Yesterday I wrote about secondary plays, and a program we call Buying the New Low. When a stock makes a new intraday low algorithmic programs buy this new low because they know that short term traders will get short. These programs are betting that only light volume will enter the market when a stock makes a new low. They buy the new low, tick higher and force the weaker short term shorts to cover. Basically they make pennies on many who are hitting the new lows in stocks. Let’s discuss why this program, particularly below significant technical levels has not worked, will never work, and will be eliminated by the market.
I just want to say one thing about the dopey quants who employ this specific program: you are going to harm your firm. This program has not, cannot, and will not work. You need to take this program and toss it out with your left-over pizza boxes from Friday (for the retail traders: trading firms bring in pizza for traders on Fridays). And let me be clear, I am only writing about this one program, when stocks have broken very significant support levels. And obviously we have a great deal of respect for the brilliant quant traders who run profitable ingenious algorithms.
One, it took us about a second to decode. Two, you can’t play games like this below important levels. What are you going to do if a huge institutional order for millions of shares enters the market and you are caught long two hundred thousands shares as a SAC Capital or Fidelity hits the crap out of the stock for five points? Because a stock below a secondary price can cause panic selling.
What exactly is going through those brilliant mathematical minds of yours? Did they teach you this at algorithmic trading camp? Do you have so little regard for the market that you will disobey fundamental trading rules to make a few pennies?
Didn’t firms like yours lose enough money when you tried these tricks when the subprime mortgage mess first hit? Your firms or firms like yours were decimated because you tried to get long very weak stocks when they made new intraday lows and force short term traders to cover (think CFC… oops). For those at home the programs bought the new intraday lows in the CFC’s because they knew short term traders would get short. The programs would buy and then quickly tick higher trying to force the short term day trader to cover. This did not work. Large institutional orders flooded the market. When the programs tried to uptick the large institutional orders whacked some more of their bids and went low offer. The programs were forced to scramble and get out of their short term positions. These programs recognized tremendous losses. These programs eventually were shut off by their firms.
Didn’t you, your friends, or quants like you lose enough money when you tried this nonsense next with the financials? The financials made new intraday lows and you turned on the same dopey program. That didn’t exactly work did it in GS, MER, LEH, BAC, AIG.? Again, oops.
I know a lot of traders who cannot trade against algorithmic programs and have been forced out of short term trading. All it takes is some effort and thought to learn how to trade against them. There are things we teach to combat the programs. And I personally don’t have a problem with programs trying to make spreads and quick money. I do have a problem with quants who have such a fundamental disregard for the risk of buying stocks that are technically broken. I do have a lack of respect for strategies that disobey very basic fundamental trading principles such as buying stocks below significant support levels. I do take issue with quants who keep trying failed techniques.
To the quants above, I understand that your math skills are genius. But superior math skills absent trading skills will not be rewarded by the market place. You are like an annoying nat that requires nothing more than some bug spray. You are like that guy everyone can’t stand on their pick-up basketball team. You shoot every time down the court. You score a ton of points and your team with more talent loses. And then you think you have had a good game. Develop a new program or the market will eliminate you.
Nixed the trip to AC yesterday and instead ran in a race to raise money for Rider Women’s Athletics. So basically I tried to keep up with present and former DI athletes in a 5k. That kind of hurt. Ran the 5k in 24 minutes, which is not bad for someone who is five years past his prime and spends 12 hours a day sitting in a chair. It was a great event.
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23 Comments on “Algorithmic Programs That Will Be Eliminated”
The buy the new low program is one of the most irritating programs out there. As a trader I cannot agree with this strategy either as it is just so fundamentally wrong. However, as a mathematician and engineer I can appreciate the elegance and simplicity of the strategy. I can see how they can look at the price action historically and determine that the chances of them getting ran over by an institutional order is low. They can further improve their chances by running the strategy at times of very low volume/volatility. But we have seen how in times of extreme volume and volatility all of these assumptions of historical price action are just dead wrong.
But like you said, the market has the tendency to weed out all of these programs ran by geniuses who lack the right trading skills.
The buy the new low program is one of the most irritating programs out there. As a trader I cannot agree with this strategy either as it is just so fundamentally wrong. However, as a mathematician and engineer I can appreciate the elegance and simplicity of the strategy. I can see how they can look at the price action historically and determine that the chances of them getting ran over by an institutional order is low. They can further improve their chances by running the strategy at times of very low volume/volatility. But we have seen how in times of extreme volume and volatility all of these assumptions of historical price action are just dead wrong.
