Exploiting Price Data Variations in Everyday Trading (Part 1)

10/06/2008 9:54 am EST


Timothy Morge

President, MarketGeometry.com

Besides being a professional trader for the past 37 years, I have the privilege of mentoring some wonderful traders of varying degrees of experience. I happen to mentor a pair of gentlemen that run their own very successful CTA, and besides working with them on Median Lines, I have also helped them really master the concept of using structures in the market as areas to hide your stops. They have also seen the importance of my innovation, Energy Points (areas where lines of opposing force meet), and use this concept successfully in their trading.

Recently, we were both stalking the same market on the same time frame: the crude oil futures. Crude oil futures are notoriously volatile and obviously have become more so in the past two to three years. There are many times when you see a bar unfold and look at it in disbelief, certain that the bar extreme range of the bar was caused by an incorrect price that will later be corrected by the exchanges; sometimes you are right and it was an incorrect price, and sometimes you are wrong and it is a wild, wide-range price bar. But there is no way to tell as each tick unfolds. Perhaps the exchange transmitted the wrong price, perhaps your computer got disconnected from the price server for a moment and that caused a corrupt data point, or perhaps the price was real.

I recently spoke at The Forex Trading Expo in Las Vegas, and one of the reasons many of the panelists (including myself) gave as a reason why they liked the data delivered from the exchanges better than the data delivered in the cash FX market data feeds, for example, is that it is cleaner, more reliable, and every single transaction is recorded and transmitted in the order it was executed. In the cash FX market, there are at least fifteen different “major” data feeds, and if you look at their data, you’ll see they all have different daily highs and lows, and the highs and lows of each of the bars are slightly different from feed to feed. In short, while they represent the market, they do not represent an accurate tick-by-tick picture of the market. When you compare them to the electronic contract feeds from the exchanges, the difference is night and day. But there is a dirty little secret here: in “real time,” even the exchanges sometimes transmit ticks that are incorrect, although they do go back and re-transmit the correct data. If your charting package reloads historical data automatically and or allows the exchanges to refresh tick historical data, you’ll probably never notice any errors unless they are blatantly out of the current range.

More tomorrow in Part 2.

Timothy Morge


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