I've been SI lurker for almost three years. This thread made me to post - for the first time. Great job, Eric and many other posters!
Couple words about myself: almost three years of trading for a living.
I utilize Momentum Trader's strategy. Pure tape-reader, no TA/FA (well, except some necessary minimum for safety), 90% of trades are intraday ones. No IPO's, no I-nets, preferrably stocks priced up to $30.
I would like to suggest topic for discussion.
Market Makers: myths and truth.
It seems to be topic causing great deal of confusion and emotions.
Many losses are blamed on them, word "manipulation" is been used by many each time stock moved against them. I observed plenty of such an occasions, had a chance to talk to several working and former traders for marketmaking firms. My general take on this (I am open for any different opinion): most of talks of this kind is nothing more than switching of responsibility, trying to get rid of guilty feeling for loss. MMs are traders, not evil in the flesh, they do their job, and their main task is to make money, not to supply money to other market participants. Yes, they have more power than Joe Trader, and this is the name of the game. Are there manipulations? Yes, but their extend is not that great as one would think reading chat rooms (posting boards) comments.
So, couple points as starting material.
Myth #1: MMs read internet chat, so they stay in course what daytraders do.
IMHO, pure myth. They have plenty to do, can't imagine them reading chatroom with hundreds of posters waiting if stock they make market in gets attention. They see the actions, and they know their stocks.
Myth #2: MMs hate daytraders and try to ignore ECNs that are traditional daytrader domains, like ISLD. Even more than that, ISLD orders might make them to turn the stock, or they hit iSLD order with partial odd lot just to cause troubles and additional commissions.
IMHO, mostly myth. Love or hate - well, they probably dislike hysterical attacks daytraders cause now and then, but considering statistics that show most lose money - why would MMs hate money suppliers :). Probably having choice to hit ISLD or INCA order, MM prefers INCA. But if stock goes through your price, your order would get hit anyway. Partials are caused mostly by internal ISLD trading, I don't think MM trader would want to have odd position, and the only case he hits ISLD with odd lot is when he has odd position from previous trading. Any opinions?
Myth #3. MMs back away on regular basis, ignoring public orders.
As far as I know, pure backing away is rare occasion, and mostly caused by mistake. NASDAQ maintains the tape that records all transactions, so backing away can be proved in a matter of minutes if trader complained and is followed by severe fine. Majority of cases show that there was volume ahead of order that got ignored.
There are also many other extends to this topic. Do they really have total control over the price movement, so they can trade against supply/demand law? Why do we see real strange things sometimes, like MM buying all he can at $20 and selling later in the day all he can at $18 (and I don't mean guys like NITE or MASH who might just represent small orders)?
Any other myths or comments to mentioned? Observations, information obtained from those who knows?
Let's exchange ideas!
Vadym |
