Benefits of trading NYSE stocks in addition to NASDAQ stocks: One thing that we have noticed with most novice day traders is that they tend to stick with trading primarily NASDAQ stocks, and do not trade many, if any, NYSE stocks. This is largely due to the fact that most novice day traders prefer to trade the wild and crazy Internet stocks. But the longer we have been in this business, the more we meet “professional” short-term traders who swear by the benefits of trading the more traditional NYSE stocks. After trading this method for many years, we also are in agreement of the many benefits to trading NYSE stocks. In fact, on certain days, we trade NYSE stocks more often than we trade NASDAQ stocks. This is not because we have anything against NASDAQ stocks, but there are indeed some benefits that we feel make trading NYSE stocks much more profitable.
One of the reasons we like trading NYSE stocks is due to one of the methods you will be learning in this class called “sector trading.” This means that you will be trading a variety of sectors, including everything from Transportation stocks to Oil stocks to Tech stocks. Since the NASDAQ primarily consists of Tech stocks, this means that we will be trading NYSE stocks on any given days when we are not trading Tech stocks. Therefore, by the very nature of this trading method, you will be required to trade a large percentage of NYSE stocks. However, we have found that once you become accustomed, trading NYSE stocks can actually be easier and more profitable than trading NASDAQ stocks.
First of all, it is important to understand the fundamental differences in how stocks of different exchanges are traded. There are three primary ways that stocks are traded on any of the exchanges. They are: ECN, market maker, or specialist.
The ECN (Electronic Communications Network) is becoming an increasingly common method to trade stocks. With this method, there is no human interaction involved with matching buy and sell orders because it is all automatically done by a computer network. We will talk about ECNs in more detail during the training seminar, but the important thing to understand is that you can trade both NASDAQ and NYSE stocks with ECNs and that there is no human interaction. However, if you are not using an ECN, you are limited as to how you get your orders executed because there are only two other choices.
If trading on the NASDAQ, each stock is traded by a large number of market makers. There is typically anywhere from 10 – 30 (or more) market makers that are making the market in each NASDAQ stock. This can be challenging if you are trying to interpret the actions of the market makers because not only do you have to figure out one person’s motives, you have to figure out the motives of each and every market maker that is making a market in that stock. Although Level II quotes significantly help you in this manner, it is even better if you don’t have to use it at all.
Unlike with NASDAQ, the NYSE stocks are PRIMARILY each traded by only one person, commonly known as the specialist. Although listed stocks are now also traded by certain ECNs, the liquidity is still light through ECNs. Therefore, the primary method of exchange in the listed stocks is still through the specialist. Since each and every NYSE stock is only traded by one specialist, it is our opinion that it is much easier to figure out the motives of only one person versus the multiple market makers that you find on NASDAQ stocks. More importantly, once you figure out the style of each individual specialist on any particular stock, that stock becomes easier to trade each and every time you trade it because you begin to learn the “style” of how that stock trades on the NYSE. Once you learn this, you are one step ahead of the game every time you trade that stock.
We also have found that most NYSE stocks tend to be less “risky” to trade because they generally are slower movers both up and down, and that is very important to conserving capital if a trade goes bad and you need to get out of a stock. In addition to moving slower, we also feel that they move in a steadier direction throughout the course of the day, as opposed to NASDAQ stocks, in which many of them are all over the place.
Just a few thoughts and things to consider, directly from the way we do things in our Online Trading Center.
Thanks,
Deron Wagner
General Partner
intradayinvestments.com |
