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The "Fractal" Limit Order Buster: The Latest Market Manipulation Algo Gimmick

Tyler Durden's picture


Yesterday, just after 8 pm Eastern we presented a very curious move in NatGas trading on the NYMEX when under very light volume, the NG performed something akin to a sine wave expansion, with about 12 peaks and troughs with ever increasing amplitude, until ultimately it triggered a major sell off when it appeared to touch off an avalanche of limit orders about 3% from the prevailing price, leading to an almost instantaneous 8% drop in Natgas which was promptly recovered. We dubbed this a fractal pattern, and after a follow up with the trade forensics experts at Nanex, it appears this was a very spot on designation, as zooming into the pattern indicates increasing levels of self-similarity and complexity. Yet aesthetic observations aside, this latest algo appears to be nothing more than a limit order-busting market manipulation device, whose sole purpose is to destabilize and generate volatility for the creator of the algo. Curiously, as Nanex indicates, the algo is not limited to Natgas but also appears to recur in other far more liquid instruments, such as the SPY, when a comparable fractal pattern was observed in broad daylight. As to how the algo itself profits from the price instability it generates: we are unsure. One could certainly trade the increased volatility through derivatives, by buying vol cheap in advance of such as limit order triggered waterfall, especially in very thin markets, and then selling the vol at the apex of a given move. Obviously, this is merely speculation. That said, we are dead certain Finra and the SEC are promptly pursuing the trader responsible for this glaring attempt at market manipulation in order to find out precisely how one profits from such fractal algorithms.

Below we present increasing levels of granularity associated with last night's attempt to manipulate the price of NatGas, courtesy of Nanex.

In the following chart, trades and quotes are plotted sequentially as they occur. As such, no data is lost. Exchange's bid and ask prices are colored according to the legend on the left. Trades are colored in white.

Activity before the drop, prices only:

Activity before the drop, prices and size:

Activity after the drop, prices only:

Activity after the drop, prices and size:

Zoom in of the pattern:


But wait there's more. It's one thing to manipulate a thinly traded, specialized market. It is another to go for the SPY, which is precisely what this next HFT algo seems to have done.

Exchange Code Legend:

1     NQEX     Nasdaq Exchange
3     NYSE     New York Stock Exchange
4     AMEX     American Stock Exchange
5     CBOE     Chicago Board Options Exchange
6     ISEX     International Securities Exchange
7     PACF     NYSE ARCA
8     CINC     National Stock Exchange
9     PHIL     Philidelphia Stock Exchange
11     BOST     Boston Stock/Options Exchange
17     CHIC     Chicago Stock Exchange
59     NTRF     NYSE Trade Reporting Facility
60     BATS     BATS Trading
63     BATY     BATS Y Exchange
64     EDGE     Direct Edge A
65     EDGX     Direct Edge X


Obviously we were joking that someone, anyone, at the SEC or Finra would very possibly care about this. We also are joking when we say that as ever increasing examples of this kind of market manipulation become prevalent and demonstrated by sites such as Zero Hedge, that the investing public will rush to put their money into a casino which is more and more obviously geared to profit only those whose HQs are either located south of Houston street, or who can create nanosecond sine waves designed merely to knock out anyone stupid enough to still trade stocks.

But more seriously: it appears this is nothing short of an attempt to push people away from limit orders and to use market exclusively. Alas, the problem there is that one will likely be subpennyed to the point where the implementation shortfall is large enough to cause substantial losses... Very likely by the very same firm that was responsible for this algo to begin with.


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Thu, 06/09/2011 - 14:31 | 1355192 Mercury
Mercury's picture

It's like a mine sweeper.

Thu, 06/09/2011 - 14:37 | 1355204 Don Quixotic
Don Quixotic's picture

If you really want to see something crazy look at the volume for JPM Aug options. Specifically the Calls @ 43 and Puts @ 38... WTF!!!!!

Thu, 06/09/2011 - 14:45 | 1355262 quintago
quintago's picture

Hard to see how it's going to spike...which leads one to believe that a certain caller, err collar of the market knows something.

Thu, 06/09/2011 - 15:16 | 1355350 Monedas
Monedas's picture

Yeah ! Like the one which has the rotating reel of chains !

Thu, 06/09/2011 - 15:47 | 1355449 Fancy Bear
Fancy Bear's picture

Or v-tach. Let's call it "Torsades", as in

Thu, 06/09/2011 - 14:35 | 1355193 Conrad Murray
Conrad Murray's picture

Mary Schapiro is an enemy of the United States of America; a true domestic terrorist. It is time for her to be called out, put on trial, and sent to prison. Are there no individuals in Congress willing to act in order to prevent our capital markets from completely collapsing? Will the State force citizens to take action on their own?

Thu, 06/09/2011 - 14:59 | 1355297 Cognitive Dissonance
Cognitive Dissonance's picture

Are there no individuals in Congress willing to act in order to prevent our capital markets from completely collapsing?


Will the State force citizens to take action on their own?

Yes. But will we? Moral cowardice is at an all time high and rising. Bullish actually.

Thu, 06/09/2011 - 15:00 | 1355310 jerry_theking_lawler
jerry_theking_lawler's picture

sorry, you are wrong. they just haven't pushed the right people yet. they are playing with the 'investment' community. wait til this spills over to the people living start messing with these peoples lives, etc, that is when you will have real trouble....jmho

Thu, 06/09/2011 - 15:15 | 1355345 Cognitive Dissonance
Cognitive Dissonance's picture

Maybe you didn't understand my answer. I agreed that 'they' would need to force the citizens to fight back. I then questioned if the people would actually fight back.

Just exactly what do you think will happen when the first brave souls start pushing back? The American mind (I am an American) is for the most part conditioned to respond to fear, a conditioning that has been implemented over the last 3 generations. Turn up the fear and the American mind screams for it to be taken away. So when "they" start messing with the "right" people what do you think will happen to the fear index when those "right" people are beaten down?

