$ES_F Algo Front Run

As futures traders, we deal with a lot. Sometimes we have the right idea, but we don’t execute the idea properly. Sometimes we are early, sometimes we are late, and sometimes we are right on target. As a trader I can deal with that, but what I cannot deal with, is how the algorithmic and HFT trading programs are ‘stop short’ of key levels.

We know it’s not easy fighting the robots, but the playing field becomes much more difficult when the robots have been programmed to include every indicator known to futures trading. It has completely rigged the game, and one aspect of it, is how the algos front run key levels in the S&P 500 futures. Like I said above, there are all sorts of reasons for a good or bad trade, but when the algos bid or offer in front of your levels, it makes it even harder.

I spoke about this process a few months ago when @ChicagoStock put a 2071.00 bid in. At the time, the futures were trading substantially higher, and while I paid attention to his level, I never thought it would get there. But sure enough, as the day wore on the, S&P futures (ESU15:CME) started trading down under 2078.

I then started to think 2071 was being targeted. Many traders in the MrTopStep Trading Room put 2071.00 bids in, as did @ChicagoStock. As the S&P fell, it stopped short of our bid by 1 tick. Now, some traders may say we didn’t have the bid in the right place, and to that I say hogwash. Stopping 1 or 2 ticks above or below a key level is the programs stepping in. Clearly the algos do not want to sell at a key support level like 2071, so they step in front of the retail bids and lock the trader out of the trade. After making the low, the ES rallied over 10 handles right away.

Yesterday the same thing happen with @FuturesTNT. He put out 2112.50 as his level to sell. I went with him. Prior to the high, I had been saying that I thought the ESU15 acted tired so, the trade looked correct and I put my 2112.50 offer in. Again the futures pop up from 2110.00 area and start grinding higher, they look like the will print our price, then 2112.00 trades and down the ESU15 goes. We get the big unable and the algos get the green light to to help manipulate the S&P lower.

In the past, this would upset me, but now there are so many instances of this problem you end up not knowing what to do. If you lower your offer then the ES goes blowing thru your price. You keep your bid or offer in and don’t move it, you don’t get filled, so either way the game is RIGGED!!!

In conclusion all I have to say is, when you’re trading and you think your right… shuffle your feet. Give up a few ticks. Had we done that yesterday it meant the difference between no trade, and a 10 handle winner.

In Asia, 7 out of 11 markets closed lower, and in Europe 7 out of 12 markets are trading lower this morning. Today’s economic calendar starts with Jobless Claims, Chicago Fed National Activity Index, Leading Indicators, EIA Natural Gas Report, Kansas City Fed Manufacturing Index, 2 – 5- 7 Yr-Note Auctions, 10 Yr-TIPS Announcement and earnings from GM, MCD, V, AMZN, UA, SBUX, MMM, LUV, T, CAT, P, DOW, BMY, ABC, UAL, COF, CELG, CMCSA, UNP, ETFC, LLY, BSX, RTN, FCX, PHM, NDAQ, MJN, KMB, TROW, RT, CSL, RGA, WM, TRIP, DPS, CA, RSG, ALK, DGX, SYK, CB, and AEP.

Our View: I’m going to keep it short and sweet. I don’t think we go down much more, and I think things will be slow going into the end of the week. Again.. I do not think we are going up or down sharply. I believe we are in a trading range with a bias to the upside. Volume was better yesterday, and I think that means the sellers are reestablishing new short positions. That will only add more buy stops on the upside in the ESU15. Our view is to sell the early rally, and buy weakness with an upside bias.

As always, please use protective buy and sell stops when trading futures and options.

In Asia 7 of 11 markets closed lower : Shanghai Comp. +2.43%, Hang Seng +0.46%, Nikkei +0.44%
• In Europe 7 out of 12 markets are trading lower : DAX -0.32%, FTSE UNCHED%, CAC -0.08%, MICEX 0.71%, GD.AT CLOSED at 6:45 am CT
• Fair Value: S&P -6.66 , NASDAQ -8.48 , Dow -79.39
• Total Volume: 1.2mil ESU and 4.8k SPU traded
• Economic calendar: Jobless Claims, Chicago Fed National Activity Index, Leading Indicators, EIA Natural Gas Report, Kansas City Fed Manufacturing Index, 2 – 5- 7 Yr Note Auctions, 10 Yr-TIPS Announcement .
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