Pretorian2 and R.Tharp have posted several times here about their preference for, and success trading listed stocks. On several occasions both have offered advice on strategies for doing so--reading the specialist, watching for inordinate size etc. Although things are clearing a bit alot still mystifies me. I'm hoping someone can recommend some reading material--a book(not the obsolete Farrell pre-decimalization scalping book)--or perhaps a specific site which may help shed some light on what appears to be a very esoteric subject. Much thanks for replies.
Look for extremes ......... extremes in volume will continue in the direction they are going usually extremes in price without volume will usually have a reversal or a bounce. rtharp
I don't trade NYSE stocks, but one of the guys interviewed in the book Electronic Trading Masters trades them. You may want to read the whole chapter, but here's an excerpt that confirms what rtharp was talking about: You have to see how a listed stock is going up or down in price in conjunction with volume. A listed stock that is going up with very large bid sizes and has trades really going off for 20,000 shares at a 1/4 and then 40,000 shares at 1/2, and it is still moving up is a stong stock. However, if you see 3,000 take place at 3/8, and another 3,000 at 5/8, and this stock moves up two more dollars on 30,000 shares volume, when you know that on a good day this stock can trade two million shares between those prices, then that is weak price movement and is probably being moved by the specialist for his own reason. Perhaps he's taking advantage of a light book so he can fill a market order at higher prices or wants to see a higher print trade for some other reason or perhaps a limit order that he wants touched so he can execute it. The price was moving up in this situation even though there really weren't more buyers than sellers. Nevertheless, you can use that information to your advantage, because you have been presented with an opportunity of knowing that that real price movement is not real or strong. from Electronic Trading Maters, Allan Jan Baird, interview with Michael Reise, p 116.
I agree with rtharp about price following size, however, short-term reversals especially on the downside are also characterized by extremes in price and volume. In many cases the specialist will "flush the toilet" right before a reversal causing price to gap down a half to a full point from the last trade and printing a couple of large blocks after which price immediately reverses. An impending reversal on the upside due to some size seller coming in is often telegraphed by lots of trades going off at the offer with little size shown on the offer but the offer not budging or constantly refreshing at the same price.
limbo, This is optional. ETG will hire traders and they only trade NYSE (well almost exclusively) - Kanter's whole trading phylosophy revolves around the specialist. You can trade with his money and his ideas - no risk to you. You must however make a 'commitment' for 2 or 3 years. If you are a youngster it should be no big deal. web site is http://etgtrade.com check 'em out. they may not even take you as they have plenty of college kids out of work with a finance/business school to pick from.
I tried applying in March to http://www.etgtrade.com to get more information but this is what I got. Dear Candidate: Thank you for your interest in ETG, L.L.C. We are unable to offer you an opportunity at this time. We will contact you if our needs change in the future. Again, thank you for your interest. Very truly yours, Pamela Kanter Pamela Kanter Director of Human Resources Recruitment Specialist
Robert and others trading NYSE [well, I do trade NYSE only myself], what do you think NYSE Direct+ will change ? I think NYSE wants to attract more day traders but still keep the specialist/auction method. The OpenBook should be interesting too... What are your thoughts ?
I hate that the specialist can hold my market order for 2 minutes. A lot of times I use market orders because I'm trading for more than the bid/offer. Something is going on and I NEED in now! That 2 minutes costs me thousands per day. I still make money but could make a lot more if filled immeadiately on some of the trades. I would love to have that system up NOW. The specialist will somehow adjust to this. He can't widen his spreads much due to decimalization so it just means less money in his pocket. rtharp
dlinche certain specialist gap and others don't throughout the day. It takes awhile to learn who to avoid rtharp
For those who trade NYSE, or want to learn. THe only way to learn how to read one, is to just watch him. Watch him from 9:30-4:00. Don't stop. Watch him for at least a month or 3. When you think you understand him, move onto 3 or 4 more. After having watched specialists for almost 3 years now, I can basically group any specialist into about a half dozen categories or action types by just watching 5 mins of him, and looking back over the action from the last 2 days (the main ones are; stop blowers, whole and half blowers (i try and avoid trading the first 2), faders, gunners, gap and runners/ faders, futures traders, order flowers, sector followers (these are my faves to trade cause they lag the futs and the other stocks in their sector by 3-20 mins). Once I know that, I just play him like that action method. Anyone who has traded with me knows that even on those specialists that im the best on like abi and mo, I still only bat about 85-90% on. Sometimes specialists loose too (rarely). I have a notebook and every time I trade a listed stock, I write a few comments on that stock, and how it traded, and anything peculiar about it. That way, I can further classify that specialist into a personality type and figure him out better. I could repost my notes on all listed stocks, but honestly that would be similar to me just giving you free money. The only way to really learn unfortunately is to just watch. As for watching inordinate size, that is much less important b/c of decimals. Basically, they'll just show you 100 shares each way, unless they want to make a point of showing you size. But you can basically see how many hidden orders and size of those orders by just watching how many 1c upticks there are, and by watching the t/s. Last week I traded almost 200k of nyse in a 4 day week, and hardly traded any nasd at all. The NYSE is far superior. I think market orders are the greatest thing, and it's a shame that otc market orders give you awful prints. I really don't know how the new NYSE rules will affect the marketplace. I don't care about instant order entry at all. Let him fill me where he wants, and when he wants. Im not splitting pennies here. I will continue to use market orders as always (unless im fading a move and want specific order prints) Generally, the specialist has to fill you where he's quoting. There are some specialists that I have always gotten bad fills on, and now just refuse to play those names. He can move it a little, but that's it. Lately any move is accompanied by island orders to execute against anyway. I want to buy the dips, if it's running, Im probably looking to sell anyway, and not chase. As for the open order book, I asume it leads to wider quotes and less activity by the specialist to step up and take the other side of an order just because large institutions won't show their true intentions on his order book. (im sorry this is kinda longwinded)