In fact I would like to know who those "right" people are. The middle class? The numbers on food stamps are through the roof, well beyond the poor class. Real unemployment is more than 20%. Property values have dropped by a third from the peak and are still dropping. The market is still lower nearly 15 years later. Real wages have declined over the last 20 years. This isn't messing with the "right" people? The "right" people will put it off and put it off until they have lost everything.

People will only act like they have nothing left to lose when they have nothing left to lose. By that time the screws will be turned so tight that it will take a massive uprising to break free. The elite will not let go easily. In fact the sociopath will destroy everything rather than give it up.

The time is now, not later.

Thu, 06/09/2011 - 15:28 | 1355394 GeneMarchbanks
GeneMarchbanks's picture

Not to mention that as fear takes over you can't really get at the real causes of your impoverishment, so you turn on each other. Angry people usually aren't clear minded.

Thu, 06/09/2011 - 16:42 | 1355599 CPL
CPL's picture

People assume anger and cowardice as seperate things.  They are two sides of the same coin.  Both require someone to ignore reality.


now rage, is emotion that is worth talking about.  Attack until it's dead, bloodied, beaten and useless.


Otherwise CD is correct.  Cowardice is bullish.  Being angry is the exact same as cowardace if nothing is done about it.  I think we've all told our kids it's wasted energy at one point.  Stupid that society builds a idea of anger being useful only if it's spend on mopping.  Anger is useful only if the outcome is the desired effect.

Thu, 06/09/2011 - 15:32 | 1355401 duo
duo's picture

Wait until participation in demonstrations, or maybe even voting for the wrong candidate, is a condition for having your UI or Snap payments stopped. 

Thu, 06/09/2011 - 15:21 | 1355361 SRV - ES339
SRV - ES339's picture

None of them own houses (or used to), buy gas, pay for heat / electric, buy food, pay usurious rates on credit cards, have been laid off, been cut off unemployment?

Thu, 06/09/2011 - 19:45 | 1356317 mkkby
mkkby's picture

You are seriously delusional.  I told a story about how I threw away a parking ticket.  The 6 people at the table expressed real fear just imagining disobeying authority in such a minor way... even after I explained that's it's been 2 years and nothing has happened to me.  These people live in abject fear of authority.

Thu, 06/09/2011 - 15:22 | 1355377 MayIMommaDogFac...
MayIMommaDogFace2theBananaPatch's picture

Could you pass the Seroquel, please?  <drool>

Thu, 06/09/2011 - 15:25 | 1355387 mfoste1
mfoste1's picture

haha americans are far far too lazy and brainwashed by the tele to do anything radical. More than half of americans are either comatose by illicit drugs, legal drugs, tobacco or alcohol.

Thu, 06/09/2011 - 16:33 | 1355570 The Count
The Count's picture

Keen observation. There is a reason that in spite of the so-called war on drugs (which is a sham) the powers that be not only profit from the drug trade (hmmm, remember the billions Wachovia laundered and only got a fine for) but keep the masses pacified by dope.

Thu, 06/09/2011 - 18:18 | 1355995 Oh regional Indian
Oh regional Indian's picture

Interesting. On one side, the west, Japanese business-men in suits lie about in drink induced stupor, the anti-thesis of their daytime attitude.

One the other, the east, Sister Britain, sozzled tot he gills in warm beer and fine scotch. Lads and laddettes, sprawled all over Industrial England, sozzled. 

Austraila is an alcoholic nation too, just like Late Britain.

I think the comatose-ness is global now. Indians are really hard to rile up. Can't miss TV.


Thu, 06/09/2011 - 14:33 | 1355194 truont
truont's picture

That said, we are dead certain Finra and the SEC are promptly pursuing the trader responsible for this glaring attempt at market manipulation in order to find out precisely how one profits from such fractal algorithms.

Don't hold your breath...

Thu, 06/09/2011 - 14:37 | 1355198 CPL
CPL's picture

you know what counters a fractal algo.


One.  Single.  Integer.  One number that's it.


Gimme a sec, allow me to step on this.

Thu, 06/09/2011 - 14:42 | 1355213 CPL
CPL's picture

There we go...fixed.


Fucking dick heads had it everywhere.  All it takes is one number to counter an HFT to spin into the ditch.  One single number. 

Anyone have it yet?  Work it out.  Be back in an hour to see if anyone figured it out..

Thu, 06/09/2011 - 14:43 | 1355254 CPL
CPL's picture

Anyone want to see a magic trick.  I will help push the "gains" on two major traders into the ditch.

Thu, 06/09/2011 - 15:13 | 1355336 Spalding_Smailes
Spalding_Smailes's picture

With what .... ? 


So from some cabin in saskatchewan you have become a market maker


I guess the bc bud is getting more potent all the time ... Lol


Mr. Singularity

Thu, 06/09/2011 - 15:18 | 1355362 GoinFawr
GoinFawr's picture

Shouldn't you be unloading someone's piano right now?

Thu, 06/09/2011 - 15:24 | 1355378 Spalding_Smailes
Spalding_Smailes's picture



I did two runs for Caterpillar and another run down south already ( started at 4:30 a.m. )


$440.00 is enough for today I'm going out drinking ( patron ) with the godfather before tipoff

Thu, 06/09/2011 - 16:55 | 1355671 CPL
CPL's picture

That's all you did today?  Did you cash out baby boy?

Thu, 06/09/2011 - 17:03 | 1355692 CPL
CPL's picture



TADA!!!  Magic trick done.  Ass.  Not a market maker.  I trade against machines, I build them, put the shitacular software on them and I have an iron ring as a master engineer.


The math they are screwing around with is EASY to understand.  Basic shit.  Grade 7 math.


