OK, I want everyone to find a program that automatically envelopes NYSE stocks by placing a bid a little bit under the current bid and places an offer a little bit above the current offer. There's a bunch of folks around doing this, and personally I'd find it difficult to have a more mindless, risky strategy, but I'd be really curious to see what the overall effect of such a strategy would be on NYSE stocks...
Sounds good to me! I'd love to take the money from the suckers using that strategy! I'll be shorting on their low bids and vice versa!
I tried it at the worst time of the year- last 2 weeks of Dec. Got my ass handed to me. I am sure if I tweak it it might work under limited mkt conditions. Unfortunately the way the mkt is lately, the constant tug of war between the bulls/bears intraday just isn't there- just microcapitulations wherein stock is either straight up or down 5% of the trading day then flatline. In addition, if enough traders do it whrein you bid/offer 200 times an hour and only get 5% fills, either the NYSe will impose a fee (much like the option exchanges) or your broker will disallow it.
this is exactly what I'm hoping for... it makes no sense that program traders need to register with NYSE but prop traders doing envelopes don't have to register with NYSE... the risk of this strategy is very real and it seems that most people using this strategy are completely ignoring risk...and are embracing the blind hope that the specialist is always right and is always taking a directional position - both of these assumptions are completely wrong and based on a fundamental lack of understanding of how the NYSE works... say a bunch of guys at the same prop firm are using the same software on the same stocks with the same envelope amount - all of a sudden some break in the market occurs - up or down - and all of these guys have the same exact position in the same stock that is rapidly moving against them...the specialist knows this because he filled the orders...and the specialist knows that .25 down/up, these shares are going to be coming right back at him as these traders panic and rush to close their positions... obviously, this isn't going to be of the same magnitude as a 1billion dollar leveraged hedge fund having a huge computer-generated position, but i think most people should get the idea... it's illegal to use a computer to generate orders that go to an equity options exchange in the US (unless you are a registered MM); it should be the same way at NYSE... just my .02...
That is why I stopped bec of the risk, it is illegal at the 5 options exchanges w/o human intervention BUT not with BOX I think...
This program strategy would make specialists very wealthy and slow down momentum on listed stocks. The program does the opposite of what traders are supposed to do: go with the trend. The executor of this strategy will be buying into downtrends and selling into uptrends, usually a recipe for disaster.
I agree with bungrider that the specialist can manipulate the price to exploit systematic enveloping. For example, if I were a specialist and I knew that I had a bunch of envelopers below the bid, I would batch incoming sell pressure. I would hold the bid price stable in the face of downward movement pressure (accumulating sell orders) and then let the price gap down through the posted outside bids. Suddenly, all those envelopers on the outside bids would find themselves holding shares with the new ask price below their previous bid. LOL! The key to enveloping is to do it either so irregularly or at such a low level that the specialist can't really depend on envelopers. If the specialist can't depend on the relatively dumb money sitting in a rigidly systematic envelope trading program, then the specialist is more likely to play their normal game. I wonder if a bunch of envelopers could create a peer-to-peer network that either helps coordinate or randomize enveloping across the entire NYSE. One could call it "elusive episodic enveloping". Of course, all of this is probably somehow illegal under the Specialist Profit Protection clauses in the NYSE constitution or SEC regs. Trade well, Traden4Alpha
Exactly! That's why the specialists are so deep in debt and have to walk to work. Remember: The trend is your friend! Cut your losers short and let your winners ride!