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  • #2,361
  • Jul 6, 2011 6:27am Jul 6, 2011 6:27am
I never checked personally. DS said he was gonna write something up after. He never did though. I assumed things went according to expectations.

Let's find out though lol

Quote
The Federal Open Market Committee decided today to raise its target for the federal funds rate by 25 basis points to 4-3/4 percent.
Cautiously optimistic. . .
  • #2,362
  • Jul 6, 2011 6:34am Jul 6, 2011 6:34am
Quoting Tact1cal
I never checked personally. DS said he was gonna write something up after. He never did though. I assumed things went according to expectations.

Let's find out though lol
haha nice, you did the research
  • #2,363
  • Jul 6, 2011 11:09am Jul 6, 2011 11:09am
Quoting Darkstar
You can use Bayesian Equilibrium for the outcome of the game scenario, but thats a later stage problem.

Before you can solve the game you need to define the scenario. Who are the participants? What are their objectives? What strategies are they using? How much of the global information set do they have access to?

Inductive inference is the mechanism you use to establish the answers to these questions.
Darkstar's post led me to start reading up on Game Theory and Trading. I have attached a few academic articles that I found. A couple of them also discuss episodic liquidity.

One was too big to upload, but you can find it in a google search: "The Trader’s Dilemma: Trading Strategies and Endogenous Pricing in an Illiquid Market."

Enjoy :nerd:
Attached File(s)
File Type: pdf Execution Game.pdf   520 KB | 771 downloads
File Type: pdf Liquidation in the Face of Adversity.pdf   319 KB | 706 downloads
File Type: pdf Liquidity Black Holes.pdf   229 KB | 766 downloads
File Type: pdf Episodic Liquidity Crises.pdf   328 KB | 610 downloads
  • #2,364
  • Jul 6, 2011 11:16am Jul 6, 2011 11:16am
oh wow nice cheetah!! ty
  • #2,365
  • Jul 6, 2011 1:34pm Jul 6, 2011 1:34pm
I think todays action in e/u is a great example of how just because news already came out, doesn't mean that its been "priced in" fully by all the participants (think about the initial down move yesterday). What we saw today was a serious shift in sentiment and its going to take new developments/news to change it.
  • #2,366
  • Jul 6, 2011 2:09pm Jul 6, 2011 2:09pm
Quoting The Cheetah
Darkstar's post led me to start reading up on Game Theory and Trading. I have attached a few academic articles that I found. A couple of them also discuss episodic liquidity.

One was too big to upload, but you can find it in a google search: "The Trader’s Dilemma: Trading Strategies and Endogenous Pricing in an Illiquid Market."

Enjoy :nerd:
Good reading. Thanks for posting these Cheetah!
  • #2,367
  • Jul 6, 2011 9:56pm Jul 6, 2011 9:56pm
Quoting Monroe
simple yet effective... of course, there must be a reason why they are strong or weak though...
Thinking a bit about this tonight while I work.

So we have participant sentiment, and looking at a *longer term* chart I think it would be obvious as to what the sentiment of the majority of active participants would be (moving up, moving down, going sideways).

So then we ask why. Why is sentiment up down, or sideways? When did it change? What macro events occurred around the time of change? (some macro events seems to be leading, while others lagging, and sometimes they seem to flip flop, so I don't think macro events in itself is the answer to predicting the higher probability move set off by events).

So for example (on a smaller time frame), the last few days the euro is the weaker of the EURUSD pair. This could be due to the fact that the greece debt issue is not looking like it will be as easily resolved as thought early last week. Then the Portugal downgrade, which spread fear that the problems could spread quicker than the participants anticipated. So that drove *enough* capital from euro back to USD to see a decent down move in EURUSD.

But now participants are waiting for ECB rate announcement before moving even more money out of euro.

And this is where I am at. I don't understand enough about the interest rate events to understand what participants might be willing to do based on different outcomes. But I am assuming, if my knowledge extended into this area, I would use same game theory to come up with a few different scenarios depending on not only the ECB rate announcement, but also the USD news coming out this week. I would be asking myself "What would cause a big change in sentiment from what we have seen the last few days?".

And based on these different outcomes, I would plan trades accordingly. Something huge could happen that might really effect sentiment (like US failing to reach debt agreement and Treasury having to step in to stave off default)? Then plan for perhaps a big change in sentiment to USD bear again and position long EURUSD. ECB shows even more ignorance and drops rates, when the forecast was to raise? Position for a continued negative EUR sentiment and short EURUSD.

So once you have those probabilities, now I am guessing the stop and order rumors might come into play. I might want to short EURUSD, so now I am looking for a place to enter where I think the liquidity exists to bring in lots more traders, and hopefully I can get in before, or with, them, and limit my potential downside risk.