Would you like to see another magic trick?  Just for you I put in a cock block trade for CAT btw since you like holding long.  1 stock @ 0 dollars.  About what the company is worth.  I bet the HFT's that helped you today, will be your worst nemisis tommorrow.

Fri, 06/10/2011 - 03:39 | 1357112 Dave Thomas
Dave Thomas's picture

Nice Shit analogy Rick.

Thu, 06/09/2011 - 15:03 | 1355321 Whatta
Whatta's picture


Thu, 06/09/2011 - 17:01 | 1355647 CPL
CPL's picture

Yes and close.




Buy one stock in any of the "top 200" put your cover price at zero and leave it alone.  A human can understand what is worth shit.  An ALGO can't.  So long as you have 1 share at 0 dollars that ALGO sits and thinks about the bids.  Calculates it then...flash crash...or flash pump.

Try it.


Apple looked like it was having a great day until I shorted one single stock  Then I shorted a single stock on BAC, JPM, GS, C and then watched them start to collapse around 15 minutes later.  Been fucking around with the home HFT to see how it reacts.  Want to have company dump.


Short a tiny amount of shares and put the price at zero.  You aren't trading with people. You are trading with very, very dumb machines.

Thu, 06/09/2011 - 17:08 | 1355743 Goldtoothchimp09
Goldtoothchimp09's picture

i can put an order at 0.01 ...but not zero??

Thu, 06/09/2011 - 17:16 | 1355797 CPL
CPL's picture

There is an amazing utility called a phone.

Steps required for retail traders.

  1. pick up phone
  2. call broker
  3. argue with broker
  4. put price in while they argue about your money and tell them to fuck off some more or give me the manager.


Thu, 06/09/2011 - 19:45 | 1356206 GoinFawr
GoinFawr's picture

! Guys at a buncha desks gonna be scratchin` their headz instead of their nutz early if you wanna save them from transferring a rash.

Thu, 06/09/2011 - 18:36 | 1356044 mickeyman
mickeyman's picture

If a butterfly flaps its wings in a jewellry store, can we expect the Comex to default?

Thu, 06/09/2011 - 19:51 | 1356307 GoinFawr
GoinFawr's picture

only if five margin hikes in as many days doesn`t buy them some time. Wait a sec, does that include the de facto default of delivering 'physical' in the form of SLV shares?

Thu, 06/09/2011 - 21:58 | 1356696 HungrySeagull
HungrySeagull's picture


Here is someone who sees without seeing.

One day there will be a one hell of a butterfly and when IT (Butterfly or Computer Tech take pick) flaps a Storm rises.





Thu, 06/09/2011 - 14:34 | 1355202 TruthInSunshine
TruthInSunshine's picture

I'm glad the exchanges are keeping close tabs on all of this, and minimizing any perception of anything funny or strange at play, because even though there's mostly central bank fiatski in continuous recirc mode propping up precious equities, they certaintly wouldn't want retail investors (other than the captured and involuntary 401(k)/IRA/Pension crowd) to ever think the markets could possibly be rigged, because those people might not choose to return to solid, long-term investing in equities traded on the public exchanges, which are clearly traded under a well-oiled system that represents a true bedrock of integrity, order and equal disclosure.





Thu, 06/09/2011 - 14:38 | 1355207 fuu
fuu's picture

Aaaaaaaaaand this is why i don't even bother trading anymore. It is no longer investing, it is pure gambling.

Thu, 06/09/2011 - 14:45 | 1355260 dracos_ghost
dracos_ghost's picture

But by all means, don't play online poker. That's evil.

Thu, 06/09/2011 - 14:56 | 1355293 fuzed
fuzed's picture

No the Poker people are being taken down, because their game's too honest.

HOUSE Bank Rules, boys & girls.

Thu, 06/09/2011 - 15:31 | 1355392 slewie the pi-rat
slewie the pi-rat's picture

i think we can safely make that past tense, now:  "...have been taken down..." 

house way = no freaking way, jose!

this may help the brick'n'mortar card games.  speaking of which, i'm looking for a stake into the $1 mil buy-in holdem tourney.  can someone help me design a goobermint grant request? 

Thu, 06/09/2011 - 15:49 | 1355454 NotApplicable
NotApplicable's picture

From what I hear from friends locally, casinos are removing low-profit card rooms and replacing them with video poker machines.

Thu, 06/09/2011 - 14:36 | 1355208 RockyRacoon
RockyRacoon's picture

Oh, they'll address this... in 2015 or thereabouts.   Just in time for nobody to give a crap.

Thu, 06/09/2011 - 14:37 | 1355214 Azannoth
Azannoth's picture

I have not 'topped-up' my trading account in over 1 year, what I have there now I trade with, and see it as a lottery ticket

concurrently I have put 75% of my disposable income in silver/gold

Thu, 06/09/2011 - 14:53 | 1355279 John McCloy
John McCloy's picture

Interesting OT story. I was watching pawn stars and this old man with a beautiful 32 Lincoln worth upwards of 100k settled at 95k and traded it in instantly for 70 1 oz. Gold coins. At the time of the airing he said, "Gold is the best investment out there because the dollar is worthless"

  At the time Gold was 1350. So pops is up about 14k since sold his car. His paper would have been worth less than the 95k.

Thu, 06/09/2011 - 15:11 | 1355349 ReallySparky
ReallySparky's picture

I plan on buying a lot of beautiful things like that Lincoln after the hard crash/reset.  I am sure that he is keeping track of his Lincoln and will buy it back later for an 1/8 of one of his  gold coins.

Thu, 06/09/2011 - 15:39 | 1355435 John McCloy
John McCloy's picture

Deflate it baby. Prudent savers should be rewarded with better prices for not being reckless. The Fed is trying to impose the opposite. The definition of moral hazard.

