Mrblu, Here is a bit of info about bot trading. It was from...

Mrblu,

Here is a bit of info about bot trading. It was from January this year, so fairly relevant to recent bot trading in ISN I would have thought. If you want to look into it some more check out the 'Algorithmic Trading' thread here on HC. It is a long read, so take a breath!

Although this initially pertained to a particular stock at the time, I think the main thing to grasp is that it is about making money from suckers (mum and dad investors), albeit small increments; when you buy vast quantities a few pips are worth many thousands of dollars.

If you paste this into a Word doc I think some more formatting will come through and you will see this with some Commsec cut and pastes.

Thanks in advance to Foxtrot.

Cheers,
TM.


Hi piotrvip

As I mentioned on another thread this pyramid-action is something that appears to have been going on for quite some time but something that I am not familiar with.

I'm not privy to this type algorithm so I can only speculate as to its aim.

Apart from its accumulation patterns actioned through consistent and uninterrupted purchases on the 'asking' price, there is a strange pattern to it.

My best bet would probaby be that the pyramid-buying is either a harmless way of it accumulating (i.e. the programmers found that accumulating at this pattern manages to get better VWAPS, prices etc rather than line swiping)- endless research goes into finding the 'holy grail' of accumulation; or
a more sinister 'depth testing' - that is they have both the sell and buy sides stacked by themselves and they want to buy as much from mums and dads (tree shake) and minimal from themselves - cross trades (XT).

They minimise this by buying in small lots that increase as they go and as soon as they hit their own shares and Cross-trade - XT they stop (this was suggested by how the XTs are usually near the base (end) of the pyramid and where there were 1 or more XTs the algorithm was shorter than the other 'pyramids').

Very hard to explain through words, so I understand if you have to read the above a few times, chart below to help explain :)



For GDO in particular we have a different pattern happening, we appeared to have:

1. the pyramid trading happening later in the day and;
2. strange cross trades happening earlier in the session.

For (1) refer to above, for (2), here is what happened:
Every time there was across trade (i.e. the buy and sell transaction was with the SAME BROKER) it was with a nice even number (see below) and every non-crossed trade was some random even number. Depth testing?

Later in the day the same pyramid-type accumulation bot kicked in, I am still trying to ascertain what the purpose of the bot is.

Finally, as seen below, you can see a textbook 'stealth bot' (explanation see below) which was focused on selling. Buying many small parcels at a high price to keep the ticker at the higher price and then making a quick large sell order.



Often, there are more than 1 bot working at a time, often by different funds. But this doesnt discount the possibility that there may be many bots working to disguise a ulterior motive so - i.e. having a bot making lots of smaller buy at 'ask' prices whereas the true pressure is selling a 'bid prices' usng different bots.

As requested, here are a few insights into the the Planet of the Bots (keeping up this thread's sci-fi theme)

Bon appetite...

Looking at the course of sales, Algorithmic trading (Bots) may have been involved to some degree in today's trades.
Here are some notes that I have also made on another forum for another stock that I hold.

What is a Bot?

Algorithmic trading platforms (Bots) are usually employed by trading houses Large funds/ institutional investors and wholesale investors to execute their large trades into smaller trades.

They have a special arrangement in place where they pay a flat fee and they can buy as much and have as many trades as they wish for the same price. As such, they are NOT subject to the same retail brokerage fees that retail investors are subject to.

So they accumulate funds in small parcels to either manipulate the share price or accumulate shares in small parcels so as to not affect the SP i.e. buy 10 shares every minute. But sometimes they hit a algorithm where if volume exceeds a level or SP moves rapidly it will buy/sell larger orders.

Also they are elaborately programed so if SP moves, say down quickly they can initiate sell orders quicker than you can click your mouse button.

Bots can make those constant automated trades programmed to be made every minute - they are usually the 'vanilla' bots that just accumulate shares for you according to a pre-specified formula or VWAP. These are the ones that you all seem to pick up the most, but also the least 'harmful'.

The more elaborate Bots can be programmed to make random purchases/ sales.
i.e. it will generate a random number between 1000-10,000 and make a purchase to that up to a maximum share purchase of $100,000 or if selling, sell up to a maximum of 8 million shares.

Why is this information important?

To add another level of complexity, you can have a 'stealth accumulator bot' to make automated 'dummy bids' so you focus of the bot's un-smart dummy bids (i.e. the small bids every minute) acting as a decoy for you to complain about (or to articfically affect the SP) while their true bids are going throgh as big sell orders coupled with an immediate small buy order to hide their trade (i.e. sell 1.000.000 @ 0.086 and buy 100 @ 0.087) so although they sell a large order at a low price, they make a small trade at a higher price so the ticker says the higher price > lessen panic selling > their sales getting a higher consistent price.

The opposite can also happen i.e. large buy orders with small sell orders to keep the IMPRESSION of a declining/ low share price > panic selling/ hitting stops > accumulation at lower prices. Often not only one bot is woking at a time i.e. JB Were may have the accumulator bot on while DB might have the 'stealth selling bot' operating while a wholesale investor may have a vanilla accumulator bot operating etc.

How can you idenifty a potential Bot trade?

Watch those course of sales figures carefully and ESPECIALLY those TIME-STAMPS. The answer always lies in the time stamps. Bots are instantaneous beings..they can buy and sell and sell and buy (in that order) large amounts quicker than you can scratch your nose. 1 Second = 10 hours for these computers.

However, please note that orders shown in course of sales data are for all orders. i.e. if you have in the queue 3 sell orders at 0.089 for John Smith SELLs 10,000; John Doe SELLS 20,000 and Richard Roe SELLS 25,000 shares respectively, when a fund decides to buy 50,000 shares it will appears as:

10:10:24 10,000
10:10:24 20,000
10:10:24 20,000

NOT as:

10:10:24 50,000

So this adds a second-layer of complexity without having broker-related data that asic have. Obviously, lower volume stocks are easier to identify this sort of behaviour than larger volume ones.

So the key is to find something like
10:10:24 100,000 @ 0.088
10:10:24 5 @ 0.089
10:10:50 5 @ 0.089
10:11:24 100,000 @ 0.088
10:11:24 5 @ 0.089
10:11:50 5 @ 0.089
10:12:24 1,000,000 @ 0.088
10:12:24 5 @ 0.089
10:12:50 5 @ 0.089

Should we be alarmed by Bot trading?

At the end of the day I must point out that the purpose of bots is not to significantly alter share price, it is a micro-game - a play on pips not line-swiping.

What we had today as correctly pointed out by others could potentially have been profit-taking to invest in other stocks which are close to releasing market sensitive information this quarter and to have greater exposure to them (as they perceive their annoucements to come earlier or to have more upside potential); or shorting (i.e. big boys know the sentiment is hold/ buy/ hyped up due to announcements soon to come, so they gamble that traders/ short-terms holders will be disappointed or impatient with share retreats and panic sell shares into THEIR loving arms for a lower price - so THEY have greater exposure to those announcements without having their trading money tied up in the stock than the mums and dads who held them for weeks patiently beforehand).

But just remember: shorters have to cover their positions; and when announcements in other companies are made and they 'sell on the news' they will probably want to come back in and reclaim their seats.

Hope this helps :)

P.S If you are interested in my ramblings and like to follow my analyses and comments as I travel between stocks from time to time (its unlikely you would see me on the GDO thread again), add me to your favs :)

Foxtrot