BEATING THE HFT ALGOS TO THE PUNCH

 

“Dear Mr. Market!”

Amazing what a weekend and a day can do with multiple thousands of sets of 

data in computable format, a blazing fast computer, having the proper 

statistical software for analysis, and most importantly asking the right 

questions … and “viola”, while my instincts from long ago via the Cable 

algorithm were generally correct, they are not “optimal” … what I’m 

releasing today is.

Before I get into this, I’ll have the updated GBPUSD algorithm available this 

weekend for viewing and/or download, and what I’ll do in the manual is add 

this information as a “supplement” to the original version … this way people 

can decide whether to use and/or mix the two.

From analyzing the data over approximately the last 20 years, basically since 

the dawn of electronic trading in 1998 - 1999, and while we don’t know what 

the spreads are, or what any particular brokerage house bid/offer is, what we 

do have is all last trades from EBS [Electronic Banking System], which all 

banks, brokers & dealers report trades to for compilation on a tick basis 24/5 

… from that, which is adequate, we derive the analysis.

First, volumes in GBPUSD start to pick up dramatically from 06:00 - 08:00 

Turnkey server time, which is the last 2 hours of the Asian session, and the 

start of the European session. Second, our analysis shows that THE M5 

PERIOD has greater optimal profitable trading signals than M1 … it’s close, 

but overall over periods of time, you’ll get better trade signals via the M5 

[which was a surprise to me, I must admit] … the reason? … less  

“false positives” on choppy opens in that first 2 hours of the day [ignoring the 

first 6]. Third, the “blue box”, which is the first 30 minutes of trading, is an 

“artificial construct” that has no significant statistical value one way or the 

other to profitability starting at 06:00 … sometimes it helps, sometimes it 

hinders, but most of the time it has no bearing. Fourth, what does have 

“meaning” , are 2 [two] 46 EMA’S … once calculated from the LOW, and the 

other from the HIGH … color them any way you want, in any style, but I’m using 

plum and yellow on the M5; YELLOW LINE = 46 EMA HIGH, & PLUM 

LINE = 46 EMA LOW. Fifth, it is the “slope change” of these 2 that determine 

signal from 06:00 forward. Directly below today’s partial trade, with 

commentary and the “blue box”.

 

And from yesterday, with the “blue box”, the entire day with the new 

algorithm data.

 

Now, as a practical matter, I would still include the blue box cuz I don’t want to 

get chopped up … remember, 64 % of trading days will see some kind of 

reversal … therefore, I would be hesitant to take sell signals above the blue box, 

and also take buy signals below the blue box … however, signals that are 

definitely “leaning” to either side, I would take.

Overall, this is a significant positive enhancement to my original Cable 

algorithm … on average, it will give us a few seconds to maybe a minute or two 

… TOPS! … to beat the HFT algo’s before they set the market train in motion 

to moving price away quickly, and allow us to get positions on without “selling 

or buying in the hole”. About the only time we get the needed time to set trades 

up, they aren’t any good … the truly good signals are the ones that the HFT’s 

take and drive the market to the moon, or over a cliff “Thelma & Louise” style, 

and by the time those “retrace or correct” some, it’s over, and all that’s left of 

the day are crumbs, for mice on the floor like us! “Yea, I’ve had enough of that, 

Ok”? I’ll start implementing this change with tomorrow’s trade.

And I would be remiss if I didn’t give credit, where credit is due, for the “leg 

work” in setting up everything and crunching the numbers … it was a 

combined effort of Cousin It & CoS Milton Waddums. It takes a lot of time and 

effort to make sure you’re not putting “garbage” into the computer, and then 

expecting NOT to get “garbage” out. “So, a new comb for Cousin It, and a 

brand new shiny RED stapler for Milton … seriously, I’m way to generous”!

I’m posting early today, cuz I got to deal with some house issues early this 

afternoon … and if I don’t do it today, I have to do it Thursday, which ain’t 

gonna happen cuz it’s BOE “bat guano crazy day”, and who knows what Cable 

will be up to then … well, I don’t want to find out, so it’s happening today. 

Anyway, looks as if it won’t matter much, cuz Cable isn’t really doing 

anything except probing lows from last week that aren’t going anywhere, and 

then burying shorts with some well placed panic bids to get out. Today’s main 

move came straight from the top like a hurricane coming through … so what 

else is new?

A few trades today … PAMM up slightly, nothing significant … basically made 

up yesterday’s loss minus a buck or two.

Missing these “drive by shooting” moves in GBPUSD from the HFT’s is getting 

frustrating … seriously, I’m glad the algorithm changes can give us some 

valuable time to get the position on before the whirlwind hits, cuz 

buying/selling “in the hole” is not the way to trade.

And if you’re wondering why I didn’t implement it today, it’s cuz Cousin It 

didn’t give me the news until things slowed down … what am I supposed to do 

then, make the market go back a few hours for a redo? Anyway, no big deal, 

the market is here every day … I implement it tomorrow, and then going 

forward after that. 