Thu, 06/09/2011 - 14:58 | 1355307 Azannoth
Azannoth's picture

The old saying buy low sell high, well I try, but everytime I see a stock that is down like 50% over the past few months and looks stable even in an uptrend, the minute I buy it starts going lower after 3 days it's usually down like 10% after 2 weeks like 30% and after 1 month another 50%, I just wish I could simply reverse all my trades than I'd be making monkey like 90% of the time :(

However the market is still up, WTF? I should have bought APPL ^^

Thu, 06/09/2011 - 15:27 | 1355382 Rynak
Rynak's picture

I have not 'topped-up' my trading account in over 1 year, what I have there now I trade with, and see it as a lottery ticket

If you already are doing it just for fun, you may as well don't actually invest cash, and instead gamble via on of those stockmarket simulators (hint: Don't use VSM, it's buggy). You still get to play the game for fun, but take no financial damage. And if that sounds too boring to you, and you want there to be some "risk", turn it into a competition: Get someone else to play against you.... both put something into a pot, winner takes it all.

Thu, 06/09/2011 - 14:36 | 1355215 Quinvarius
Quinvarius's picture

I think this would only be useful in generating an exit opportunity from an existing options position.  That is my thought after looking at it for about a minute.

Thu, 06/09/2011 - 14:36 | 1355216 tmosley
tmosley's picture

This is why physical gold and silver are the only practical method of wealth preservation today.

Thu, 06/09/2011 - 15:11 | 1355347 Spalding_Smailes
Spalding_Smailes's picture

Don't forget about your pepperoni

Thu, 06/09/2011 - 17:45 | 1355906 knowless
knowless's picture

i wish ide bought some decent salami a while back, last time i looked was like 18$/lb or more..

Thu, 06/09/2011 - 14:36 | 1355218 Jack Mehoff
Jack Mehoff's picture

We should come up with a name for the chart pattern.

Thu, 06/09/2011 - 14:48 | 1355256 Mercury
Mercury's picture

The corkscrew! The blood funnel! The spirochaete!

Thu, 06/09/2011 - 14:51 | 1355287 Cash_is_Trash
Cash_is_Trash's picture

"The first thing you need to know about Goldman Sachs is that it's everywhere. The world's most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money."

== Matt Taibbi, Rolling Stone, July 13, 2009

Thu, 06/09/2011 - 16:40 | 1355595 cougar_w
cougar_w's picture

That rant by Taibbi has become canon, and should be. It is one of the more inspired and revealing pieces to come out of the entire multi-year clusterfuck. The GS characterization will haunt them for a century. Even if they die from it.

Thu, 06/09/2011 - 19:13 | 1356161 Fred Hayek
Fred Hayek's picture

Whoever came up with "Squid pro quo" to describe their purchasing of influence at the ny times deserves some credit too.  That one's new but it's got legs.  8 of 'em!

Thu, 06/09/2011 - 14:41 | 1355219 cougar_w
cougar_w's picture

Quantum foam. I used that in one of my stories a long time ago:

Swinging the market so fast nobody can catch it, trading the ups down and the downs up and skimming a few cents each play, millions of plays a second. If you have a highly refined waveform you can fit an almost infinite number of trades into a finite span of time.

Or at least, that was the case when all this was still fiction. Do note however that she pulled if off without anyone knowing what she was doing, because the exchange metrics couldn't keep up with the speed of her waveform. These guys are rookies, but they'll step it up too. One of these days, they'll be doing what my fictional character did, and you'll only know it because the volume of trade goes throught the roof.

Fortran only made a couple thousand bucks, but she's not a greedy bastard. The actual profits one can take are really huge. And the actual market does not move at all from the LTM averages. But do watch the volumes ...


Thu, 06/09/2011 - 14:41 | 1355248 gratefultraveller
gratefultraveller's picture

OT Hey cougar_w, any news on your book? I enjoyed reading the excerpts linked by Cog Dis, and would love to read more.

Thu, 06/09/2011 - 15:06 | 1355317 Cognitive Dissonance
Cognitive Dissonance's picture

Five chapters are available here. If Cougar would leave his damn new electric powered bike alone and get back to writing we would have more chapters to drool over.

Thu, 06/09/2011 - 16:19 | 1355543 cougar_w
cougar_w's picture

Hah. There is some truth to that. However it is less the bike (which is also often ignored) and more the day job and family obligations. I need to get rich first, then maybe I can do some serious writing.

Though without the burdens of a hard life, will my writing lose it's sharp, cutting edge? There are risks any direction you go.

I should just let Diamond do the writing. There's a thought.

Thu, 06/09/2011 - 16:15 | 1355533 cougar_w
cougar_w's picture

You are very kind. Actually I've been thinking about making the book an online work, and people could then enjoy it as it developes. Of course that's like watching sausage being made (meaning you might not enjoy the process as much as you would have enjoyed the product) but sausage-making just how writing works, or at least my version of it is that way.

If ever I do that I'll post a link where the current chapters reside.

Having a demanding readership is probably the only way I'll ever get the greater work anything close to done. The experience at ZH has been generally positive and I am encouraged to give it a try.

Thu, 06/09/2011 - 14:38 | 1355227 onlooker
onlooker's picture

This second post gives understanding to the first post. Thanks, it is unsafe out there.

Thu, 06/09/2011 - 14:38 | 1355228 Cdad
Cdad's picture


I should warn you that whenever I talk to people about "The Algo" and how it can generate trades in really unusual ways and at really interesting levels, people unanimously agree that, and I quote, "these trades don't mean anything."

I tell you this so that perhaps you can focus your news coverage on more important matters so that you can gain an even broader know, like the subject of how the Weiner Effect has called into question whether or not "sexting" is cool anymore, and the implied impact on the telcos.

