I notice many ET traders here trade for themselves so they don't have to follow strict sets of rules. But I would like to ask for those who work for a prop firm, how can you compete with program trading?
You just have to pick your spots and take what the programs will give you. Fundamentals of risk and position sizing will always work if stuck to 100% of the time.
I look for inefficiencies in an all-computerized market stemming from two programs not having an awareness of each other. Example, there's program A - a buy program - which, when it comes in, will sit on the bid for 30 seconds, then cross the market through 10 cents, sit on the bid 10 cents higher then the price it came in on initially for 30 seconds, pull the order completely for 5, come back and sit on the bid 10 cents higher than where it originally came in, then step up another 10 cents and sit on the bid. I watch the stock and see the sign when program A comes in. Program B tries to envelope the stock by posting large size 10 cents away from the inside market. Say, 8k shares. Now, program B probably wouldn't be offering stock 10 cents away from the inside market if it knew that buy program A is in the stock, however, program B doesn't, and when buy program A does, I cross through the market, take all the stock I can from program B, wait 70 seconds, and dump it all to program A for a 10 cent profit on 8k shares, +all the other stock I could get, so something simple like that that could be a $900 trade. Of course, if program A won't let you dump an 8k+ position into it, then you can't take that trade with that size... the best bots are the blackhole ones where stock goes in and doesn't come out... those + stupid "3SD" enveloping programs = fun pay day. It's not always as black and white as that, though sometimes it is. But because the programs can't always see each other, competing can very very much be done.
Do you work for a prop firm? What stocks do you trade? Many stocks are heavily "program trading" and these programs wipe out completely all of the loss-rules set by the firm in a milisecond. I think the big boys use these program trading to take all of prop firms' "lunch & dinner".
Thank you for the intellectual advice. I'll try hard to implement what you just wrote. Also, there is a problem that new traders face. They have to bail out of their positions with only a few cents loss. The program trading usually is designed to trigger to take "all of these losses and more" and it happened very very fast. So, basically the traders are "wiped-out/bailed out" ...only to see the stock proceed the way he/she thought it would in a milisecond later. But too bad, he/she already bailed out following the firms' strict rules. What advice you can give about this issue? Thank you in advance & goodnight.
Sounds like you're trading at a crappy firm with dumb rules. I've only heard of one firm that makes you exit when you are down a couple cents. Most traders operate independantly and trade however they want. As to your question, there are many stocks where program trading is not an issue, and even more strategies where all you care about is getting your order filled. If your time frame is more than a few seconds or minutes, it's probably not an issue at all.
Wtf kind of crappy firm is that you're trading it? I always bail with a few cents loss, but how many cents "a few" is depends on the stock. Different programs make it harder to manage risk than others. With some of them, yes, if you miss the out you're fucked. In thin stocks, the programs always try to force you to hit out. You have to wait for someone else to puke stock up before he program will jump the price back up. Not all programs are like that. Many are just institutional algorithms to fill large orders trying to beat VWAP, add-liquidity enveloping type programs, accumulate shares over time... I've seen programs that buy 300 shares every 43 cents, programs that match you for however many shares you buy on the offer at the price you buy at, programs that jump the bid to follow the uptick with blackhole reserves, programs that keep orders N cents away from the inside market... and those are just a few. The programs that keep orders N cents from the inside market, sometimes will let the market trade close to one of their orders, even fill it. That's information right there. It's up to each individual trader to make sense of what seems like "chaos."
have you tried taking smaller positions so that your allowed loss for the day isn't wiped in a 2 cent move?