Events, Actions, and Trading Ecosphere Formal Analysis

Trading is not simply about putting in place appropriate risk management strategies and placing a trade, but about event, action, and what happens in the trading ecosphere.
The trader who considers this wider structure - preferrably through formal analysis of constructs such as functions, plans, sections, and architectural diagrams - is well placed to take advantage of trading opportunities by understanding the actions of the different protagonists and antagonists in the market that affect that particular trade.
The functions, plans, sections, and architectural diagrams are key enablers of this understanding and provide different axes of understanding over and above traditional views such as candlestick charts and point and figure charts. This diagrammatic methodology and supporting theories allow the trader to exploit the interstitial condition between the elements of the system of systems.
The simplified structural diagram illustrated below is an elementary illustration of the technique, based on a trade on (AIM listed) Baydonhill (BHL) with an analysis on predicted actions of the largest shareholder (Ekwienox FX Ltd at 72%) against a limited planned trade against the traded 3.5 - 4 million shares. The trade illustrates trading opportunities against trading events and presents an assessment of trading uncertainty.

Anatomy of a Trade - Sequence Diagram Analysis

Standard non-algo trading methodology but using a technology trading platform (SuperMontage for example) rather than floor-trading. Use Case scenario and sequence diagram analysis below:

1) Portfolio Manager calls trader to buy large number of shares in company A

2) Individual investor decides to sell small number of shares in company A through online broker

3) Trader enters order through Super Montage across multiple levels of market. He buys part of the order from the broker and the balance from other market participants

4) Trades reported through ACT (Automated Confirmation Transaction Service)

5) NASDAQ MarketWatch analyst monitors traders to maintain market integrity

6) At NASD Regulation analysts monitor long term trading patterns to maintain market integrity

7) Investor immediately receives confirmation of the order's execution

8) Portfolio Manager immediately receives confirmation of the order's execution

Fully Parsed Trading Ecosystem Denotation Control Grammar

Areas to consider in the construction of a grammar suitable for expressing the post-modern and post-information age trading ecosystem:

- Parsing by a wide-coverage grammar
- Denotation of a grammar
- Context free grammars used to specify syntax and serve as a basis for parser design
- Dynamic theory of a grammar called Procedural Grammar, where grammatical knowledge reduces to the union of parsing and generation procedures. Grammatical constraints are constraints on processing.
- Lexicon: Contains syntactic and semantic information about words
- Knowledge Base: A formalised representation of a vast quantity of financial knowledge: facts, rules of thumb, and heuristics for reasoning about the objects and events in the trading ecosystem
- Glyphs: The kinds of glyphs to be drawn and the vocabulary and grammar for speech and natural language systems must be known in advance
- Vocabulary: Financial trading tasks require unnatural restrictions on vocabulary (e.g. list of legal names) and specialised phrases - "high frequency trading", "algo trading", "low-latency connectivity", "direct market access", "trend following", etc
- Concepts: Specialised financial concepts
- Conceptual Information: types of entities, timing information, intent of actions
- Language: Visual language used in the financial markets (e.g. Bar Charts, Candlestick Charts, Volume Charts, Equivolume Charts, Point & Figure Charts)

Deconstruction of Extreme Volatility

If we examine financial neo-modernist theory, we are faced with a choice: either accept the mainstream view of the risk component of volatility or conclude that volatility, somewhat ironically, has objective value. Thus, an abundance of situations concerning the fatal flaw of volatility vs risk classes exist. In utilising automated complex event processing, systematic funds effectively affirm the use of pseudo-intelligent simulacra - "robotraders"; as algo trading matures into the realm of 10,000:1 for peak second spikes we have entered a post-time - and certainly post-information - age which deconstructs fundamental financial realism.

The characteristic theme of critiques of algo trading discourse is the role of the market participant as market mover. In a sense, the term ’financial realism’ denotes not deconstruction as such, but subdeconstruction - in many respects wide fluctuations and extreme volatility are a result of the failures of demand management across multiple asset classes during high frequency trading. With there being no practical limit to volume spikes, and the subsequent futility of modernist objectivism intrinsic to many trading strategies, we can say that many (most?) funds do not understand the new trading ecosystems - and perhaps even lack the language to articulate such an understanding.

It need not be so, in other difficult areas of human endeavour new ways of thinking are emerging - see "Lethal Theory" by Eyal Weizman - and in this forum we will try to move this forward in our areas of interest.

Welcome to the Enduring Second

Here I'm going to post about old school and modern RPGs, transition from tabletop roleplaying to computer roleplaying games (CRPGs) and the synergies that I see between the two. I'm interested in new mechanics for conflict and obstacle resolution, in particular non-random mechanics, new takes on solo role playing,and the dynamics of playing across the internet.

More soon.