Why we're so jazzed about TLA
TLA...What's the fuss all about?
We think that TLA, Transaction Level Analysis, is so cool because not only does it just plain makes sense, it's the next level of evolution for Technical Analysis, it leverages tool-sets unique to what the microprocessor offers today's traders, and it peers back into the effects that the microprocessor has wrought on today's electronic markets.
So much of today's trading software seems to be simply a more elaborate re-hashing of the same old indicators (MACD, Moving Average, Stochastics, RSI, etc.).
We think that the bulk of these indicators can be lumped into what we call, 'Analog Thinking'.
Analog Thinking is a framework used by many traders as a foundation for developing their trading strats which essentially says that markets oscillate from overbought to oversold, and just like sine waves, if we know their slopes, their rate of change, their distance from the mean, then, well, we can calculate enough probable continuums so that on a regular basis, we can hang trades onto them.
But is there be more be monitored and taken into account? Could there be another deeper set of inputs that we can add to our current lovely setups?
For us, the followers of TLA, those inputs are simply sprinkling in what we believe to be the primary determinant of short-run changes in Price, which is Program Trading.
If, as we learned in ECO 101, Price is a function of Supply & Demand, and if the massive Program Trading runs that litter today's electronic markets on a day-in, day-out basis are effecting Supply, then shouldn't we be paying attention, close attention to them?
Let's walk through a basic scenario. If I am a hedge fund manager and I turn on some automated Buy Programs in the S&P 500 futures market what happens to Price?
Well, if the demand created by my Program Buying usurps all of the available contracts at my specified price, then the only way for my Program Buying to continue on it's merry path will be for it to walk up the price ladder to find more liquidity.
This is Supply & Demand at it's essence.
Conversely, the same rings true for Sell Programs, only they create supply, thereby forcing Price down.
The challenge, as we have experienced it, with managing the data sets specific to Transaction Level Analysis, is that today's Technical Analysis platforms are focused on processing and making derivations of a market's Open, High, Low & Close as the bulk of Technical Analysis indicators basically some amalgamation or average of these values.
With TLA, we review each transaction and continually running algorithms geared towards deciphering the effects of their activity.
This critical distinction as it applies to software, is instead of a software platform focusing on Open, High, Low & Close, software focuses on the matching of buyers and sellers. This has tremendous ramifications in the all the software processes that need to run and also how to program these processes, which is really the primary responsibility of a trading platform.
At the bits and bytes level, a TLA software platform must perform differently than a Technical Analysis platform in the way it reads in data from the exchange, the way it stores that data in a database, the way it retrieves this data and the way it applies algorithms to this data.
To further complicate matters, analyzing each and every transaction as opposed to a market's Open, High, Low and Close once per minute requires exponentially more data points to be processed.
Thus, where the rubber meets the road, we have found that attempting to retro-fit any off-the-shelf trading platform so that it can perform TLA simply won't fly for the basic fact that their inherent architecture, which oversees the reading in of data feeds and applying Technical Analysis indicators is not geared for managing this level of real-time data.
We expect that the next generation of trading software will move in the direction of TLA and will be helped along by significantly by the adoption of 64-bit processors and also the inevitable vacuum that entrepreneurs work to satisfy when a profitable demographic, such as traders, start demanding that their fingertips be able to access the next generation of data points, which is TLA.
Thus, we are so jazzed about the freshness and intellectual challenges afforded by TLA, when we speak with other traders, invariably they say, "Yes, I get it!". They too monitor the markets day-in and day-out and regularly see the effects of Program Trades kicking on and are seeking ways to incorporate this into their trading.
It will be neat to watch this next generation of trading evolve. Who knows what insights the next generation of hedge fund superstars will create to profit from this? Who knows when TLA software will be mainstream and then move on passe?
Hopefully this blog will give a forum to those who are venturing down this path a place to congregate, swap stories and if they are so disposed, collaborate.
Happy Trading.
We think that TLA, Transaction Level Analysis, is so cool because not only does it just plain makes sense, it's the next level of evolution for Technical Analysis, it leverages tool-sets unique to what the microprocessor offers today's traders, and it peers back into the effects that the microprocessor has wrought on today's electronic markets.
So much of today's trading software seems to be simply a more elaborate re-hashing of the same old indicators (MACD, Moving Average, Stochastics, RSI, etc.).
We think that the bulk of these indicators can be lumped into what we call, 'Analog Thinking'.
Analog Thinking is a framework used by many traders as a foundation for developing their trading strats which essentially says that markets oscillate from overbought to oversold, and just like sine waves, if we know their slopes, their rate of change, their distance from the mean, then, well, we can calculate enough probable continuums so that on a regular basis, we can hang trades onto them.
But is there be more be monitored and taken into account? Could there be another deeper set of inputs that we can add to our current lovely setups?
For us, the followers of TLA, those inputs are simply sprinkling in what we believe to be the primary determinant of short-run changes in Price, which is Program Trading.
If, as we learned in ECO 101, Price is a function of Supply & Demand, and if the massive Program Trading runs that litter today's electronic markets on a day-in, day-out basis are effecting Supply, then shouldn't we be paying attention, close attention to them?
Let's walk through a basic scenario. If I am a hedge fund manager and I turn on some automated Buy Programs in the S&P 500 futures market what happens to Price?
Well, if the demand created by my Program Buying usurps all of the available contracts at my specified price, then the only way for my Program Buying to continue on it's merry path will be for it to walk up the price ladder to find more liquidity.
This is Supply & Demand at it's essence.
Conversely, the same rings true for Sell Programs, only they create supply, thereby forcing Price down.
The challenge, as we have experienced it, with managing the data sets specific to Transaction Level Analysis, is that today's Technical Analysis platforms are focused on processing and making derivations of a market's Open, High, Low & Close as the bulk of Technical Analysis indicators basically some amalgamation or average of these values.
With TLA, we review each transaction and continually running algorithms geared towards deciphering the effects of their activity.
This critical distinction as it applies to software, is instead of a software platform focusing on Open, High, Low & Close, software focuses on the matching of buyers and sellers. This has tremendous ramifications in the all the software processes that need to run and also how to program these processes, which is really the primary responsibility of a trading platform.
At the bits and bytes level, a TLA software platform must perform differently than a Technical Analysis platform in the way it reads in data from the exchange, the way it stores that data in a database, the way it retrieves this data and the way it applies algorithms to this data.
To further complicate matters, analyzing each and every transaction as opposed to a market's Open, High, Low and Close once per minute requires exponentially more data points to be processed.
Thus, where the rubber meets the road, we have found that attempting to retro-fit any off-the-shelf trading platform so that it can perform TLA simply won't fly for the basic fact that their inherent architecture, which oversees the reading in of data feeds and applying Technical Analysis indicators is not geared for managing this level of real-time data.
We expect that the next generation of trading software will move in the direction of TLA and will be helped along by significantly by the adoption of 64-bit processors and also the inevitable vacuum that entrepreneurs work to satisfy when a profitable demographic, such as traders, start demanding that their fingertips be able to access the next generation of data points, which is TLA.
Thus, we are so jazzed about the freshness and intellectual challenges afforded by TLA, when we speak with other traders, invariably they say, "Yes, I get it!". They too monitor the markets day-in and day-out and regularly see the effects of Program Trades kicking on and are seeking ways to incorporate this into their trading.
It will be neat to watch this next generation of trading evolve. Who knows what insights the next generation of hedge fund superstars will create to profit from this? Who knows when TLA software will be mainstream and then move on passe?
Hopefully this blog will give a forum to those who are venturing down this path a place to congregate, swap stories and if they are so disposed, collaborate.
Happy Trading.
