Market chat

This thread is for anyone who just wants to have a chat about trading.Here goes.

Do you think that sometimes whatever system we use we over analyze the market and end up over trading.If we get into a position using our indicators and it dosnt work we say oh! that was a failed breakout,breakdown,fib retracement,etc etc.Then when we look at the move afterwards we always find an excuse as to why our move didnt work and point to indicators that would have proved our point.

I know a trader who in the first few minutes of the day picks a the trend for the day puts in a stop closes down and goes away for hours.If his stop is hit he knows how much he is risking.Many times he comes back on big up or down days and finds he's making a lot of money.

Another trader in a trading centre just couldnt pull the trigger and buy large amounts.So one of his fellow traders bought a huge position in his account and called out to him he'd better come back and manage his position.the guy rushed back,trembling and started scaling out, letting bits run and just managing what was left.He came out profitable on the overall trade.He didnt use any indicators to get in he just managed what he was given.

A professor in the states with no market experience started a thread called "befriend the trend".The object was to use two moving averages on stocks with big ranges.Long when the crossed up (golden cross?) short when crossed down(dead cross?)I cant remember what they're called but you get the picture.The thing was you were always in the market long or short.It's just a nice and simple.This tactic is as old as the hills.However i was looking at his results and i must say they were very good.Not much stress and easy trading.A lot of people must have thought so because when i looked last he'd had 20,000 hits on his thread.It was on www.siliconinvestor.com if you realy want to know.Actualy he ended up talking about it in the National press.

Come next week if one of my trading buddies tells me he's got a sure fire tip i'm going trade it in the opposite direction,put in a stop,and not look at it all day and close it out at the end of trading.Its my new simple stratergy.

TO much watching and not enough trading

Naz,
I think you have hit the nail on the head my freind. I have traded the dow for ages and have tried many different systems, techniques, tricks whatever you want to call them. The problem is whilst you are telling yourself which indicator is showing what, the moment to trade ( and sometimes you just gotta go for it ) has passed.
I use dow 1 min and look back sometimes at the 5min just to see if any major pattern is emerging. I look for trend

trend is your friend.

When i see strong, fast movement i will bet, if it continues i wait for a pull back and then will risk another bet same direction. I might end up with 5 bets all same direction at different levels once it looks like it has lost its momentum ( not the indicator ) and its speed i look to see if its a pause or a period of indecision. If we start the other way then i'm out, if we continue then i may bet again.

Does this work?
yes

Does it sometimes fail?
yes

Do i change my opinion more times than my wife when choosing what to wear out to dinner?
To right i do


The important point is this is a risky business, you have to take a risk to make money. If your wrong you admit it, and take your loses like a grown up. and see if you can profit from the turn around ( don't spend to long looking at why it failed you may never know)


Also i have found that if you let your profits run and don't jump out to soon it pays well. Trust your instincts, be brave, wait till you see the whites of their eyes.

But the most important advice i have learnt is to watch the movement as if it were a wild animal it runs , it takes a breath and pauses sometimes it rests and decides where its gonna go next then it staggers around before running again.
Trade it when it runs trade it when it pauses and starts to run again. Do Not trade when it is undecided.

I know this goes against all that is rational but next time you watch the dow try watching it with this analogy in mind ( you might be surprised ) and what harm is it going to do!



You may think that this all sounds a bit wishy washy but the most important thing i have learnt is that TA is only a guide, trading is far more of an art than any of us really understand.
It truely does run on the emotions. Fear and Greed


Right i'm off to look for pictures in the clouds and burn some of my TA books.


