Yesterday we received an inquiry from a reader regarding algos. Read the inquiry below:
Hi. I have been trading for nine years now and one of my biggest strengths is tape reading. However, the algo programs are absurd these days. How does the Gman distinguish real buying from some program just market making a stock? Also, it seems like the programs are more in NYSE stocks, then NSDQ stocks. Any thoughts?
Dan. J.
Gman here:
Dan first off glad to hear you have developed such great skill. I agree with you in that there are way too many algos littering stocks all day long. Algos with real orders can’t ultimately hide their size. For real order programs I look for repeating patterns of aggressiveness (offers for size getting scooped for example). But ultimately here are the factors that matter most:
1. Time of the day. On the open and close I expect to see most of the aggressive algos. In the middle of the day we expect to see the market making ones. Every now and then, specially with stocks with fresh news, you can see these real order algos in the middle of the day.
2. Volume. You ought to be able to see the volume come in through the box. If you can’t see it or if it is too sporadic then most likely the order is not big enough or the algo is not set in aggressive mode.
3. Where in the move you are. If you’re trading the stock while the play is developing, then you can expect an accumulation algo to be put in place; very easy for them to hide their size trading 2-300 shares a clip. If the stock is in drive mode then it should be easier to see its pattern.
Ultimately, the algos that make us the most and quickest money are the aggressive kind. The passive ones we experience in the middle of the day are way harder to read. But in the end, it does get easier with time to recognize these suckers. Hope that helps.
9 Comments on “Traders Ask: How to Recognize Real Order Algos”
Gman, it will be good if you can post a video . Unfortunately your post was not so clear…
Thanks
Gman, it will be good if you can post a video . Unfortunately your post was not so clear…
Thanks
I can tell the real ones but the fake ones always get me. how bout a post on the fake ones. =)
I can tell the real ones but the fake ones always get me. how bout a post on the fake ones. =)
a vid would be so nice 😉
a vid would be so nice 😉
also im wondering about hunt orders on nasdaq stocks. seems like its mostly hunt orders instead of bids and offers. be nice if u can talk about that too……….
also im wondering about hunt orders on nasdaq stocks. seems like its mostly hunt orders instead of bids and offers. be nice if u can talk about that too……….
Gang – compiling a list of vids that would be helpful for a future post on HFTs and real vs. nonsense programs. Please be patient while I get through them. Do keep in mind though that there is much to discuss and throwing a new video here and there will not answer all of the questions and in fact may raise even more questions. This is a newer field that requires careful, dedicated studying and much tape reviewing. This is a major pattern recognition exercise and my two cents on these algos just comes from the time and effort I put into learning how to exploit these nonsensical boxes.
The question is, are you ready to take on this kind of challenge? and if so what are you doing every day to learn about this boxes? are you keeping track of your stats? do you have clips of the boxes that confuse you? what about clips of the ones that you think you have figured out? how often do you see these patterns? is there a particular time of the day?
You see my point. I can sit here writing all day long, could show you all the tape in the world about these boxes but unless you are really committed to developing the pattern recognition and tape reading skills then what I may show you may just confuse you even more.
just some food for thought on this beautiful summer day. – Gman