Fred, Eleleth. (Not off-topic, heck I think trading technique DOES belong here, especially if it particularly relates to Datek...)
As much as I slam Datek, I do think that it can be even BETTER than SOES trading. (When Datek is good, it is very, very good. When it is bad...)
Please realize that the following comments are directed toward using Datek as an alternative to SOES trading. There are many types of trading and investing, and this is just ONE of them. I am not advocating any particular type of trading. When I say "you must this" or "you must that", I mean for a particular type of trading, and then "in my humble opinion".
I have to qualify this by saying that, like you, Fred, I tend to hold a stock anywhere from a couple of hours to a few days. The very quick SOES-style trade in and out for 1/8 is unusual for me, though I occasionally do it. Frankly, I don't see how people make money doing that. But i do know a couple of people who have done very well as SOES traders.
What particularly puzzles me is what drives them to trade all day every day, regardless of market conditions, and why they think that this is likely to be profitable.
My style is to stay in cash about half of the time, and to heavily margin and concentrate (sometimes only one stock) when I do trade. I usually earn a little bit more in interest than I pay out in margin. Most days I do not trade. Sometimes I will watch the market, even though I have no intention of trading, and usually manage to discipline myself not to trade if I think it is not safe. I try to make at least 3/8 on a trade, though I've taken losses of a couple of points, and occasionally catch a 5-10 point up move.
I have more losers than winners, as do most people who trade this and similar short-term styles. (The fact that many people rack up profits in spite of having more losers than winners drives some "negative sum game" purists batty...) Having more losers than winners is a humbling, yet encouraging experience. It teaches you that no matter how many battles you lose, you can still win the war.
I rarely set stops or set-up limit orders in advance.
I've managed a bit less than a 100% return trading this way since I opened my Datek account in late November. It's a small account, (have never added any cash to it) and, frankly, isn't worth the effort I put into it, from a financial standpoint, except that I see it as a learning experience. The results might not be as easily duplicated in a larger account. My trades are most typically for 500 or 1000 shares of popular NASDAQ stocks.
I treat it as an expensive hobby, but one that, thankfully, I haven't had to spend more on. I know that the market has been extremaly favorable, and forgiving of a number of dumb mistakes along the way. So, I have no idea if I will be able to sustain this over a longer term. I would be completely satisfied with 100%/year rather than the 200% annualized rate I now enjoy. (Maybe I should just quit till January. :) )
Now that you know where I am coming from, some ideas on how to use Datek effectively, and how it compares with SOES. These comments only apply to active trading. Certainly, if you have a stock that you are willing to sit with for a few weeks you can just plunk your money down like with any broker, and the $10 sure helps.
When I say "active trading" I mean trading with real-time quotes and making your trading decisions from moment to moment. (Even if they are based on some half-baked TA or other theory that you may or may not follow diligently. :) ) You can trade one day a week, or one hour a day, and it's still "active trading" if you are sitting in front of a screen the whole time. (If you can only trade part of the day, I'd recommend 10-12 or 2-4.)
To use Datek for active trading, you have to trade an active stock, and there has to be good activity on Island. I almost ALWAYS try to trade in the spread. It seems at times that the least likely you would think it would be to get in the spread, the more likely it is that you will. If a stock is static and thinly-traded, you will NEVER get in the spread.
Here is the kicker - if a stock is moving up like a rocket, BUY AT THE BID. Most of the time you will get it. If it's active enough, somebody is going to sell into it at market. You are going to take their shares. Take a look at Island, and you will almost never find orders booked at the bid under these conditions. Piece of cake - it's your.
In the mean time, the poor SOES slobs are bidding 1/8 over the offer. Those are the same SOES slobs that are working out of Datek's office and "taking advantage" of US Internet peons. :)
For selling, if it is under favorable conditions (stock moving up) I wait for a certain eerie lull in the trading. The buying has slowed-down but is still going on, and it seems the deer are caught in the headlight. This might last from 2 to 5 minutes. I'm actually amazed at how long it really lasts in most cases. Check Island - if it isn't loaded-up with sells at the offer, you can probably get the offer. Somebody is going to come along and pay market, and they will get your shares. Once the slide begins, you can't do this, and will have to take the bid, or perhaps just a little bit into the spread.