But I am here for you if you still want to talk about The Algo, how it destabilizes markets, and how HFT firms use that kind of thing to do God's work and make profit at the same time, man.  Because for me personally, that issue really ties the room together...and I don't believe that "these trades don't mean anything."

Thu, 06/09/2011 - 14:42 | 1355231 Eireann go Brach
Eireann go Brach's picture

The SEC will find that Weiner uses the same porn sites as their team!

Thu, 06/09/2011 - 14:43 | 1355237 Timmay
Timmay's picture

Sweet. Virtual Viruses.

Thu, 06/09/2011 - 14:43 | 1355238 Stuck on Zero
Stuck on Zero's picture

That is a classic runaway feedback through an amplifier with an eventual gain limit imposed by an AGC or current limit.  It is the same effect as the screeching microphone on stage.  The frequency is usually set by the harmonic resonance of the system which in this case is about 4.5 seconds.  Exactly what has a resonance at 4.5 s in this market?

Thu, 06/09/2011 - 14:46 | 1355251 Cdad
Cdad's picture

Exactly what has a resonance at 4.5 s in this market?

I'll take a shot:  Netflix shares?

Thu, 06/09/2011 - 15:22 | 1355364 Kevin... Who su...
Kevin... Who suffers from Cassandras curse's picture

A negitive feedback loop, that can't adust fast enough?

I don't see the AGC part?


Thu, 06/09/2011 - 15:21 | 1355373 Ident 7777 economy
Ident 7777 economy's picture

Under-damped loop.

Delayed AGC can also result in 'pumping' if the time constant(s) (attack, delay, sustain, release) of the AGC has issues ...


Thu, 06/09/2011 - 16:15 | 1355521 Kevin... Who su...
Kevin... Who suffers from Cassandras curse's picture

A P.I.D. loop, with to much D. gain? or not enough? which is it?  Am off in left field?

I never thought about it, but it seems that you might write a program for H.F.T


with a P.I.D loop of some sort built in.  Does that make sense?

Thu, 06/09/2011 - 15:24 | 1355365 Ident 7777 economy
Ident 7777 economy's picture

 Exactly what has a resonance at 4.5 s in this market?

-  - - -  - - -  - - -  - - -  - - -  - - -  - - -

 Eyeball --> brain --> fingers/keyboard (MIL; man-in-loop) time-constant loop?


 'Man' no match for speed of algo ...


Wonder how many 'steps' or states (as in 'state machine') this algo has, and, does it learn or is it adaptive as to strategy or time constant changes ...


Thu, 06/09/2011 - 16:10 | 1355518 Stuck on Zero
Stuck on Zero's picture

Brilliant analysis. +1.

Thu, 06/09/2011 - 14:43 | 1355239 john_connor
john_connor's picture

This looks like the expanding megaphone top pattern that has been showing up everywhere from 1-5 minute charts all the way up to daily.  If so, we would have more downside to this leg of the oscillation before the next leg up, which should produce a new high before collapsing.

Thu, 06/09/2011 - 15:47 | 1355461 john_connor
john_connor's picture

Update.  The fractal behaved as expected with a big final up wave (e wave) before collapsing.  Check out the 5 minute Nasdaq chart to see it very clearly.  The SnP and Dow moved in a similar fashion, however the Naz was amplified.

Thu, 06/09/2011 - 14:44 | 1355246 LawsofPhysics
LawsofPhysics's picture

How much more data does the SEC need in order to unplug all the fucking HFT bots?  More real wealth stolen via HFT firms.

Thu, 06/09/2011 - 14:44 | 1355249 omi
omi's picture

On SP, it looks more of a failed W (didn't build 2nd leg up) following everyone liquidating position on failure to get any lift.


Regarding the NG contract, I think someone is trying to implement my insane data over trading exchange protocol

Thu, 06/09/2011 - 14:46 | 1355252 RobotTrader
RobotTrader's picture

Some "Algo" is getting squeezed on Moody's, up 6% to new 52-week highs.

Mark Zandi will be enjoying plenty of hookers and booze at The Hamptons this summer.

Once again, the "Dismal Scientist" who dreamed up all those phony AAA-ratings for all the MBS/CDO/Squared/Cubed lotto balls got off scott-free and is now luxuriating in luxury with his stock option gains.

Thu, 06/09/2011 - 15:32 | 1355397 Thisson
Thisson's picture

Everything is AAA if it has enough "enhancement"

Thu, 06/09/2011 - 14:44 | 1355258 chet
chet's picture

I'm glad that assets in the US are valued only on solid fundamentals, and not on the whims of some assholes messing around with computer programs.

Thu, 06/09/2011 - 14:51 | 1355272 GeneMarchbanks
GeneMarchbanks's picture

Maybe next time the chart pattern can spell out: MANIPULATION.

Thu, 06/09/2011 - 15:58 | 1355478 NotApplicable
NotApplicable's picture

It's already there. Try squinting.


Thu, 06/09/2011 - 14:48 | 1355274 swissinv
swissinv's picture

These algos are getting more and more artistique. Are the 19 old PHD's meanwhile using Fractint for coding?

Thu, 06/09/2011 - 15:08 | 1355320 plocequ1
plocequ1's picture

Dollar is up, Stocks are up. That new Hal 7000 software is amazing. Gravity proof, Math proof, Tom O'Brien proof.... WOW!!!!

Thu, 06/09/2011 - 14:48 | 1355276 the not so migh...
the not so mighty maximiza's picture

create your dips gentlemen, the new hal7000

Thu, 06/09/2011 - 15:06 | 1355294 swissinv
swissinv's picture

Mabye just the way how to unwind a Bernanke put... Tempted to short NG but common sense says not to short ANYTHING under this market conditions in order to avoid feeding any black swans or nene gooses.

