Hi Eric,
About this time last year I was seriously engaged in trading. I'm working my way back to it after an extended leave of absence. Way back then your name found its way onto my "People" list, so I'm sure you were saying something of value then, as you are now. Tonight I came across your name, and this thread, and I've been working my way back through everything you have written from here forward. I'm running out of gas, but it's been great stuff. I must complement you on the work you have done to dig into the "system" to find things that every trader should know, but many seem not to, and to present it in a clear way on this site. I found myself wanting to add bits to several of your messages, and maybe in time I will, but since I am time late I think it is best to be selective.
As Yogi would say, a lot of what I read was like deja vu all over again. After plunking down $5K to learn the trade from seasoned pros, dedicating weeks of my time to preparation and practice, I went live about this time last year. I soon discovered as you have that things do not work as they are supposed to work. MMs will back away from SNET orders far more often than they will fill them, SOES is at best a crap shoot, etc, etc. After months of driving in traffic every morning to a trading shop to get my hands on the "very best system" available, I finally walked away form it all with an accumulation of many hundreds of transactions averaging small gains more than offset by hefty commissions. I wasn't making a living. I was going broke.
Maybe it's a curse of we analytical/technical types, but we seem to have this crazy idea that systems are supposed to work. The number of times I walked in to find that the link to NYSE was down, or PCQuote was not working, or whatever the technical problem of the day happened to be boggled my mind. But mostly, being confronted with the fact that the "system" is heavily stacked against the individual trader sent me a clear signal to look for another way. I'm now looking hard at position trading and option strategies, etc, but still there is the challenge of trading that gets the blood rushing a bit.
One of the big problems you mention is the 17 sec "siesta" that you have noted the MM gets to take every time he executes an order, and now its for as few as 100 shares. You have noted some of the consequences this presents to traders. I'd like you to comment on this thought. Seems to me that a single MM has the power to hold the market at bay while he is working orders on the opposite side of what he is showing. Say for example a stock is weak and will fall. Any one MM can hold up the bid with a quote for 100 shares that sits unexecutable for 17 seconds at a time, buying just over 300 shares per minute while at the same time he is working hard at selling thousands of shares at or above (maybe even a little below) his bid. Then when he lets it go, the bottom falls out. Small price for him to pay to create the illusion that someone wants to buy the stock, so he can dump his load on the public. As you have already noted, he can buy it all back in a heartbeat when the panic sets in, and the queue fills with sell orders.
And finally, the reason I just had to use this particular message as a starting point.
You mentioned that you are trading covered calls. I learned a little known fact about covered calls from reading the book "Market Wizards". In the book, they point out that a covered call is mathematically identical to shorting a put, except you only pay one commission with the put.
And yet virtually every cash account like an IRA is allowed to write covered calls while it is prohibited from shorting a put, even if you have cash to back it up. Go figure!! |