Remember, if you really think you need a SOES trade, just place a market order. It's not guaranteed SOES routing, but probably will go that way. Be forewarned, though, that if SOES orders are stacked-up, since the market-makers are allowed to pause between each trade, this could take a while, and is probably why there are so many complaints about slow market orders on Datek.
Really, wouldn't you rather buy at the bid instantly, than wait 5 minutes to buy at the offer, after the stock has ticked up? :)
The key is non-marketable order = Island routing. Marketable order = SOES routing. Decide which one is more favorable for you, and place your order accordingly. Not quite the same as SOES and Selectnet buttons, but about the same effect.
It's counter-intuitive, but under many conditions a non-marketable order will get you a better execution on Datek than a marketable one. (Repeat that a few times till you have the mantra memorized.)
A typical SOES approach is to buy at the offer, then immediately offer the stock on Selectnet 1/8 higher. A safer strategy, that you can often do on Datek, is to buy the bid, and immediately put it up for sale at the offer. If it goes the wrong way, you have some wiggle room. This is something that I have done only rarely, as I am usually expecting some movement. But I was able to do this with PLSIZ a couple of weeks ago.
Please don't try this stuff on NYSE. Or, try it, and tell me how it worked. Just don't blame me. Even with the NYSE ordering fixed, NYSE trading is an entirely different animal. I'm not sure if I'm able to handle trading that is that rational. :) BTW, market orders on NYSE are a bit dangerous if you worry about 1/8's, as there is a lot more "jockeying" of the bid/offer than there is on most NASDAQ stocks, and you can easily get nipped for an extra 1/8 each way. Unfortuantely, Datek NYSE limit orders have been broken so that you really couldn't effectively trade in the spread.
The "trigger" isn't quite a fast as many SOES systems. (I have only see Killkey, which fires off trades with a single mouse-button click.) Use orders7, and pre-load your order. Get the fastest, most reliable Internet connection you can get. (Being on a good backbone is very important - try to be on the MCI backbone.) If they are offering cable modems in your area GET ONE don't even think about it.
You MUST have real-time quotes, and they must be as lag-free as possible. Datek bid/ask quotes are very current, but inconvenient and can't be displayed graphically. My quotes used to be lagged by up to 20 seconds or so, and so I would use Datek as a final check before placing a limit order. But through a combination of getting a cable modem and my quote provider (Intersat, at www.intersat.com) moving to a better backbone (MCI) it's been just as fast as Datek lately.
FORGET Signal - Signal and Quotrek quotes can be lagged by as much as 2 minutes. FORGET any of these free/cheap Internet quotes. You aren't going to get something good for free for $10-$20/month. (Expect to pay $100-$400/month for good quotes.) I get quotes via the Internet but pay a little (about as little as you can get away which, I think) for them. Maybe others can comment on the other cable, FM and satellite-based services.
Some people swear by Nasdaq Level 2, but I don't use them, becuase I am cheap and because, frankly, when I did use them they got me into more trouble than they were beneficial. Traders get all excited when they see 7 7 1 1 or such, and go into a frenzy. More often than not, though, there is no follow-through. (Of course, when there is, it can be spectacular.) I suspect the MMs set this up and laugh their heads off as they reel em' in. :)
One more thing - Datek is ideal for trading on news. They won't know what hit them. The ideal news situation is when you are already well-informed enough about a situation to know what they are going to say on CNBC when the first word is said. If you can do this, you have 30 second to 1 minute leeway before the Mongolian hoards pile in. Trading on CNBC commercial breaks is also great - they will often offer a "teaser" before the break. If you can decode the teaser you are in. If you have to think about it, though, don't bother. No charts, no second thoughts, no checking for buyers ahead - just do it. (I am still teaching myself that. Today on Netscape I hesitated. I knew the minute I heard "Netscape has found". On the word "found" I should have been entering my buy order, in the spread. I wound up making 1/16 on what should have been a 1/2 trade... I DID buy at the bid, though, even though I was late, or perhaps BECAUSE I was late. )
There you are - Rodney should be happy, as should Peter and Jon - a few nice words about Datek! |
