{"id":4558,"date":"2023-04-13T08:31:51","date_gmt":"2023-04-13T08:31:51","guid":{"rendered":"https:\/\/prosperity.newai.com.au\/?p=4558"},"modified":"2025-04-13T10:44:56","modified_gmt":"2025-04-13T10:44:56","slug":"exploiting-anomalies-a-weighted-mid-price-strategy-for-volatile-banana-trades","status":"publish","type":"post","link":"https:\/\/prosperity.newai.com.au\/index.php\/2023\/04\/13\/exploiting-anomalies-a-weighted-mid-price-strategy-for-volatile-banana-trades\/","title":{"rendered":"Exploiting Anomalies: A Weighted Mid-Price Strategy for Volatile Banana Trades"},"content":{"rendered":"\t\t<div data-elementor-type=\"wp-post\" data-elementor-id=\"4558\" class=\"elementor elementor-4558\">\n\t\t\t\t\t\t\t\t\t<section class=\"elementor-section elementor-top-section elementor-element elementor-element-3833552 elementor-section-boxed elementor-section-height-default elementor-section-height-default\" data-id=\"3833552\" data-element_type=\"section\">\n\t\t\t\t\t\t<div class=\"elementor-container elementor-column-gap-default\">\n\t\t\t\t\t<div class=\"elementor-column elementor-col-100 elementor-top-column elementor-element elementor-element-29af329\" data-id=\"29af329\" data-element_type=\"column\">\n\t\t\t<div class=\"elementor-widget-wrap elementor-element-populated\">\n\t\t\t\t\t\t\t\t<div class=\"elementor-element elementor-element-d2b5358 elementor-widget elementor-widget-text-editor\" data-id=\"d2b5358\" data-element_type=\"widget\" data-widget_type=\"text-editor.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t<style>\/*! elementor - v3.6.7 - 03-07-2022 *\/\n.elementor-widget-text-editor.elementor-drop-cap-view-stacked .elementor-drop-cap{background-color:#818a91;color:#fff}.elementor-widget-text-editor.elementor-drop-cap-view-framed .elementor-drop-cap{color:#818a91;border:3px solid;background-color:transparent}.elementor-widget-text-editor:not(.elementor-drop-cap-view-default) .elementor-drop-cap{margin-top:8px}.elementor-widget-text-editor:not(.elementor-drop-cap-view-default) .elementor-drop-cap-letter{width:1em;height:1em}.elementor-widget-text-editor .elementor-drop-cap{float:left;text-align:center;line-height:1;font-size:50px}.elementor-widget-text-editor .elementor-drop-cap-letter{display:inline-block}<\/style>\t\t\t\t<p>Following my previous work, I turned my attention to bananas. Their price movements were unstable, making it impossible to trade around a fixed price like I did with pearls. So I decided to first examine the order book dynamics for bananas.<\/p>\n<p>After analyzing the bid-ask spread each round, I made an interesting discovery: the spread size varied significantly. Most of the time it was above 4, butabout201. This was particularly intriguing because when the market spread narrowed to $1, it suggested one side (either bid or ask) was likely mispriced, creating a potentially profitable opportunity.<\/p>\n<p>I then investigated these 20% cases with tight spreads. What I found was that these situations typically occurred suddenly &#8211; for example, when the spread had been consistently wide but suddenly tightened to 1, onlytoquicklyreturnto4 shortly after.<\/p>\n<p>Looking at a specific example, I noticed a pattern: at one moment the best bid was 4896 (20 sets) and best ask was 4900 (20 sets). Then someone inserted a small ask order at 4897 (3 sets) between them, causing the spread to suddenly shrink to $1. This small order would quickly get filled, and the spread would return to its previous width.<\/p>\n<p>I realized these small orders represented the trading opportunities I wanted to capture. The challenge was how to systematically identify such situations. After much thought, I developed a solution:<\/p>\n<p>1. Calculate a volume-weighted average bid price (to reduce noise from small orders)<\/p>\n<p>2. Similarly calculate a weighted average ask price<\/p>\n<p>3. Average these two to get a weighted mid-price<\/p>\n<p>Using the earlier example:<br>Weighted mid-price = [4896 + (4897\u00d73 + 4900\u00d720)\/23]\/2 = 4897.8<\/p>\n<p>Now when that anomalous 4897 order appeared (below my weighted mid-price), I would aggressively buy. I adapted my pearl Strategy v2, using this weighted mid-price as bananas&#8217; dynamic fair price, creating Strategy v3. The results were excellent, generating over 2,000 in profits from banana trades.<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t\t\t\t<\/div>\n\t\t","protected":false},"excerpt":{"rendered":"<p>Following my previous work, I turned my attention to bananas. Their price movements were unstable, making it impossible to trade around a fixed price like I did with pearls. So I decided to first examine the order book dynamics for bananas. After analyzing the bid-ask spread each round, I made an interesting discovery: the spread [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":4537,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[30],"tags":[],"class_list":["post-4558","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-2023r0"],"acf":[],"_links":{"self":[{"href":"https:\/\/prosperity.newai.com.au\/index.php\/wp-json\/wp\/v2\/posts\/4558","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/prosperity.newai.com.au\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/prosperity.newai.com.au\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/prosperity.newai.com.au\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/prosperity.newai.com.au\/index.php\/wp-json\/wp\/v2\/comments?post=4558"}],"version-history":[{"count":4,"href":"https:\/\/prosperity.newai.com.au\/index.php\/wp-json\/wp\/v2\/posts\/4558\/revisions"}],"predecessor-version":[{"id":4562,"href":"https:\/\/prosperity.newai.com.au\/index.php\/wp-json\/wp\/v2\/posts\/4558\/revisions\/4562"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/prosperity.newai.com.au\/index.php\/wp-json\/wp\/v2\/media\/4537"}],"wp:attachment":[{"href":"https:\/\/prosperity.newai.com.au\/index.php\/wp-json\/wp\/v2\/media?parent=4558"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/prosperity.newai.com.au\/index.php\/wp-json\/wp\/v2\/categories?post=4558"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/prosperity.newai.com.au\/index.php\/wp-json\/wp\/v2\/tags?post=4558"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}