But like you said, the market has the tendency to weed out all of these programs ran by geniuses who lack the right trading skills.
So… I heard that one of best longest standing RTC stat algs of all-time was a simple variation (prob multiple variations) on “buy what went down, sell what went up yesterday”. Supposedly worked for 10+ years.
So it seems trading against the mediocre “technical” day-trader can be long-term profitable.
I would not be so quick to dismiss as this post. The thinking does not seem robust.
So… I heard that one of best longest standing RTC stat algs of all-time was a simple variation (prob multiple variations) on “buy what went down, sell what went up yesterday”. Supposedly worked for 10+ years.
So it seems trading against the mediocre “technical” day-trader can be long-term profitable.
I would not be so quick to dismiss as this post. The thinking does not seem robust.
It doesn’t take any mathematical skills to buy into new lows. Sounds like a bunch of PhD. impersonating newbies got together and sold this idea to even more clueless MBA fund managers.
It doesn’t take any mathematical skills to buy into new lows. Sounds like a bunch of PhD. impersonating newbies got together and sold this idea to even more clueless MBA fund managers.
If you notice the program doing this it provides you with an even better entry when all the weak hand shorts pay up… however it is hard to identify; one can not risk being flat when a huge technical level breaks… fancy footwork is required especially in these low volume weeks/months
The basis of any “Buy new Low” program is lacking anyway … it depends where in the day that new low takes place and what has happened previously during this day.
“Buy new low after xxxx-indicators start making new highs” might be a good strategy . . but just blindly buying new lows is plain dumb trading..
It’s much better to have a Trading System and a Plan . . . that’s what I do quite profitably.
The basis of any “Buy new Low” program is lacking anyway … it depends where in the day that new low takes place and what has happened previously during this day.
“Buy new low after xxxx-indicators start making new highs” might be a good strategy . . but just blindly buying new lows is plain dumb trading..
It’s much better to have a Trading System and a Plan . . . that’s what I do quite profitably.
I despise the algos. They make trading for short term gains torture, especially in liquid names.
I don’t think its fair to say they are wrong by pointing to the extreme trading conditions last year.
You had to be a nitwit to leave programs running into that, unless they were DESIGNED to handle such volatility.
I despise the algos. They make trading for short term gains torture, especially in liquid names.
I don’t think its fair to say they are wrong by pointing to the extreme trading conditions last year.
You had to be a nitwit to leave programs running into that, unless they were DESIGNED to handle such volatility.
A few words from my day on the floor
Top pickers and bottom pickers become cotton pickers…
Nuf Said.
A few words from my day on the floor
Top pickers and bottom pickers become cotton pickers…
Nuf Said.
Do you actually know any quants running a program like this? What makes you so sure about this? I don’t know the said program in question but, it could just be arbs coming in and arbing an index with its underlying.
Do you actually know any quants running a program like this? What makes you so sure about this? I don’t know the said program in question but, it could just be arbs coming in and arbing an index with its underlying.
Great post, i saw it on zerohedge…i agree with Jim Garabo these programs make it very hard to trade liquid names for short term gains.. THINK SKF that thing was all Algo..
Great post, i saw it on zerohedge…i agree with Jim Garabo these programs make it very hard to trade liquid names for short term gains.. THINK SKF that thing was all Algo..
You know so many interesting infomation. You might be very wise. I like such people. Don’t top writing.
You know so many interesting infomation. You might be very wise. I like such people. Don’t top writing.
I completely agree with your Mr. Bella.
As short-term traders, we are getting our chops licked by these lice-haired, cockroach eating, rat infested quants and their filthier than slut algo programs.
These bastids are manipulating the market ,painting the tape and trading against short term traders.
Human traders buy and sell while these computers simply manipulate the stocks.
I say write to SEC and ask to put all these quants in jail for manipulating.
Would serve those rat bastids right.
I completely agree with your Mr. Bella.
As short-term traders, we are getting our chops licked by these lice-haired, cockroach eating, rat infested quants and their filthier than slut algo programs.
These bastids are manipulating the market ,painting the tape and trading against short term traders.
Human traders buy and sell while these computers simply manipulate the stocks.
I say write to SEC and ask to put all these quants in jail for manipulating.
Would serve those rat bastids right.
Hello! Thanks for the post. It is really amazing! I will definitely share it with my friends.
Hello! Thanks for the post. It is really amazing! I will definitely share it with my friends.