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Non-Tech : Meet Gene, a NASDAQ Market Maker
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To: Keith Monahan who wrote (450)8/5/2000 11:05:27 AM
From: ahhaha  Read Replies (1) of 1426
 
The rules force the MM to do what is profitable against their own best judgement. I assure you they don't want to buy or sell when it is time to buy or sell because the very thing that causes so many of the public to move aggressively is a rational concern that isn't lost on MMs. They agree, but someone has to be on the other side. So it is the market which forces the MM to make money against the MM's best judgement.

The only way to put oneself in this positive expected return position is to emulate the MM and that isn't possible since the outside isn't subjected to the same forces nor is in the same instantaneous execution position. Certainly it is possible to rationally make money to position on days like last Thursday when the every trade money flow structure of the market had bottomed on the 31st and was headed up due to FED pumping, yet the market in many issues gapped out on the downside. This was a hit delivered by public and pros and fielded by MMs. The better players sense when the flow structure reverses, so they were surprised when it gapped, and became fearful of a break. The MM was forced to stick their necks out by the market. I guess one could say the market wanted to ensure the integrity of the coming advance by fully filling the June 5 gap, but rationalizations like that don't do much good to hold your hand when the the sky seems to be falling. What was needed was to act like an MM, but it was plenty hard to do.

There are many methods that can yield almost break even results, but few can follow them because they demand elimination of emotionalism and that isn't possible for humans. One of the best is to operate when the market goes to extremes emulating the MM. You will find though that over many of these trials your capital doesn't grow much faster than it would under the return on the perfect interest rate. You can't get close enough to copy the inside to pick up the fractions that accumulate into earning a living.

You can do well by using the extreme moves to position to give you the courage to buy and hold. (Note I didn't say sell and hold). Then you put the positive expected return game on your side and take instantaneous risk to establish possibly favorable positions which if succeeds, embolden you to hold when the position is under duress. This is properly managing your psychology and it is the most important thing to preserve. The old expression is, "bought well is half sold".
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