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behaviour - introduction

The trading behaviour of the SFE SPI200™ futures contract (SPI) which derives from the S&P/ASX200™ (ASX200), otherwise known as the CASH. This material is the work and opinions of Camron Systems. Authorities for work not ours are fully attributed.

The answers are here. If you look for them. If you are going to do it, do it right

Please refer conditions of use.
Not for commercial use without express permission and attribution.

These articles :

provide answers.
supply information not found anywhere else.
provide a framework for understanding the behaviour of the SPI.
help ask the right questions.
present a verifiable method of classification.
identify and measure buying.
identify and measure selling.
assist beginners make their journey shorter.
assist non-beginners to improve their success rate.

Some material may seem irrelevant. Now. However.
Some time in the future, you may wish to understand. Remember. You read it here first.

Some are content to drive a motor car knowing only where the petrol cap is.
Others, more mechanically inclined, prefer to know how it works.

There are four categories of topics:

understanding who the opposition is.
understanding what happens.
understanding why it happens.
understanding what you can do about it.

The articles have a day trading bias. Intelligence coming out of USA has traders increasingly day trading. More contracts for less points. Several times per day. Using low cost online trading platforms with low brokerage rates. They're finding it easier to make one or two points than get the big move. Each point is profitable. The same is occurring in Australia.

prologue - a million different ways

Trading is a serious game involving serious players. Rarely done for fun or mental exercise. Its an expensive game to play. Success demands excellence. This site is a series of articles which are building blocks, not a how-to handbook. What to look for. What to look at. How to look. There are a million ways to trade. How you trade will be the sum total of the building blocks you use. Regardless of whether you use the ones presented here.

Take 5 building blocks, and using one, there are 5 alternatives. Take 5 building blocks and using any 2 together there are 32 possible combinations. With 20 building blocks the possible combinations exceed 1 million. At any moment in time. see possible combinations

camron's razor - the simple solution - with 50 basic building blocks, and 635bn permutations - the options are -
(a) learn the 50 building blocks, select 20 that suit you, and from those create 10 combinations that suit.
end up with just the 10 possibilities, and a full understanding of what you see, and how they work. or
(b) keep working your way through the 635bn possibilities.

The articles contain a number of scattered topics. They are inter-related. You might well ask what does visual perception, psychology of sight, probability, logic and memory have to do with trading. At the end is an extract from a paper on pattern recognition and data compression which connect the subjects together. If you read the extract first, and having read it, you might still ask what this has to do with trading. Now knowing they do connect, read each topic and see the connections. Pattern Recognition, Reasoning, Expert Systems

reference links refer to (a) related topics (b) authorities (c) external source material.

undressing the market

For the "rules of logic" and "law of simplicity" see occams razor. Trading is a complex-compound, made up of a number of component activities. To understand an activity, you need to understand the components involved. To understand the form and structure it is necessary to know the composition of each component in order to understand its function. Each component needs to be studied separately. This research is based on behavioural analysis by breaking it down into its component parts. The main participants can be identified and their significance measured. Major traders comprise approximately 80% of the total daily volume of the SPI200. see paretos principle. A small number of causes is responsible for a large percentage of effect. Behaviour changes from day to day. see components of trading

Why is this important?

source - 2002 - Craig MacLean of Traderspace Ltd
"The use of computers to manipulate price information in an attempt to predict market behaviour has become standard practice for market participants. Two basic methods of price analysis are recognised today. The fundamentalist who evaluates all the factors pertaining to the supply and demand of a commodity, ranks them and evaluates their effect on price. The second method is that employed by the technical analyst who uses market generated information only, in mathematical and statistical based methods of price prediction. Regardless of method, computers along with price information, have found ready acceptance by market analysts. ...
Critics of technical trading systems are concerned that their excessive use could reduce the ability of the market to reflect the fundamentals of supply and demand thereby reducing the accuracy of price signals. Market equilibrium could also be distorted by computer systems causing large price variability. Introducing a new dimension of uncertainty into normal commercial operations." extract - "www.afsd.com.au/article/traderspace/trader5a.htm"

source - 2002 - Luke Whitton of Traderspace Ltd. "Who Wins at the Futures Game?"
It is a well known fact that over 90% of people who speculate in the futures markets lose money. A daunting statistic for the novice trader, interested in trading futures for the first time. www.afsd.com.au/article/traderspace/trader22a.htm

Further. Most, if not all, new traders use technical analysis and charting. Brokers, and other sources indicate 90% of all new traders fail in the first year. Estimates are 60% of the 90% disappear and never try again. Quote 2005: The manager of one of the larger international futures broker is on the record as saying that after 25 years in the industry, he had yet to meet a successful SPI trader who has made money trading the SPI using charting. end quote. Straight from the horses mouth. Not a good recommendation for technical analysis. Good for the seminar business. It clearly indicates something additional is required.

recommended configuration. simple network, 2 pc's side-by-side, 1 charting, and 1 camron trade analysis screen.

The SPI often trades in a narrow range, 3 or 4 points, for 2 or 3 hours. During this time significant activity occurs. Viewed on a chart, the market is seen to be congesting or doing nothing. Examination of each trade will disclose accumulation or distribution. As a prelude to a down-move, most of the down ticks will be commercial sales, while most of the up ticks will be non-commercial buys. (and vice versa for an up-move)

How can we distinguish between a buy and a sale? The unique characteristic of each trade is explained in the classification and commercials topics. Much of the software available does not provide this important information. Consider a situation where the price is moving up, encompassing a large number of commercial-sized trades that are all sales (on the sell side ie not buys). A price chart will show a rising market, whereas the 'big' money is selling into the rise. And it can be seen. If all the commercial traders bought in concert, in a rising market, there would be no sellers.

Study the market action. Traders can be seen buying in lots of 20 at one price level, immediately offering 10 lots, 1or 2 points above the entry. Same trader. This simulates market depth. Watch it - it happens all the time. Then when it gets near the top a substantial buy order appears, as a support platform, to hold price up. They then stand in the market above that order, on the offer. Clever. As the market is satisfied above that point, the buy order is pulled out. Never gets hit. Don't need to wait for a pivot to see that happen.