Market Crash, Average Book Size and How the Algos are doing

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At the time of me writing this, our Pro Elite Package is up nearly $3,000. It has so far handled the market correction and “Black Monday” event pretty well. Long 1 US Ten Year Note (Bond market) and 1 eMini S&P500 (Stock market). Hedging itself, if you will. This is our investor or more patient trader package and model.

ProfitInCrashOf15_3

Our active trader package, Active Elite, is currently positive as well, but one of its algos didn’t fair so well with the crash. I think I just know why and we now are giving the algos a new way to filter out potential trouble areas and trades.

| New Way To Filter Out Potential Trouble

Let’s examine book size. First, what is the book and how are we defining size? The book is the top ten levels of bids and asks – both price and size. So for example, it would look something like this…

10th ask sz

3rd ask sz
2nd ask sz
best ask sz
best bid sz
2nd bid sz
3rd bid sz

10th bid sz

Bid size would equal the sum of all ten levels of bid sizes at the time of any given trade.
Ask size would equal the sum of all ten levels of ask sizes at the time of any given trade.

Now, take a look at the average total bid and ask size between 9:37am to 9:43am on Thursday, August 20th, a normal down day (actually worse than normal.. it was a -2.5 sigma down day based on 20d close-to-close changes, but nonetheless a normal down day).

BookSizeNormalDay

Now take a look at the average total bid and ask size between 9:37am to 9:43am on Monday, August 24th. Yikes. The extreme and consistent low levels demonstrates a “lack of liquidity” for the big players – which destroys markets. The spikes in “liquidity” or increased size in bids barely even reached the lowest points on our “normal” day.

BookSizeCrashDay

We’ve noticed this lack of liquidity causing the algorithms problems before, but never seen it to this extent. We’re excited to add our research into our models or even create new strategies based on this type of information.

The only question I have for you is… are you using this data? Don’t you think you should? If you’re not using it, why not sign up for our alerts and trust you have the best research team a small subscription fee can buy!

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