Sefty

Good post, Sefty. I have noticed all too often in the chat room , that people exit a trade when there is clearly no reason to do so. Indescion, a pause, consolidation are really no reasons to exit a trade, unless you think it's the end of the run.All too often I've seen people exit when indicators are so high ( or low), it's just a wasted trade as there is clearly more to go.I suppose if you are scalping a vast amount on a 10 point move, then you could be excused for exiting...
1 Min charts for entry and exit are a must, but the 5,10 and 30 min charts are also a must for guaging the overall situation. I look for neg/positive divergences to give me a clue as to the end of a trend and then move down the time slots to see the same divergences and pick the exit appropriately.If you look at charts over a longer time frame, you get to know exactly when a breakout is going to happen and then you pile in. As Sefty says, the pause and pullback are all part of the art of knowing when to add to a position, BUT you must know that you are in an uptrend/downtrend. Elliot wave theory is a really useful tool to help here. Also knowing that, for example on the DOW, that when RSI>70 and CCI > 100, it's gonna fly- no question. Catch this and it's bankable money. The trick is knowing and recognising a TOP from a pull back etc. This is where Positive and Negative Divergences are unsurpasable as indicators. Find them, study them, and recognise them.You will quickly get to know wether it is at a top or just pausing. The best was to study this is probably the final one hour of trading.There is almost always cases of good divergences to be seen as the maket pushes higher, but the strength is clearly weakening as traders close their positions.The astute trader will be able to get out closer to the top or bottom by recognising these divergences.
My final observation is this. I am convinced that a two person team has to be the ultimate tool. One concentrating on nothing but TA and trends, exit, entry and topups, the other hitting the button as it's called. Trouble is, getting two people togther that have implicit trust in each other's abilities.....

Postscrip. I have a number of TA examples of divergences...I f required I will post them in the TA section...

catch me in the room

if you want a gossip, i know my approach is not the norm but you would be suprised how well it pays off.

I'll second that- watched you most of the day adding and swelling the coffers. Hope you ended up well. The total drop was 275 and a swift short and hold would have netted 225 odd points....Did you manage more than that?

made some good calls

took home 211 points in total.
could have done alot more but made the classic mistake of trading during times of indecision. Lesson learnt though.

Just to add
Martin we owe you a big thank you for the work you put into doing the dow charts every night, i know that to put your ideas on market direction is a brave thing to do. So cheers.

sefty

The Flow

Trading is not a game of indicators. It is a game of self-control, discipline and nerve.

For example, two top traders trading CIEN with diametrically opposed entries and exits can reap similar rewards over a long enough time period i.e. Trader A exits when Trader B enters and vice versa.

How can that be?

It is because both super Trader A and super Trader B have the internal self-control to stop themselves out when they err and to run their gains when they have nailed the trade. They also have the ability to act decisively and without prevarication ... it is as if they are in a mode of automation.

I have been through every indicator on this planet, read every book on technical analysis, learnt about every market maker game on Level2.... but I tell ya, none of this makes much difference without the right psychological make-up.

The mysteries of trading lie within your soul, not in the tomes of a manual of trading techniques.

A trade from yesterday

I often use daily set-ups. Yesterday (Tuesday) I shorted DRIV at the open. I entered for 3 reasons in order of importance:
1) the nasdaq futures were opening lower
2) the daily chart of DRIV (prior to yesterday's bar, which turned out to be green) showed massive overextension. I figured (my figuring turned out to be wrong) that market makers would want to unload stocks from their books after such a rally.
3) Level2 was showing selling

My stop loss was the high price of Monday. My objective was to potentially hold on to DRIV as a swingtrade given the overextension on the daily bars, failing that hold on for some intraday profits.

NITE was the Ax. He was consistently bidding way below the inside bid and was consistently on the inside ask. On the face of it he was unloading stock. I soon realised that things were not going my way. INCA was consistently at the inside bid, and I had a real feeling that NITE was playing games i.e. showing himself as a seller, but loading up on stock (perhaps for an institution) by routing his purchases through INCA.

This game was relentless.. DRIV was holding up remarkably well in light of the tankage of the nasdaq futures. I figured that the trade had become low probability for both an intraday swing and a multi-day swing, so I covered just above where I shorted for a small loss.

I was happy to take the loss, which was small fry compared to the gain that I could have made had the stock made a 3 day correction on the daily bars. That was my bet, and it failed.... but there you have it: my trade rationale, my entry, my objectives and my exit.

Yes i got the charts up and looked at your trade.i can appreciate your risk reward ideas.I know hindsight is wonderful.but i would have got a bit nervous around $12 because a it was a round number and b) it was previous resistance which might become support and c)lots of players may have seen it as a pull back in the up trend.But after that huge run up it was worth taking the trade on a risk reward basis.I wish i could have seen the level 2 screen at about $12.15.

