Pit-trade session data versus electronic session data

The reason for this post is a byproduct of discussions I have had with many futures traders, when discussing automated trading or technical analysis. Periodically, I refer to a market’s high, open, low, etc … invariably, I am asked, “Are you referring to the electronically traded prices or the pit-traded prices?”. Pit-trade session data and electronic session data, for the same fungible market, often varies considerably. This variation requires further analysis for futures traders.

Future’s traders’ automated trading systems (black-box systems) rely on price information, specifically, the market’s open, high, low, last, session high and session low prices. Granted, although eventually pit trading will be a thing of the past, pit-traded markets still exist. So for now, we cannot ignore pit-traded session data when we develop an automated trading system or review a market using technical analysis.

Pit-traded markets have open, high, low, session high and session low prices that often times differ considerably from these same prices created during the electronically traded venues. Therefore, we should assess our technical analysis in a way that considers both the composite session (Electronic) and pit-traded sessions.

In summary, technical analysts need to determine to what extent pit-traded prices factor into or affect a black-box, automated trading system.

My approach is to ignore the pit-traded information – I look at composite session data only.