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----- Original Message -----
From: Mike Steckel
To: Bilo Selhi
Cc: omega-list@xxxxxxxxxx
Sent: Tuesday, April 22, 2003 2:34 PM
Subject: Re: Program trading 2
>That's a wild dissertation.
just spitting it out there... as is
>What doyathinkabout this:
>As we know there are certain values in the SP-PREM that kicks off program trading --- you can see daily buy and sell levels at
>www.programtrading.com
program trading firms can have their own versions, algorithms and triggers... which they backtest and do not
share... indx. arb. prem triggers are general guidelines and not necessarily that most pr. trading firms will use...
www.programtrading.com makes an assumption that majority will follow those triggers and thus
this will work, in reality it's not so easy...
>More experienced traders have told me that program trading techniques are not as useful for trading SP eminis, as they are for
certain stocks that are being >concentrated on by program traders (bigger, more certain moves). Any comments ?
not true, it affects futures because for those firms that trade do futures... an experienced trader will tell you how to time ( in
limited cases only )... what is true is that
it harder to differentiate large program trading move from panic move or from squeeze move or from large order or sometimes even
from simply trend
move...
there are many firms that do pr. trading and they don't do it all at same time... so do not expect to see them all on the chart...
>Anyway:
>1) Does one concur that SP Futures leads the NYSE, or vice versa ?
if there is substantial lag/lead it will be taken care by index arbitrageurs aka firms that have those programs ...
in general markets are information processing machines. any information that is factored into the SP index futures will be seen
on NYSE by the move in sp futures, NYSE traders may interpret that as new information and act on that, in this case
futures will lead NY market.
vv. if there is significant info the NYSE catches, like stock news,etc. then futures traders will factor that in, in this case NY
( that stock ) will lead SP.
but practically because information spreads very fast these days the lead lag is very small, mostly seconds.
basically sp traders look for new info everywhere including NYSE, same goes about NY traders.
>Lately I've been noticing on 1 min charts how more often SP futures price jump will lead the NYSE TICK by 10 or 20 seconds or more.
>I'm curious if big money >is entering orders first on SP Futures, or if exchange / data provider delay is the reason for this
>phenomena.
well sure in aggregate values that's how much it takes NY to pick up any info factored by Chicago markets...
according to prog trading even idx. arb. cash/futures orders don't have to entered exactly at same times...ok...
>Most longer term mechanical breadth systems for trading SP's are usually based upon the theory that NYSE Adv's and Decl's are
driving/supporting the SP >futures. However, what if the SP Futures in Chicago are actually driving the NYSE, since most successful
stock traders are watching the SP Futures intensely.
already explained above. the relationship is reciprocal. but in theory if cash follows futures if info factored by futures is
legit...
because futures factor future info about whole market by generalization...
cash markets also look forward just like future markets are...
what leads what is what i call a clusterf...k, asia leads europe, europe lead US, US leads asia, SP leads NY, NY leads SP... so who
leads who???
in theory futures should lead the overall market, because it processes cumulative information about the future of the whole
market...
in practice it's not always so. that's the whole point... futures is just another market...more or less these days.
now we look at futures simply as a ticker that we an exploit and make some money...
***what is the common denominator is information... where it comes from who cares... who's first to factor it in SP or NY or Asian
markets
who cares... give me information to factor in to trade on it... where it comes from i don't care: headlines, trends, breakouts,
rumors,
price patterns, indicator patterns, sp futures, war, whatever...
reason why stock traders watch futures is because they are searching for new information to trade on... sp price moves provides
that
information...
information can create information cascades, like today for example...
down open, gap closes, sadam rumors, buy prog trading rumors, starts up move, short squeeze, up trend starts, breakout to new highs,
all this is new
information...from different sources, sp pit, news desk, NY, tv, internet, chart, etc...
good trading
bilo.
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