I'm glad you told me Nite was the ax and how you thought he was playing the stock.I might have a quick look in today to see whats happening.

You know from previous posts that we trade very similarly and i've always agreed with everything you've written.I'd like to thank you for posting this trade and i hope other viewers may enjoy reading it as much as i have.Good Luck with your trading.

naz

Thanks

Thanks Naz,

I agree with everything you say too!

Out of curiousity, what's your guess on the number of people doing full-time US trading in Great Britain?

I think we have more than our fair share here.....must say something about our bb community.....

Here's some info.

Most Nasdaq level 2 software is aimed at the retail market and trades are charged at say $15/trade.these are fine and they allow you to put in stops and the whole thing feels very comfortable.Nice software for taking it easy and swinging positions with a scalpers entry.This type of software is just great for taking normal positions.

However in New York there are buildings with floors of traders with the fastest level 2 screens around.They trade in groups,they pool their money,they're individual traders,they're prop traders.Almost all are under 30.

Its tough,i know i've traded on one such floor with that software.Normaly the software looks quite basic.Generaly it has three level 2 screens on the bottom,information thru the middle and top of the screen.If you get a graph anywhere it is a minimal line with no indicators just to let you know the movement of the stock in the last hour,2 hours,or that day.Thats it.ie just tell me where its come from and let me trade it.If you want to know anything else about the stock do your homework before you start trading.This is why some guys just trade one stock and are so good at it.They know just exactly how the stock has behaved day after day.Then trading it is almost telepahic.

Futures and indices are just a figure on the screen with no graph and you have to to memorise what they've been doing.Trades are charged at $1/100 shares.

Where it scores though is thru its executions.Mine had about 60 proprietry orders that got me into a trade whilst anyone else was in the thought process.Most Ecn orders are direct meaning that if a retail guy saw inca on his screen and wanted to go thru the select net proceedure to get the fill,i could get there faster by going direct.

All orders are programmed as hot keys on your key board.If you talk about technical analysis for getting into a trade they'd laugh.All they know is support, resistance and breakouts based on how the players are playing it on the screen.

So consequently if a stock fell to an area of support they would remember how it behaved last time it was there.They might scale in and take some on the bid as the momentum slowed down to that level,buy some more as it hovered and just as the interest started coming in buy the final amount on the ask.

They know exactly how much they've got and even on the scalp they know exactly their risk reward.They then manage their trade with the level 2 screen trying for 20c-30c,whilst only accepting 10c -15c loss.Here's a tip do 100-200 trades print them out at the end of the day and check to see if all your losses were about half your profits.then you'll realise how important risk/reward is on every trade no matter how short the time frame.

I was talking to a trading room in New York on friday and if any very experienced Nasdaq traders want this very fast scalping software.Nobletrading.com offer it thru their watcher software.they also allow demo's over the net.

This is only for manic scalpers that want to take it to the extreme though.To the 200 traders that do it for a living in this country.If you take series 7 exam you can let your account go as low as 10k and you dont have to suffer the up tick rule.I think this can cost up to $440.details fromsomeone like the owner of echotradeonline.com.Whose a switched on guy and will send you the info.

Question

Yeah, I have heard of these guys, some do hundreds of trades a day (or at least they used to in the bull market!)

In the new world, devoid of fractional pricing, traders now use ECNs to queue-jump like crazy, by shaving prices by minuscule amounts, blocking out executions with market makers (if an ECN is on the inside, one can't execute the marketmaker - as per the recent SuperSOES regulations). So this hyperactive scalping game that they are playing literally becomes a game of ECN players. The moment the Ax makes a decisive move or the market conditions change (even slightly), ECNs will dry up on one side (as a result of scalping risk control) and gravitate to the other side (as a result of new scalping opps).

1) On a second-by-second tick-trading basis there are now greater price imbalances, shake-outs and unpredictability in the new Level2 environment... leading to much harder risk control and few profit opps. This is a direct result of decimal-induced queue-jumping and SuperSOES, where routing skills are not as greatly rewarded as before.