Thinking out loud again, hope you guys aren't getting tired of me yet. Also a disclaimer, my hypothesis were based out of ignorance and were in no way calls or things that I planned on doing in the market. I could have things backwards for all I know, its more than general concept of the process as opposed to real ideas.
  • #2,368
  • Jul 7, 2011 8:50am Jul 7, 2011 8:50am
nice scalp today on the ADP announcement, helped that it lined up with overall sentiment at the time.
  • #2,369
  • Jul 7, 2011 3:59pm Jul 7, 2011 3:59pm
Quoting The Cheetah
Darkstar's post led me to start reading up on Game Theory and Trading. I have attached a few academic articles that I found. A couple of them also discuss episodic liquidity.

One was too big to upload, but you can find it in a google search: "The Trader’s Dilemma: Trading Strategies and Endogenous Pricing in an Illiquid Market."

Enjoy :nerd:
Very interesting cheetah.

Inserted Video


Very interesting scene in a beautiful mind.
Always helps me as it provides a simple analogy of game theory.
  • #2,370
  • Jul 7, 2011 4:08pm Jul 7, 2011 4:08pm
Quoting theColonel
nice scalp today on the ADP announcement, helped that it lined up with overall sentiment at the time.
damn,

i had a long and thorough explanation of why i think the overall sentiment is NOT in line with the ADP figure but managed to close the window before pressing enter...

So, long story short:

recent economic data figures have been soft with constantly underperforming consensus (economic surprise index as a reference) which gradually lowers the EXPECTATIONS of similar and upcoming data figures (yes, THIS IS what impacts the forecasts of those "economists") which drags down public sentiment figures (AAII and ZEW for example). All in all, overall sentiment isn't nearly as great as was today's ADP figure.
  • #2,371
  • Jul 7, 2011 8:07pm Jul 7, 2011 8:07pm
So what do you guys think about the NFP number tomorrow? The forecast on the FF calendar is 88K, but I think the market is expecting a much higher number after the ADP report today. Goldman is expecting 125K.

I'm thinking if we get a number at 88K or lower, we will get a sizable "risk off" reaction in EUR and Cable. If we get a number above 160K we will see an initial dollar spike followed by a "risk on" rally. I can see either scenario happening if we get a number in the 100-150 range.
  • #2,372
  • Jul 7, 2011 11:39pm Jul 7, 2011 11:39pm
Quoting Jimmy Jones
Thinking a bit about this tonight while I work.

So we have participant sentiment, and looking at a *longer term* chart I think it would be obvious as to what the sentiment of the majority of active participants would be (moving up, moving down, going sideways).

So then we ask why. Why is sentiment up down, or sideways? When did it change? What macro events occurred around the time of change? (some macro events seems to be leading, while others lagging, and sometimes they seem to flip flop, so I don't think macro events in itself is the answer...
This was a very well-thought out post and I really like your thinking..especially the way it meanders off looking for different scenarios. I don't think you have it backwards at all.

Quoting JordanG68
So what do you guys think about the NFP number tomorrow? The forecast on the FF calendar is 88K, but I think the market is expecting a much higher number after the ADP report today. Goldman is expecting 125K.

I'm thinking if we get a number at 88K or lower, we will get a sizable "risk off" reaction in EUR and Cable. If we get a number above 160K we will see an initial dollar spike followed by a "risk on" rally. I...
The issue with the FF calendar is it doesn't update consensus figures to take into account recent developments, so I generally tend to shy away from the numbers on the Calendar here. Like you said, expectations are for an upwards figure, and as many market participants are sensitive to it, you should take it upon yourself to go out there and make bank today no matter what happens.

Good luck to anyone else playing NFP.

Regards,
xXTrizzleXx
  • #2,373
  • Jul 8, 2011 12:10am Jul 8, 2011 12:10am
Quoting lumesh
damn,

i had a long and thorough explanation of why i think the overall sentiment is NOT in line with the ADP figure but managed to close the window before pressing enter...

So, long story short:

recent economic data figures have been soft with constantly underperforming consensus (economic surprise index as a reference) which gradually lowers the EXPECTATIONS of similar and upcoming data figures (yes, THIS IS what impacts the forecasts of those "economists") which drags down public sentiment figures (AAII and ZEW for example). All in all, overall...
Hey Lumesh,

Pretty much, everyone was feeling really negative (bearish) about the e/u pair due to the Portugal announcement. Not that it really said anything new, but when it was announced, it really scared everyone and shook people's confidence in the whole sovereign debt issue. This is what caused the major selloff. So, this is one of the main drivers that caused sentiment to turn negative.

Now, everyone knew about the euro rate hike for forever, so it did not have any effect on the market when it was announced, b/c, as you said, participants already expected this, so nothing happened to change their expectations and cause them to behave any differently than they already were.

