Strategy Session: How to Hunt with the Pack

Strategy Session: How to Hunt with the Pack

Sep 8, 2005

I’ve taken a great interest in the well written entries of Dr. Brett Steenbarger’s weblog lately. Besides the fact that he wrote an article with a positive mention of Trade-Ideas, his study of what moves markets and what movements are statistically relevant (and therefore tradable) make him a good read.

Here is an excerpt from his entry that describes the market on Friday, August 26th 2005: (emphasis in italics and bold added)

“I am preparing an article for the TradingMarkets site on the topic of who is in the market (see yesterday’s blog). Here’s another interesting finding from Friday’s market:

one and two-lot trades comprised 55% of all ES trades for the day, but only accounted for 3% of total daily volume. Conversely, trades of 50 lots or greater were only 10% of the day’s trades, but these accounted for over 70% of all volume.

Not surprisingly, large trades of 50+ lots were concentrated during the first 90 minutes of trading and during the last 30 minutes. The frequency of large trades during a 30 minute period was significantly and positively correlated with the frequency of large trades in the next period–and was also significantly correlated with the average price movement during that period.

One implication is that filtering trade ideas based on the presence of large traders in the market could improve trading performance.”

Here’s how Trade-Ideas was built to look for this exact situation. Start with the alerts needed for such a set-up:

From here you can create two set-ups: an alert window for upward trending opportunities (where large traders could be buying or selling) and one for downward trending opportunities. Click on “Configure” and scroll down to the filter section to see what ideas would pass. Click on “History” to see what this set-up reported during the most recent market session (History available to subscribers only).

These can certainly be improved upon. Use them as a starting point to your own ideas and interpret them according to your own trading plan.