2) Also, with decimals, it can take an eternity for a tick-trader to break through the levels for his 30cents, whereas it may take only seconds for him to be stopped out at 15cents e.g. in the past 30cents could be made in seconds, now it often takes many minutes.

In view of 1) and 2), are these hyperactive tick-trader types still doing OK, from what you can gather? You mentioned that you had been taught by some guys in Las Vegas... are they tick-trading as per the description in your post, or have they had to modify their approach in view of the structural changes on Level2?

Having said all of the above, Level2 knowledge is an absolutely vital part of a trading arsenal, but I am not sure whether it has much merit anymore for people who are attempting to do hundreds of tick trades a day.

Naz, your thoughts on the above would be much appreciated, especially any thoughts on how your Las Vegas friends' styles have had to be modified (if at all).

I personally don't believe there is a future for tick traders, but I think that people like you and me can survive, because we have the tick-trading mentality but not their trade horizon.


P.S. Structural developments haven't only hit Nasdaq tick trading hard.. they have destroyed NYSE tick trading for 1/16's. Gone are the days when you could home in on the New York Specialist bidding heavily on behalf of an institution, where you could hit the last reserves on the ask before he lifted, and could then immediately offer out for a quick 1/16 on 2000 shares. Those days are gone, because the levels no longer move in 1/16's (6cents), but they often move in single cent increments on liquid issues. To make things worse, the Specialist will often 'front-run' traders by a mere penny making it impossible for tick traders to capitalise on stocks with bigger spreads. This is perfectly legal front-running, because the Specialist uses the 'cover' of finding a better price for other traders.

This year i've more knowledge to whats been happening in New York and with other UK based Nasdaq scalpers.

You are correct with your assumptions in your reply.I know that they've been finding it difficult especialy during the summer.From what i can gather they find it difficult to change their style of trading,in most cases they're not allowed to change their style,becuse it cuts down on the commisions and there is always someone monitoring your trading.However when these guys get it right they earn extremely good money.

I dont believe there is any future for tick traders on the Nasdaq (and totaly agree with all your points)although there will always be some realy brilliant ones that will do well whatever happens.

However i have noticed that traders who have a more general back ground and an open mind(without being blinkered by one style)have been EXTREMELY successfull.I know some scalpers who have used their technical analysis and level 2 skills to do amazingly well.

Infact this is why i changed my style of trading from out and out scalping to the type of trading that both you and i do now.Which is using scalping skills to take swing trading positions.

I find it an absolute dream doing this type of trading because it is so easy compared to scalping.It uses all your level 2 skills with a bit of technical analysis,You make loads more profit and and you keep your execution costs down.

Now many daytrading centres will never teach that style of trading because it massively cuts down on the executions.However i think that more and more traders are going to see other guys do it and try it for themselves.

I've never enjoyed myself so much,for me its such a nice way to trade,although it just took me a little while just to adjust my mind set.The way i got over that was to sell half my position when i felt the stock had run to far to fast.Then i found it easier to manage the remaining half and i was able to let that part of the trade run further because i had already banked some profit.

I know that a lot of people find it hard to believe that you can take a swing play out of the blue with a 15c stop,that you have got a fair idea of where it can run to before it finds resistance,how you can quickly work out if its worth taking the trade on a risk reward basis,how you can manage it on level 2 and when you get out can get a good exit.But its a fact and i reckon if more technical analysis traders forgot their lagging indicators and opened their minds to level 2 and put both skills together they also would benefit hugely.

I only said the last sentence to try and stir up some feeling on the thread and try and get some replys.
______________________

By the way i taught two serious technical analysis Nasdaq traders this year how to trade level 2 and they told me that their profits increased by between 30%-40%.
______________________

For any Naz level 2 guys lets look a little at trader patterns questions.

