Slide 2 with Market Depth Velocity Slide 3 Market Depth Velocity
of SPY 2011 June 15 until 12:22 PM ET Slide 4 Market Depth Velocity
of SPY 2011 June 15, 12:29 PM ET Slide 5 It has been said With the
past, I have nothing to do; nor with the future. I live now. ~Ralph
Waldo Emerson Skate where the puck's going, not where it's been.
~Wayne Gretzkys father Slide 6 Presenters background Graduate of
Georgia Tech Professional Engineer System trader since 1996 Fund
Manager EasyLanguage Engineer TradeStation Product Manager And now
Institutional Trading Consultant Slide 7 A problem trading Now
Smart trading is based on projections of reward relative to risk,
over time. Price = Established Value + Effects from Old & New
Information Old info can impact price cyclically with diminishing
magnitude over time. New info is key, especially as market
efficiencies continue to improve. But new information is largely
ignored. Slide 8 A Solution for Now Market Depth is your best view
of where an electronic market is Now. Market Depth is both old and
new. Incoming quotes factor new information and can best forecast
change. (Caveat: Market Depth is only a portion of a market. Much
can be unseen.) Slide 9 Improve trading Now where the transactions
take place, with new information to know good deals Improve entry
& exit efficiency And reduce slippage (knowing bad deals) Slide
10 Now, our trading experiences How often have you bought before a
quick drop or sold before a spike? What percent of your average
trade is lost to slippage? Market orders: Part of Spread + Impact
Strategies: Paying beyond estimated fills Strategies: Missing
estimated fills How much could your trading improve? Slide 11
Improve by knowing good deals when price nears newest quotes Or
newest quotes approach price Watch the VWAP of incoming quotes And
reduce slippage knowing bad deals Test: Is the incoming quote
spread fair? Can it help distinguish good and bad deals? Is there
central tendency? Are trades, relative to incoming quotes,
symmetrically distributed? (normally?) Examples from Monday, 2011
May 13th Slide 12 Distribution of trades w.r.t. 1-min VWAP incoming
quotes for SPY Slide 13 Distribution of trades w.r.t. Bollinger
bands (20 bar, 1 sd) Slide 14 Distribution w.r.t. incoming quotes
& Bollinger bands Slide 15 Distribution of trades w.r.t. 1-min
VWAP incoming quotes for IWM Slide 16 Distribution of trades w.r.t.
1-min VWAP incoming quotes for QQQ Slide 17 Distribution of trades
w.r.t. 1-min VWAP incoming quotes for DIA Slide 18 Distribution of
trades w.r.t. 1-min VWAP incoming quotes for BAC Slide 19
Distribution of trades w.r.t. 1-min VWAP incoming quotes for C
Slide 20 Apply to trading ranges when you feel a market is range
bound Buy relative to VWAP of incoming bids and Sell relative to
VWAP of incoming asks. Test: Do forward prices correlate with
current prices relative to incoming quotes? Graph y-axis forward
prices versus x-axis current prices, relative to incoming quotes.
R-Squared for SPY 2011/06/13, 1-min bars: 1 min forward = 0.000409
(i.e. uncorrelated) 2 min forward = 0.004293 3 min forward =
0.002067 However, relative to original incoming quotes, there is
some correlation of forward prices to current prices. There is room
for momentum trading too. Slide 21 SPY trades v. trades relative to
incoming quotes, 1-min forward Slide 22 SPY trades v. trades w.r.t.
original incoming quotes, 1-min forward Slide 23 SPY trades v.
trades relative to incoming quotes, 2-min forward Slide 24 SPY
trades v. trades w.r.t. original incoming quotes, 2-min forward
Slide 25 SPY trades v. trades relative to incoming quotes, 3-min
forward Slide 26 SPY trades v. trades w.r.t. original incoming
quotes, 3-min forward Slide 27 Other ways to Trade in the Now
Deduce hidden market interests Monitor scheduled impactful events
Measure propagation of impactful news Dig for information
fundamental to asset pricing, that is not widely known Use weather
projections for commodity markets and similarly affected markets
Etc. Slide 28 Summary Use market depth, esp. as incoming Know good
prices for efficient trading Trade range bound markets, etc. In
general with newest information Improve price, volatility and time
projections And thus one can improve portfolio balance Get in early
on sector rotations: before profit opportunities decrease and risks
increase Slide 29 What to do Now Use Market Depth in TradeStation
9.0 e.g. the Market Depth Velocity indicator Collaborate with other
traders Find services on the Strategy Network Join us at
www.QCLsolutions.comwww.QCLsolutions.com New products for Market
Depth analysis New tools for key economic & market data New
collaborations for institutional-level news sentiment analysis with
TradeStation Slide 30 Improve each trade where the transactions
take place Slide 31 where the puck's going