Thu, 06/09/2011 - 15:00 | 1355301 svc101
svc101's picture

Can someone kindly send a reference as to why this algo is in breach of

any securities laws? As we have already ceded our markets to AI, why

should there be any concern as to what they do?

Thu, 06/09/2011 - 15:38 | 1355416 JohnG
JohnG's picture


Section B1iA


Quote stuffing is ILLEGAL, displaying quotes without intent to trade is ILLEGAL.

Fri, 06/10/2011 - 09:54 | 1357652 svc101
svc101's picture

Thus all HFT activity violates this as well?

Thu, 06/09/2011 - 15:05 | 1355316 cat2
cat2's picture

I'm waiting for my portfolio to become self aware.

Thu, 06/09/2011 - 22:53 | 1356813 Mec-sick-o
Mec-sick-o's picture

LOL, I hope you programmed at least some neural networks.

Thu, 06/09/2011 - 15:05 | 1355318 Racer
Racer's picture

And looks like they are out to get any stops on open shorts today!

Thu, 06/09/2011 - 15:09 | 1355328 Dreadker
Dreadker's picture

Does this mean that Skynet will be nuking us all soon?  If so i'll start looking for that john connor bloke ;-)

Thu, 06/09/2011 - 15:07 | 1355332 garbled
garbled's picture

Wouldn't the trick to make money off this be to cause the sine wave, wait for the crash, buy the dip, and then sell the correction?  The wave itself would be a zero-gain, so you would make money off the bottom of the crash to the recovery point by being on the other side of all those limit orders.

Thu, 06/09/2011 - 15:09 | 1355341 Dreadker
Dreadker's picture

Thats what i was thinking... keep expanding the buy/sell sinewave till you net a big stop loss trigger then scoop up everything below the original price... could be to gain profit or maybe increase share holdings in a target company....

Thu, 06/09/2011 - 15:14 | 1355355 American idle
American idle's picture

That plot has wayyyy too much gain.
Little phase margin = instability.

Thu, 06/09/2011 - 15:08 | 1355337 Alcoholic Nativ...
Alcoholic Native American's picture

The whole market is a gimmick......a system set up to chase maximum profits propped up by an.......unlimited budget.   The world the economy is being free floated by the FED at this point.

Thu, 06/09/2011 - 15:14 | 1355348 American idle
American idle's picture

Ah yes, the old undamped sinusoid trick.
Normally, properly compensated transfer functions do not exhibit such instability.
Perhaps it's time for those eggheads to run a bode plot on their algos.

Thu, 06/09/2011 - 15:17 | 1355360 slewie the pi-rat
slewie the pi-rat's picture

" appears this is nothing short of an attempt to push people away from limit orders and to use market exclusively."

crack that whip!  YouTube - Rawhide Blues Brothers

Thu, 06/09/2011 - 15:25 | 1355376 GoinFawr
GoinFawr's picture

i prefer the DK's version

Thu, 06/09/2011 - 15:24 | 1355372 EB
EB's picture

Dress rehearsal was the night prior.

Looks like Tabb Group eventually worked out the kinks in the Mandelbrot engine.

Thu, 06/09/2011 - 15:25 | 1355389 Spalding_Smailes
Spalding_Smailes's picture

What do you think about the long term prospects of LNG exports from the USA ?

Thu, 06/09/2011 - 15:27 | 1355383 SunBlaster
Thu, 06/09/2011 - 15:33 | 1355405 the not so migh...
the not so mighty maximiza's picture

I was thinking a conical flow waverider

Thu, 06/09/2011 - 15:39 | 1355414 mynhair
mynhair's picture

Failure to reclaim and hold the line?  Or a 'buy everything' close.

Thu, 06/09/2011 - 15:39 | 1355415 gosseyn
gosseyn's picture

When you state, "it appeared to touch off an avalanche of limit orders about 3% from the prevailing price", do you mean an avalance of limit orders below the last sale?  Your statement lacks consistency.  When a market is moving down, sell stop orders below the market may be triggered once a stop price is offered and they then become market orders.  However, a limit order is not triggered, it is entered as such ("x" price or better - ie. higher in this instance) and it restricts the seller to a certain price and no lower.  So, an avalanche of stop orders may have been touched off but not an avalanche of limit orders.

Thu, 06/09/2011 - 15:39 | 1355425 ThirdCoastSurfer
ThirdCoastSurfer's picture

After Stuxnet, how is it no one is pointing fingers at Iran for all the recent spate of high level hacks and market algo oddities?  Revenge is a clear motive and apparently it may also be profitable. 

Thu, 06/09/2011 - 16:05 | 1355496 NotApplicable
NotApplicable's picture

Because it's Iran? TPTB can't even concoct a credible nuke weapon story yet, let alone promote the idea that Imadinnerjacket has managed to co-locate HFT servers on Wall St.

Chinese hackers maybe, but the current storyline does not support your assertion.

Thu, 06/09/2011 - 16:50 | 1355430 Monedas
Monedas's picture

Maybe if you got the wave going and a bunch of lemmings joined in you could program buy every dip and sell every top ! On the last dip you make a big buy in correlation with the size of the dip ! I'm available for 30 minutes of questions now that the Rush Limbama program is over ! Monedas 2011 World History Revisionism Month

Thu, 06/09/2011 - 15:40 | 1355437 centerline
centerline's picture

LOL. I joked awhile back about needing an o-scope at some point in order to trade!

Thu, 06/09/2011 - 16:06 | 1355500 NotApplicable
NotApplicable's picture

BTFD? Sure, but which one?

They're everywhere!

Thu, 06/09/2011 - 15:44 | 1355443 Troublehoff
Troublehoff's picture

To be honest, if somebody writes an algorithm that shakes out the shallow stop loss orders etc.... to the point of a sell-based mini-crash, I think the blame sits as much with the play it safe 'traders' who placed these orders as the writers of the algo.