It does seem many times that the scalping game is a game of Ecn players.Many scalpers are now looking for about 10c-15c when the ax is not in play .For this you need level 2 software that offers ECN direct executions.They need to be hot keyed on to your keyboard.Have about 5 ecn direct executions and make sure that you are extremely quick in hitting the keys.Now as soon as you buy, offer it out 10c away immediately.Many times you'll get taken out side the inside market if the players think its going to run.If your fast and got the right software offer it out on 2/3 ECn's at different levels.If you get filled immediately close the other positions.Some players have the position offered out on a couple of ECN's before they even buy the stock!(You must have the right software that allows you to do this)

Remember proprietry level 2 software has up to 60 executions.If you want to be a manic scalper you need to trade at a centre that offers this kind of software.However there are always lots of oppertunities in the first hour of trading that will allow you to scalp using any normal level 2 software.

There are 2 centres in central London offering proprietry software,but remember you will be expected to be a scalper and use the software to its full ability.That means doing many,many trades a day.Dont even think about talking about t/a.You'll never get a seat.

An example of one order is ECN/SOES.This will hit the ask and preference the best ecn there.If no ecn is there it will then Super soes the Market maker.If i hit a direct key i'd be filled quicker.

Now the guys that are brilliant at doing this are mainly under 30.Some of them are awsome.They've been so good at playing computer games as they grew up.This is just an extension.This is why whatever happens in the market there will always be these types of people around that earn $1/2--$1million /yr doing this.There will always be a lot of people that find this kind of trading too extreme and look to do other things.

The trouble is that in taking smaller profits you end up doing enourmous amounts of trades and the execution costs are very high.However some traders like myself who enjoy scalping have moved on to swing playing with scalpers entries and utilising level 2 skills.

To me this realy is such an easy way to trade.I find it so slow to what i've been used to.However it has turned out to be extremely profitable.I feel it is just looking at how the market has changed and adapting your skills to adapt with it.

So there you have it just a few thoughts on level 2 play at the moment.

Naz and Traderpattern - thank you very much for the time and effort involved in these posts. Great background stuff.
I've got to admit I'm tempted by these approaches. I do trade US stocks intra day for swings of 20-50c or so using L2 ECN books for entries, but not Direct Access Trading.
I mainly trade emini nas and S&P electronically. Sometimes the latter get frenetic and I need a slower pace. But then I'm way past 30 !
Richard

Richard,

I'm 49 thats why i find that scalping entries on swing plays so agreeable for my age.However i'd only want to do it with Level 2 direct access and not L2 ecn books.This is why.

The entry on a trade can be very important and i want all the odds stacked in my favour.If i use an ecn book i'm not making full use of my trading skills and full use of the market.I cant use SSOES and i cant see what the ax is up to.I also cant get a good enough feel of how the stock is playing.I know from watching ecn books and level 2 that bid and ask prices can be 5c away from the inside market on many many ocassions.That can mean a 10c spread.

By using level 2 direct access i can sometimes scalp a 20c profit cushion before it takes off on a hopeful swing play.This gives me a little leaway whilst i'm managing the stock.

Another seperate point is a definition of a swing play.Where as you might be happy with 20-50c and i'm happy with 50c -$1.25 i notice that trader pattern might look for a couple of points and maybe holding it longer.

I think that this style of play seems to work very well for lots of different swing play styles.

Thanks for your reply, Naz.
I'm convinced you're absolutely correct.
At the moment my US trading consists of mainly futures - which need constant attention unless going thro a choppy intra day spell with no follow thro. At those times I tend to look for trends or consolidations on individual stocks, then if I find one, will look at ECNs for a good entry to jump on the trend if it is not near s/r on a TA level and if the correct side of the book shows growing commitment. On slim jims I watch ECNs for the first signs of a break out before being confirmed by TA, then trade.
This method has its drawbacks and your DAT techniques are much superior. However, to use your approach requires complete attention and I think I'd have to give up trading futures which are now my bread and butter income. I need to mull this over for a while.
Thanks again for your very high quality imput.
Beautiful autumn afternoon across the river here in Weybridge
Richard

Out of interest.I see the sox is consolidating at its highs intraday and reached a double top from 6 trading days ago.Who knows what is going to happen but it gives a nice level to work from and some of those semis like KLAC have got some interesting looking charts to trade from.