Right after the rate hike announcement, the ADP figures were released, and they were much better than expected. Note that this is a dollar positive piece of news, and thus should be negative for the e/u pair.

Since sentiment was negative (bearish on the pair) plus the ADP figure was good (bearish on the pair), it made it a pretty good play.

Of course, if the ECB conference never happens, I suspect we would have seen a further depression of the pair today. Luckily Trichet came in to save the day .
  • #2,374
  • Edited 12:45am Jul 8, 2011 12:33am | Edited 12:45am
Quoting theColonel
Hey Lumesh,

Pretty much, everyone was feeling really negative (bearish) about the e/u pair due to the Portugal announcement. Not that it really said anything new, but when it was announced, it really scared everyone and shook people's confidence in the whole sovereign debt issue. This is what caused the major selloff. So, this is one of the main drivers that caused sentiment to turn negative.

Now, everyone knew about the euro rate hike for forever, so it did not have any effect on the market when it was announced, b/c, as you said,...
to me, it looks like they were accumulating before the ADP numbers. But UJ finally got the stops above 81.30/35 on it...
  • #2,375
  • Jul 8, 2011 12:39am Jul 8, 2011 12:39am
Quoting theColonel
Hey Lumesh,

Pretty much, everyone was feeling really negative (bearish) about the e/u pair due to the Portugal announcement. Not that it really said anything new, but when it was announced, it really scared everyone and shook people's confidence in the whole sovereign debt issue. This is what caused the major selloff. So, this is one of the main drivers that caused sentiment to turn negative.

Now, everyone knew about the euro rate hike for forever, so it did not have any effect on the market when it was announced, b/c, as you said,...
Forgive me, I'm a bit confused. If sentiment was bearish, and the adp release was bearish for the pair, why did EU rise like it did? Rising EU means depreciating USD versus EURO right?

The only reason I can think of is yes in fact the ADP figure was dollar positive, which made folks feel a bit more risky, so the pulled money out of USD and put it into EURO. Is that a possible reason for the up move in EURUSD?
  • #2,376
  • Edited 2:06am Jul 8, 2011 1:51am | Edited 2:06am
Quoting Monroe
to me, it looks like they were accumulating before the ADP numbers. But UJ finally got the stops above 81.30/35 on it...
Sorry if I wasn't clear, I was referring to E/U, but I see what you're saying with regards to UJ.
  • #2,377
  • Jul 8, 2011 1:53am Jul 8, 2011 1:53am
Quoting theColonel
Hmm, not sure what you mean. Are you referring to E/U? I thought it seemed pretty clear sentiment was bearish the whole day right up to the ADP numbers .
Ah ok your talking up to the releases. I thought you meant after the releases.
  • #2,378
  • Jul 8, 2011 1:57am Jul 8, 2011 1:57am
Quoting Jimmy Jones
Forgive me, I'm a bit confused. If sentiment was bearish, and the adp release was bearish for the pair, why did EU rise like it did? Rising EU means depreciating USD versus EURO right?

The only reason I can think of is yes in fact the ADP figure was dollar positive, which made folks feel a bit more risky, so the pulled money out of USD and put it into EURO. Is that a possible reason for the up move in EURUSD?

Well, price went down after the release of the ADP numbers (i forget exactly how much, like 20 pips or so).

But, what happened 15 minutes after the ADP release? The ECB press conference. Trichet came out very hawkish and some of the things he said in the speech (like a future rate hike would definitely be considered, making it easier for portugal to get a bailout, among other things) brought immediate, if not temporary, confidence back in the euro, and right after the press conference price rocketed up.

It was the hawkish talk at the press conf. which caused traders to get bullish, and then we saw what happened after that.
  • #2,379
  • Jul 8, 2011 2:18am Jul 8, 2011 2:18am
Quoting theColonel
Sorry if I wasn't clear, I was referring to E/U, but I see what you're saying with regards to UJ.
No I was referring to EU, was just saying they popped the stops above in UJ on the ADP release .... sentiment was bearish but what does that mean? it was a little late to sell at that point... who are you selling to?
  • #2,380
  • Jul 8, 2011 2:46am Jul 8, 2011 2:46am
Quoting theColonel
Well, price went down after the release of the ADP numbers (i forget exactly how much, like 20 pips or so).

But, what happened 15 minutes after the ADP release? The ECB press conference. Trichet came out very hawkish and some of the things he said in the speech (like a future rate hike would definitely be considered, making it easier for portugal to get a bailout, among other things) brought immediate, if not temporary, confidence back in the euro, and right after the press conference price rocketed up.

It was the hawkish talk at the press...
How was the conference even remotely hawkish? Rating suspended for Portugal, no commitment on rate rise. It was all bearish. As Monroe put it, by the time everything happened no counterparty to take on the risk.

Seems 4300 has some fight left for now.
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