Tai,
In response to your question about using ARCA. If you're familiar with the technique that Broadway Trading teaches in their seminars "Playing Market Maker" (also describes in Mark F./George West's books, no affiliation I traded there 2 yrs back); what you're trying to do is buy on the bid, sell on the offer. Not usually "on", but right above/below. So let's say you are gunning for AMZN and the inside market is 120 x 120 3/8. The stock is trending up for the day and is pulls back a half point to 119 1/2 x 119 7/8. WHILE IT'S STILL COMING IN (that is, when nobody wants it) I might use ARCA to stick a bid in their at 119 3/8, assuming the market makers line up. By the time the ARCA bid is in there, the inside bid from MM's has dropped to 119 1/4 and I get "hit" (filled) to buy the stock at 119 3/8 (although the "offer" never went below maybe 119 3/4!). Now the key is that my bid was the bottom "fill" (or close to it) of the little intra-day pullback and it reverses up immediately (often this happens)... in any case, I've acted as a market maker and "gained" the spread. Even if it does continue to come in, I've cut my risk by lowering my entry point, vs. just taking the offer.
A key point here is that your bids/offers will never get filled unless someone WANTS to fill you, so you have to set the limit price properly, and TIME your order precisely, in order to catch the momentum. If you're just going to take offers and hit bids, better off using Selectnet preferencing, SOES, or ISLD.
The better part (than buying by bidding against momentum) that I really enjoy, is selling out of the position on the way up by "offering out" stock on ARCA, either at the offer or just below it. When a stock is really ripping, try offering out 100 SH of your position just below the offer (or at the offer). If they hit your offer like sharks (take you), then the stock is probably going higher and you have another level up to play (and again, you've 'made' the spread). If no-one "takes" you, you now have some additional information! Meaning, the momentum isn't there (buyers aren't that hungry), so it might be better to just jam the bid and get out. Not only are you getting better fills, you're "reading" the market when you enter/exit this way (I use it to enter/exit multi-day swing trades as well).
ARCA is an excellent tool, as is ISLD, for playing this way; it's really one of the primary advantages that using direct-access software affords you. ISLD is definitely faster (like, lightning) when the liquidity is THERE (often, it's not), but for 1,000+ shares when you're playing the momentum, ARCA will continue to work the order... it's also important to get a knack for WHERE to place the limit order (prices), by reading the MM activity around the L2 screen (key). I rarely leave an ARCA order standing for over 30 secs; they can be quickly cancelled.
There is also an art to using ISLD of course, the only thing I really dislike there are the frequent odd-lot partial fills you get, and remember with ISLD you're trading AGAINST a few (big) room-fulls over very seasoned day-traders... so a lot of their orders are the ones you want to be doing, not taking! :) They're trading against the market makers, for the most part, improving liquidity etc. but if I see ISLD, I want to make sure it's something I want to fade first - usually those guys are right where you want to be, not across the spread.
I could probably write a chapter about other ARCA nuances, but this isn't the place. Here are two great places to learn about this stuff: 1) Books/seminars mentioned above - Mark and George are very, very good micro-traders (I know from direct experience, have traded at their place) 2) Oliver & Greg at Pristine offer a seminar, Oliver starts it out by describing this trading process, bidding into weakness/offering into strength that is spot-on (Oliver has a brilliant intuitive analogy, describing the trading process in terms of a trader at a market, buying/selling to a crowd), as part of his 1-day seminar. I believe they have one coming up in SFO in June; I've taken it several times, great stuff. I am no affiliation, just a private trader.
Hope that helps,
-Steve |
