ideas and daily comments. Please click on "comments" below to follow our live discussion. All of our current  trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).

We also indicate our stop, which is most of the time the "5 day moving average". All trades, unless indicated, are front-month ATM options. 

Please feel free to participate in the discussion and ask any questions you might have about this virtual portfolio, by clicking on the "comments" link right below.

To learn more about the swing trading virtual portfolio (strategy, performance, FAQ, etc.), please click here ...

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NewsWare: Watch Today's Webinar!


We have a great guest at today's webinar!

Bill Olsen from NewsWare will be giving us a fun and lively demonstration of the advantages that real-time news provides. NewsWare is a market intelligence tool for news. In today's data driven markets, it is truly beneficial to have a tool that delivers access to the professional sources where you can obtain the facts in real time.

Join our webinar, free, it's open to all. 

Just click here at 1 pm est and join in!

[For more information on NewsWare, click here. For a list of prices: NewsWar...

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Kimble Charting Solutions

Brazil; Waterfall in prices starting? Impact U.S.?

Courtesy of Chris Kimble.

Below looks at the Brazil ETF (EWZ) over the last decade. The rally over the past year has it facing a critical level, from a Power of the Pattern perspective.


EWZ is facing dual resistance at (1), while in a 9-year down trend of lower highs and lower lows. The counter trend rally over the past 17-months has it testing key falling resistance. Did the counter trend reflation rally just end at dual resistance???

If EWZ b...

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All About Trends

Mid-Day Update

Reminder: Harlan is available to chat with Members, comments are found below each post.

Click here for the full report.

To learn more, sign up for David's free newsletter and receive the free report from All About Trends - "How To Outperform 90% Of Wall Street With Just $500 A Week." Tell David PSW sent you. - Ilene...

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About Phil:

Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

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About Ilene:

Ilene is editor and affiliate program coordinator for PSW. She manages the site market shadows, archives, more. Contact Ilene to learn about our affiliate and content sharing programs.

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