If they had any real conviction in their bets, then a stop-loss would be unnescessary.... these guys aren't investors - they are at the casino just like the algo writers and are trying to make money, just like the algo writers...


...that said... very, very cool chart, Tyler

Thu, 06/09/2011 - 18:52 | 1356089 DTCC 1999
DTCC 1999's picture

Almost everyone will eventually blow their futures account without stops..

Thu, 06/09/2011 - 15:44 | 1355450 Troublehoff
Troublehoff's picture

However, if these algos are backed by the discount window, then I start to get a little pissed.

Thu, 06/09/2011 - 15:53 | 1355463 Widowmaker
Widowmaker's picture

This shit has been going on a long time.

Now that people are able to match a chart to it is the cause for concern.  Ask yourself what the difference between the same algo and a duration of a week would be.  It's all relative..

This happens every single day all over the place, although not in the nano-timeframe.

Thanks to Nanex for offering the spectacles.


Thu, 06/09/2011 - 15:52 | 1355464 Dr Hackenbush
Dr Hackenbush's picture

Broadening formation designed to breakout and run the direction of the most harvest

Thu, 06/09/2011 - 15:50 | 1355466 Dr Hackenbush
Dr Hackenbush's picture

echoed sentiment

Thu, 06/09/2011 - 15:54 | 1355471 Johnny Yuma
Johnny Yuma's picture

Something very weird happened in Crude Oil today as well at around 11:20 AM. I know the Nat Gas report can sometimes affect Crude but that was at 10:30.

Thu, 06/09/2011 - 15:54 | 1355472 rayban
rayban's picture

I find it similar to the pattern that could be observed when a in-the-money OTC cash settled option expires at a given time and the settlement price is taken as a single observation or is computed as an average of prices over a certain period of time. Usually the two traders involved agree to exchange delta at a given price, which is also the settlement price of the option. However, if an agreement is not found, a sort of "duel" takes place. Let's talk about a call (a put would work in the same exact way). The long call will have a 100% delta likely offset by -100% underlying exposure, while the short call the opposite position. So the long call will try to buy back its hedge by printing the highest possible price (trying to achieve an average execution which is lower than the settlement) whereas the short call will try to sell its inventory so that the settlement is as low as possible (but trying to produce an average selling price higher than the settlement). These two conflicting actions might produce price fluctuations in both directions that would resemble this particular pattern. Apply it to an illiquid market and you might produce price fluctuations that can trigger directional stops, hence ultimately make the underlying asset swing decisively. I'm sure the machines love these moments...

Thu, 06/09/2011 - 15:57 | 1355483 mynhair
mynhair's picture

Quick, call PPT !  The Roach Motel is burning.

Thu, 06/09/2011 - 16:03 | 1355493 BlackholeDivestment
BlackholeDivestment's picture

Financial Innovation, known as fraud among traders still in the market, for those that stopped riding the beast FI is known as ...a fake orgasim.

Thu, 06/09/2011 - 16:08 | 1355504 oogs66
oogs66's picture

Are all limit orders, and especially stop loss orders now actually bad?  should you not just sit there staring at the screen and just try and execute a market order when you hit your stops rather than providing this information in advance?

Thu, 06/09/2011 - 19:03 | 1356124 DTCC 1999
DTCC 1999's picture

The only down side is you don't get as good of a fill.  Tight stops can be hunted out for good sized contract orders.  For short trades w/o "a lot" of contracts people try to buy at the "bid" and sell at the "ask".   

Thu, 06/09/2011 - 16:11 | 1355511 Havana White
Havana White's picture

cpl: okay... answer?

Thu, 06/09/2011 - 16:15 | 1355523 MobBarley
MobBarley's picture

The article was a great peice of investigative journalism deserving kudos.

However, the comments kind of destroyed the magic and made it seem

like a far lesser accomplishment. Perhaps they all need a good beating

to better appreciate their oppurtunity to see/smell/taste/feel/think.



Thu, 06/09/2011 - 16:16 | 1355525 Smiley
Smiley's picture

What a joke.  Anybody who thinks the equities markets are safe to invest in is stupid, fucking insane, or both.  I've sold all my equities last year and it looks like I'm not going back in anytime soon.  Oh, suppose you hit a homerun and pick up a fantasy buy of $0.25/share of a $50 stock that got run down?  NOPE, YOU don't get to keep your ill gotten gains even though you did it using the same rules that the dickheads who ran the price down to begin with use. 

Anybody stupid enough to invest in this type of market has absolutely no right to bitch and whine about losing anything.  You feed the beast, you deserve your scars when it bites your hand clean off.

Thu, 06/09/2011 - 16:33 | 1355564 Comrade de Chaos
Comrade de Chaos's picture

Sky net 's evolving. I bet someone who is into AI figured there is no better place for experimentation than... us. How long till that someone reads the scientific revolutions or old good fight club and figures, there is not better object to experiment with than his faceless employer or competitor?

Thu, 06/09/2011 - 16:35 | 1355567 margaris
margaris's picture

I hope something like this is NOT possible in forex... am I right? There is no way you will see such a wave in forex...

Thu, 06/09/2011 - 16:35 | 1355573 Highrev
Highrev's picture

Looks like an algo gone mad too me. At least that’s how I would characterize a money losing, bottom and top ticking algo (if it’s running limit orders, that means it’s filling those orders, and, to top it off, doing so bottom and top ticking at ever greater price extremes).

This could also be an example of a schizophrenic, aggressively jittery, market psychology (the collective body of speculators is experiencing extreme greed and fear at the same time).

Cognitive Dissonance might want to comment further on this.



