Lead-Lag Pattern Detection

Lead-lag patterns occur when a price movement on one exchange (the leader) is followed by a similar movement on another exchange (the follower). DOPE detects these patterns in real-time to help you spot arbitrage opportunities and predict price movements.

What Are Lead-Lag Patterns?

In cryptocurrency markets, price movements don't happen simultaneously across all exchanges. When new information enters the market or large orders execute, one exchange often moves first, followed by others. This creates a lead-lag relationship.

Event stream showing LEAD-LAG patterns with price jumps on leader exchange followed by follower exchange with time difference

DOPE monitors multiple exchanges including Binance, Bybit, OKX, and Hyperliquidto detect these patterns. When a significant price jump occurs on one exchange, DOPE watches for similar movements on other exchanges within a configurable time window.

How DOPE Detects Lead-Lag Patterns

1Jump Detection

DOPE continuously monitors price movements on each exchange. When a price change exceeds the configured threshold (default: 5 basis points), it's flagged as a "jump."

Configuration: Jump thresholds are configurable per venue. The system uses a rolling reference point that resets every 5 seconds to detect relative movements.

2Pattern Matching

When a jump is detected on one exchange (the leader), DOPE enters a "follow window" (default: 2000ms) where it watches other exchanges for similar price movements.

Matching Criteria: The follower jump must occur within the time window, have a similar direction (both up or both down), and have a magnitude ratio between 0.5x and 1.5x of the leader jump.

3Event Creation

When a matching pattern is found, DOPE creates a "Link" event showing the leader venue, follower venue, lag time, and magnitude of both movements.

Event Data: Each link event includes timestamps, basis point changes, price levels, and the time difference (lag) between movements.

Event stream showing detailed LEAD-LAG link events with timestamps, price changes, and lag times between exchanges

Understanding Key Metrics

Basis Points (bps)

Price changes are measured in basis points (1 bps = 0.01%). This provides precision for small price movements that can be significant in high-frequency trading.

Lag Time

The time difference between the leader and follower price movements, measured in milliseconds. Shorter lag times often indicate stronger market efficiency or arbitrage activity.

Magnitude Ratio

The ratio of follower jump size to leader jump size. Ratios close to 1.0 indicate similar magnitude movements, validating the lead-lag relationship.

Direction

Both movements must be in the same direction (both positive or both negative) to be considered a valid lead-lag pattern. This filters out unrelated price movements.

Trading Applications

Lead-lag patterns have several practical applications for traders:

Arbitrage Opportunities

When you see a price jump on one exchange, you can anticipate similar movements on others. This can help identify arbitrage opportunities or time your entries on slower-moving exchanges.

Market Efficiency Analysis

Consistently short lag times between exchanges indicate efficient price discovery. Longer lags may suggest liquidity differences or information asymmetry.

Price Prediction

If Exchange A consistently leads Exchange B, you can use movements on A to predict movements on B. However, past performance doesn't guarantee future results.