Tick Filtering by Malcolm Morley

Tick Filtering by Malcolm Morley

Every now and then one see posts over concerns about a market maker presenting prices differently that the way in which we perceive the ‘real’ market. Frequently this take the form of outrage against stop running, although this wasn’t the case in the thread I’ve taken this extract. Anyway, my point below is that any filtering can basically favour us, providing we are flexible in out approach.

Every now and then one see posts over concerns about a market maker presenting prices differently that the way in which we perceive the ‘real’ market. Frequently this take the form of outrage against stop running, although this wasn’t the case in the thread I’ve taken this extract. Anyway, my point below is that any filtering can basically favour us, providing we are flexible in out approach.

I’ve never really understood the concern over tick filtering.

Let’s say for a moment that there is a mythical ‘real’ market, and various market makers base their prices around that. Some might dampen price movements a bit, while others elect for a more volatile approach. None of this can be particularly extreme, as any outside the norm will be arbitraged – no matter what it says in the small print.

Now providing spreads are common throughout neither dampened nor volatile is particularly disadvantageous to us, because each one favors a different trading approach. A volatile price feed favors scalping and support and resistance type trading, but is murder on stops, breakout trading and trend following, while the reverse is true if trading a dampened feed.

If one concludes that there is a bias in the price feed, simply pick a style that suits, or change market maker. If not, we should be concentrating on beating the market in general.

~chaffcombe

I have lived and breathed trading ever since trading fx professionally in London, Toronto and Philadelphia in the early 70's (yes I know that shows my age!). While my professional career subsequently took me from the trading desk to designing treasury systems for some of the world's leading financial institutions, my desire was to always trade for myself. As a consequence, following 5 years with a major international stock-broker (the last 3 as... More