Thu, 06/09/2011 - 16:38 | 1355585 rsnoble
rsnoble's picture

Gee---And they wonder why a recent survey said that a large % of people will never invest in the markets for their retirement when bullshit like this is going on.  There is no trust, and if the bastards aren't going to do their goddamn jobs and put an end to this type of bullshit then it serves them right for what's coming.

On the one hand you'd be a fool  if you young to not participate, on the other why bother when you seen everyone else get their asses wiped out ten years before they retire.

I think Mr. Ford was correct in that the markets are a huge bag of shit.  He'd definetely be proud of what it's turned into now.




Thu, 06/09/2011 - 16:43 | 1355594 rsnoble
rsnoble's picture

btw to clarify you would 'not' be a fool if you were young and decided to opt out of skynet at the present moment.

Thu, 06/09/2011 - 16:46 | 1355598 rsnoble
rsnoble's picture

Of course it's hard to stretch minimum wage around very far anyhow.

Thu, 06/09/2011 - 16:51 | 1355651 gatorontheloose
gatorontheloose's picture

notice the height of the largest wave is the same size as the distance to the actual bottom.

likely a tipped off human buyer takes advantage on the dip.  if the algo loses money, there is your deniability.  the dip buyer can even put in a limit order knowing where the algo will stop (-2x peak-trough).  this is a perfect crime.  expect to see lots more.  

Thu, 06/09/2011 - 16:57 | 1355689 rsnoble
rsnoble's picture

exactly what I thought.  U can bet your ass someone made $.

Thu, 06/09/2011 - 17:30 | 1355839 mickeyman
mickeyman's picture

But . . . but . . . but . . . according to the efficient market hypothesis, that sort of thing is impossible!!

Thu, 06/09/2011 - 17:08 | 1355719 Monedas
Monedas's picture

The wave starts small taking out the tight, chickenshit daytrader stops then progressively takes out the stronger handed investor stops ! Deliciously insidious ! I'm just a spectator....not a speculatorgator ! Monedas 2011 Hoarders have more fun !

Thu, 06/09/2011 - 17:20 | 1355822 fcamargoe
fcamargoe's picture

This is a comment on the NatGas charts....The algo seems to be using "inertia" and non-linear trend following to create a finite time singularity in the amplitude of the deviation between market price and "fundamental" price. This produces nonlinear oscillations dependant on the amplitude of the deviation metween market price and fundamental price. Using these variables in an illiquid market and in a short time frame produces this type of oscillations. There are two main features in the charts, the downward fluctuations in price diverge as it approaches "the critical time" and the acceleration produces larger oscillations. The acceleration of the oscillations comes from their non linear dependence with the accelerating amplitude.

I dont see any reason for someone running this algo other than what Tyler said, as a limit order buster.

Thu, 06/09/2011 - 17:26 | 1355829 mickeyman
mickeyman's picture

The same shenanigans have been going on for ages, but the computers make it all happen faster. That natgas price chart was a thing of beauty, almost exactly what Lorenz would have projected (see figure here);

This is a single-dimensional projection of Lorenz's famous "butterfly" effect curve seen here:

Pure chaos.

Both images from



Thu, 06/09/2011 - 17:49 | 1355919 Godisanhftbot
Godisanhftbot's picture

 I have been talking about tape painters long before most here knew what an algo was.


 These market manipulations have become bolder and greedier with time. For all you know they are designed to pick the pockets of other , dumber, algos.

 At the bottom of the last wave before the 'crash' , there might well have been some algo buying in front of what it saw to be the next wave up. Shook when it didnt happen, along with resting stops. Easy cover for the manipulating algo.


 SEC and CFTC way behind in not seeking out the source of these scams.

 Hey, took the SEC a year to figure out the Chinese were pissing on US Investors.



Fri, 06/10/2011 - 09:18 | 1357521 Saxxon
Saxxon's picture

The SEC is too occupied with busting penny stock pumpers:

Their masters must be pleased; they appear to be doing their duty while the algos run away.  Like cops handing out speeding tickets during a riot.

Thu, 06/09/2011 - 18:25 | 1356018 OuaisBla
OuaisBla's picture

You got terrific piece of evidenve on NatGas trades, that leads to a 4% loss today. Overboughts conditions were terrible on the UNG fund. . 

You captured a glimpes of an algo that performed pretty well in scalping few penny here and there. 

The beauty is on the eyes of the beholder!

Thanks for that much valuable information.

Thu, 06/09/2011 - 18:29 | 1356031 holdbuysell
holdbuysell's picture

Outstanding forensic analysis.

Thu, 06/09/2011 - 19:31 | 1356232 gigit
gigit's picture

do it again

Thu, 06/09/2011 - 19:33 | 1356264 jomama
jomama's picture

these were made for the museum of modern art, right?

Thu, 06/09/2011 - 19:41 | 1356286 kubrick007
kubrick007's picture

u will never see a real revolution when basically everyone can afford electricity and air conditioning. for that u can be sure.


most americans (even very poor ones) have luxuries that do not exist in 3rd world countries. it's easy to go protest when u r literally walking in streets filled with donkey shit, no electrical power, poor sewage....i mean then u really have no reason to stay "home" (ie, in ur hut) if u r broke. but if r broke in america, u r better off staying in b/c u don't have to spend money to drive around, etc and ur house is relatively secure even in the worst hood (compared to those countries).


now if u want to see a revolution, just turn the power off for 2 weeks in this country. 


(btw i am indian born, us raised, nyc citizen, so have seen extremes)

Fri, 06/10/2011 - 00:23 | 1356959 blunderdog
blunderdog's picture

msg gr8, 4mat sux.

lrn 2 type if u want 2 say stf, k? RLY IMPT!

Fri, 06/10/2011 - 19:06 | 1359953 Quadlet
Quadlet's picture

Tyler, why are you posting information that could be worth millions if you knew someone with the resources to captialize on such information?

Next time, call me before you post!  We'll work something out.


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