<re: stops on NASDAQ, NYSE> Keith, Nice post - your 'hard core rule' of throwing a stop on, reminds me of Larry Williams closing words in his new book: "I leave you with these three little words... always use stops". Sounds so simple, doesn't it? Yet the majority of us merely mortals, in the process of becoming traders struggle with that one for so long, it can be such a very difficult rule to actually put into practice. But, if I had to pick one behavior that "defines" a trader vs. a non-trader, that is it.
There ARE no real "stop orders" per se, on the NASDAQ system. In the U.S. equity markets, you can file "real" stop-loss orders only on the listed exchanges (NYSE), but not on the NASDAQ. On the NYSE, a stop order goes into the system and is processed when the price is hit. There is no mechanism on the NASDAQ, because of the distributed nature of price-discovery (the market-maker system). Since the NASDAQ system orders are really somewhat "physically" centralized (mainframes up in CT) they could implement it, though. They have been talking about going to a "central order limit file" system on the NASDAQ for several years, but until that happens their won't be real stops. I'm not sure what impact the ECN's will have on this, perhaps others can comment.
I know that myself, with all of the daytrading and intraday volatility today, the last thing I would want on a NASDAQ stock is a standing stop order, visible to anyone, anywhere.
Some brokerages do offer "emulated" stops in NASDAQ stocks, e.g. Schwab will take them some of the time, in some stocks. The way it works is, their own computers watch time and sales, and as soon as the offer price hits your stop-loss sell order (or there is a T&S trade at your price), it is converted into a market order.
Most daytraders (especially those with ECNs) are doing their stops manually - so called "mental stops". With direct access, it is almost second-nature - your real-time P&L is staring at you right there, if the position starts to go against you it becomes second nature to run for the exits. Manually filing stops would be too cumbersome and slow. With a web-broker, of course that's a different story. I do file standing-order stops on big-cap NYSE positions, use them as trailing stops in swing trades; but you have to be careful with stocks that trade <1M shares per day - the specialist will use your stop just like the "locals" in the S&P pit, as described by ISpec (stop orders can be like free $, low-hanging fruit to those people).
There is one direct-access software package, CyberTrader, which implements "emulated stops" directly on your workstation. They can be used as initial stop-losses, it can also automatically adjust and trail stops on a position for you. They way it works is simple - CyberTrader watches the security price vs. your stop parameters, and when the T&S tells it to get out, it automatically "hits the bid". However, traders have reported many "gotchas" with trying to actually use this feature in real operations. It's a nice concept, though - doing your own "emulated stops" right on your own PC (that's all Schwab is doing for you, on NASDAQ stocks). Another problem is (I traded at CyberCorp recently) I found their back-room operations to have competency, logistical, and "attitude" problems, which caused me major headaches. Other traders there have reported better results at times, so mileage may vary. They probably have the best direct-access software, but didn't perform well as a brokerage, when I was there. But, they have produced some nice software, which is their heritage.
Good trading, -Steve |