And over the next few days into the weekend, all three of us will shift our focus 

to crude oil, WTI and/or Brent, makes no difference … Milton is absolutely 

 “killing” front month futures, and making the kind of money I used to make 

from the floor, and is using a different version of the Cable algorithm, modified 

for crude oil. Apart from futures, though, fact is Turnkey has the very best 

CFD’s in the biz when it comes to trading oil … spreads are usually in the 2-4 

cents range, while pretty much everybody else in the biz is at 5-6 cents with 

some charging commissions and others not. Personally, I’ve been keeping an 

eye on Brent, finding that the spread here is 99% of the time at 3 cents, while 

WTI is more volatile in terms of spread. 

In today’s trading world, the “big money” that is seeing the most action in terms 

of volume and price volatility is crude oil, and has been for a good long while; 

between Brent & WTI, they trade over a million contracts a day with a 

1 lot = 1,000 barrels; and it’s a 24/5 market, not just a U.S. market. “You wanna 

trade a 50 lot in here, where every penny move is worth ± $500, and the market 

can move a dollar or more in minutes? Well, you’ve come to the right place, cuz 

this market can handle it without a sweat … that’s how big it is”. 

So, no market is an island, and no trader should be a “one trick pony” … for the 

PAMM, I have forever been begging anybody who would listen in the 

brokerage house & LP world, starting at least 5 - 7 years ago, to platform a 

crude CFD that “makes sense” in terms of contract specs, spread pricing, & 

commissions … because as I have stated before, PAMM’s and/or MAM’s can’t 

trade futures, without the manager manually allocating at least one futures 

contract per account … with futures margins for crude roughly around $4,000 

per 1 lot, that would mean 2 things: 1) anybody at any time that falls below the 

initial margin would have to deposit more money or be left out in the cold 

anytime the manager traded oil, and 2) initial PAMM and/or MAM minimums 

would have to be probably around $10K. 

And that isn’t the only problem the manager has; get more than a few clients, 

and you quickly learn that partial fills, meaning that not everybody gets the 

same pricing, is a logistical nightmare. Many years ago, I had a PAMM that 

traded oil futures [about 10 - 13 years ago], and it got to the point where I had 

to trade a 28 lot each time I traded, or multiples of 28, to get the allocations 

right. One day, I hit the “buy at market” for 28, and I get 3 different price fills; 

15 lots at one price, 7 at another, and 6 at another still … it took me a week to 

figure out who gets what, and nobody was happy.

The only other option is to create a standalone hedge fund; here, you get the 

pleasure of 1) hiring lawyers that never go away, for licensing, startup, 

government renewal, and compliance, 2) accountants that never go away, 

3) and your wallet lighter by about $250,000 to start, with another 

$50K - $100K going out the door every year for continuing operations. “Yea, 

not interested in that, thanks”!

So, for a whole host of reasons, some explained above, I’m glad I’m finally at a 

brokerage house that not only has the lowest RT [round turn] commissions in 

the biz, but also has the lowest CFD pricing in crude oil … when you boil it all 

down, and look at all the costs, what we pay to potentially trade an oil CFD is 

approximately “1 cent” more than futures, and quite frankly unless there is 

some kind of paradigm shift in trading, I don’t see how it gets any better than 

that for any of us, especially when you consider we aren’t “pigeon holed” into 

standardized futures contracts … we can trade any amount we want in 10 

barrel increments, not 1,000, and more importantly all gains/losses can be 

equally allocated cuz CFD’s can be split. 

This is only the “tip of the iceberg” in terms of issues, but these are the most 

important elements, and like GBPUSD in FX, I can trade any size I want 

without disruption … so, I’m looking at potentially adding crude oil to our mix. 

We’ll see, but I’m thinking it’s highly likely, cuz from what I’ve seen of the oil 

aglo, and I need some days to look it over in much more detail, when oil moves 

the algo nails it.

So, this day basically over in Cable before the sun even comes up in New York, 

and while everybody watches EURUSD get massacred, Cable pays no attention 

and is now starting to rally on short covering below 1.35000 … and once again, 

for like the umpteenth million time, the big money comes in and muscles it one 

way, and by the time it corrects it’s over … and if you’re not there, like I wasn’t 

cuz I didn’t have the new info, you wait for a correction and then end up 

scalping for crumbs … not any more. In any event, I’m outta here for today 

… until tomorrow mi amigos … Onward & Upward!!

I’ll have the PAMM spreadsheet up no later than early this evening, and I’ll 

post it right here. 

UPDATE: 5:46 p.m. EST, PAMM Spreadsheet directly below.

 

Have a great day everybody!

-vegas

OUR TURNKEY FOREX “PAMM/MAM” IS NOW OPEN AND

OPERATIONAL; SEE “PAMM/MAM MONEY PROGRAM” IN

“DOWNLOAD LINKS” SECTION IN RIGHT HAND COLUMN

FOR DETAILS [VIEW ONLINE AND/OR DOWNLOAD] AND

START YOUR JOURNEY FROM WHERE YOU ARE AT TO

“ESCAPE TO SUCCESS”!