Normal
1. Because I trade the US, I am aware of the 'algos', which I cannot clearly define, but are present nonetheless. They are often visible during low volume periods intra-day, when, the trend will suddenly reverse for no apparent reason. It is not enough to break the 'trend' of the stock as it is short term and reverses itself, whereupon the 'trend' for the day is restored. I have never bothered pursuing this, but it 'seems' the reverse is tied to a volatility measure (which for a few years has been low) in some way within the programme.The algos programmers will have used multiple variables as inputs, in as much the same way as systems traders have done. I have no particular knowledge as to what the majority of these inputs are. However one variable that I believe they use is 'volatility'. Whether this is taken from the VIX or other sources of volatility, who knows, but I use the VIX as a proxy for the algo traders.So when an exogenous event ramps up volatility, in this case COVID-19, the algos build on that volatility expanding it: they stay in a trade longer (their programmes seem to adapt to it) expanding the ranges...which, affects other market participants, which can extend the ranges further still, and you get a self-reinforcing feed forward loop, which happens to mirror a number of biological systems.Recently, volatility as measured by the VIX has been dropping. Ranges in the indices have been contracting, as are the ranges in stocks. They are still obviously higher than previously, but down on the really volatile patch that we had. This was part of the bottoming process in 2009, 2018, 2019.A further observation (take it with a pinch of salt) is that the 'long' side (Value Funds, etc) will not buy long into high volatility. They will wait for a lower volatility environment before committing to new buying. Their buying, also starts to create a bottom in the market. This buying also has that same feed-forward loop and volatility drops further, restricting the algos in pushing volatility higher through range expansion. So volatility and cash/volume are two inputs to the algos. At this point, fundamental market valuations will have an impact. Value funds will live through further 'small' declines on new purchases. Thus a further volatility expansion is muted through stability in this buying. Often (as long as volatility does not ramp up) they (Value) will add to positions on further declines.You also have the market makers who will hedge their positions, they also serve to dampen volatility. For example in the Options markets, sellers of Puts will hedge with long stock/futures gamma scalping (which is highly profitable as long as your execution costs are low) to offset the high volatility.At some point, the general market will move higher from the (true) bottom. This is where systems traders systems will start to activate and if we have had a market decline, buying long.Which is why I watch the various systems here on ASF (as the ASX follows the US) for the start of buying long positions. Not so much for my taking a position as I trade volatility, but more for the establishment of a general market bottom.2. Not necessarily. If you had bought the 'bottom' in 2009 and had held long, you would still be holding a profit and possibly thinking about adding to the position.If of course some of your purchases were recent, then an exit to protect against a loss is critical. Given that your systems are cycling you in and out of stocks, from your perspective, I agree the entry is almost irrelevant as you buy high to sell higher. In this scenario, the exit is all encompassing. Your GTFO trigger seemed to work as well as anything and better than most.3. You will (obviously) have to programme into your systems some form of indicator. Two that you could use are (a) VIX and (b) Put/Call ratio (if you do not already use them).jog onduc
1. Because I trade the US, I am aware of the 'algos', which I cannot clearly define, but are present nonetheless. They are often visible during low volume periods intra-day, when, the trend will suddenly reverse for no apparent reason. It is not enough to break the 'trend' of the stock as it is short term and reverses itself, whereupon the 'trend' for the day is restored. I have never bothered pursuing this, but it 'seems' the reverse is tied to a volatility measure (which for a few years has been low) in some way within the programme.
The algos programmers will have used multiple variables as inputs, in as much the same way as systems traders have done. I have no particular knowledge as to what the majority of these inputs are. However one variable that I believe they use is 'volatility'. Whether this is taken from the VIX or other sources of volatility, who knows, but I use the VIX as a proxy for the algo traders.
So when an exogenous event ramps up volatility, in this case COVID-19, the algos build on that volatility expanding it: they stay in a trade longer (their programmes seem to adapt to it) expanding the ranges...which, affects other market participants, which can extend the ranges further still, and you get a self-reinforcing feed forward loop, which happens to mirror a number of biological systems.
Recently, volatility as measured by the VIX has been dropping. Ranges in the indices have been contracting, as are the ranges in stocks. They are still obviously higher than previously, but down on the really volatile patch that we had. This was part of the bottoming process in 2009, 2018, 2019.
A further observation (take it with a pinch of salt) is that the 'long' side (Value Funds, etc) will not buy long into high volatility. They will wait for a lower volatility environment before committing to new buying. Their buying, also starts to create a bottom in the market. This buying also has that same feed-forward loop and volatility drops further, restricting the algos in pushing volatility higher through range expansion. So volatility and cash/volume are two inputs to the algos. At this point, fundamental market valuations will have an impact. Value funds will live through further 'small' declines on new purchases. Thus a further volatility expansion is muted through stability in this buying. Often (as long as volatility does not ramp up) they (Value) will add to positions on further declines.
You also have the market makers who will hedge their positions, they also serve to dampen volatility. For example in the Options markets, sellers of Puts will hedge with long stock/futures gamma scalping (which is highly profitable as long as your execution costs are low) to offset the high volatility.
At some point, the general market will move higher from the (true) bottom. This is where systems traders systems will start to activate and if we have had a market decline, buying long.
Which is why I watch the various systems here on ASF (as the ASX follows the US) for the start of buying long positions. Not so much for my taking a position as I trade volatility, but more for the establishment of a general market bottom.
2. Not necessarily. If you had bought the 'bottom' in 2009 and had held long, you would still be holding a profit and possibly thinking about adding to the position.
If of course some of your purchases were recent, then an exit to protect against a loss is critical. Given that your systems are cycling you in and out of stocks, from your perspective, I agree the entry is almost irrelevant as you buy high to sell higher. In this scenario, the exit is all encompassing. Your GTFO trigger seemed to work as well as anything and better than most.
3. You will (obviously) have to programme into your systems some form of indicator. Two that you could use are (a) VIX and (b) Put/Call ratio (if you do not already use them).
jog on
duc
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