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Strategies & Market Trends : Trading For A Living -- Ignore unavailable to you. Want to Upgrade?

To: cool who wrote (899)	7/13/1998 12:04:00 AM
From: MVN	Respond to of 1729

John Yes,they can see all that. Maurice

To: cool who wrote (899)	7/13/1998 11:54:00 AM
From: Robert Graham	Read Replies (1) \| Respond to of 1729

There is no electronic "book" on the NASDAQ like the specialist has on the NYSE to be able to "see" where the stops have been placed. However, many traders are technicians. I am sure MMs also are aware of the technicals of a stock or at least is observant of the day-to-day trading action on a stock which over a period of time provide the basis for what you can technically observe from a chart. I have come across one MM that uses TA to manage his inventory. At times it is not difficult to guess where the stops have been placed on a stock by looking at the price action of a stock over a period of time. For instance, if the stock has been in a trading range, you will find the stocks a fraction of a point above the trading range, many times at whole numbers or at common fractions. If you see a stock in a consolidation pattern, the stops would be placed right above the price that would be considered a breakout for the stock. The traders along with the MM are interested in knowing where those stops are. Since the MM does not have this "book" where stop and limit orders are maintained, the MM needs to rely on probing for price besides the chart of the stock or past tape action in order to search out the supply and demand for a stock. If you are new to understanding trading action, look at a tape closely on a stock. You will learn much following the tape on a more thinly traded issue with regards to how the NASDAQ MMs manage the trading on a stock. As I have stated above, the probing of price is one important tool that the MM uses. IMO a good book on the Market Profile will fill in some of the concepts that are helpful to understand the price action on a tape. Read the book and watch the tape for a period of time. Do not use Level II as this type of screen will only confuse the inexperienced tape reader. Note the trading near established support and resistance levels, trend lines, and key MAs. Look at how the stock trades at the extremes for an established trading range. Watch the number of levels (widths of the spread used for the stock) the stock moves before you see traders take positions opposite of the price move of the stock, observe the stock's reaction to this new buying or selling pressure, and see how the stock trades the next time it moves back to that price level. This makes the current days high and low important to watch which frequently starts out as a trading range established shortly after the open. Also going into the open, the previous day's high, low, and close are important references to watch along with and significant intraday support and resistances encountered the previous day. On an intraday chart screen, throw up an MA such as one with a 13 or 20 period length and an OB/OS indicator like the Stochastics to see how the stock responds to those two indicators. See if it makes a difference when the stock is at key junctures such as the high or low of the trading day. For a thinly traded issue on NASDAQ, take an account of the net holding of the MM watching the intake and out-take of stock by the MM. When you find that the MM has acumulated a position intraday, watch to see how the MM handles this situation. Do you see a large price following this that is approximately equal to the amount of stock the MM accumulated? Then it is likely the MM working a customer order and the large price you see terminated the order by recording as a print the moving the stock from the MMs account to the customer's account. Note that the NASDAQ MM rarely advertises their actual position through their quote. Think of the card game of Poker. The NASDAQ MM not only rarely advertises their position in a stock, but also many times takes actions to deceive the rest of the market participants in what they are attempting to accomplish. One technique is to influence the current quotes of their stock by using the anonymity provided by Instinet. This is particularly true for the "lead" MM in a stock that does most of the volume in the stock. This is because the other MMs in that stock will respond to any adjustment this "lead" MM makes in the quote. I understand that some of this game playing is difficult to identify even with Level II screens such as the Instinet technique. Watching the tape of a stock also on a listed exchange will help you to understand the trading activity on stocks there too. You will notice that the trading activity of a stock on the NYSE for instance is very different than what you will find on NASDAQ due to on NASDAQ most of the stock transactions there going through the MM instead of on the NYSE where in the open outcry type of market stock orders bypasses the Specialist and is crossed between buyer and seller much of the time. I am sure there is much more that can be said on this topic that others who are more experienced here in watching the tape can offer you. Since I am in the process of learning about this myself, I encourage others here to offer feedback or comments on what I have said. There is much still for me to learn on the topic of the market maker, tape reading, and order flow. Bob Graham

To: cool who wrote (899)	7/13/1998 11:17:00 PM
From: Stoctrader	Read Replies (2) \| Respond to of 1729

Isn't it true that Nasdaq MMs can see all stops in place and regularly take out those stops to get cheap shares? Hi John, The answer to your question is both yes and know. MM's can see, to a certain degree, how many unfilled limit orders are waiting to be filled for any given security. They can also see the size and price of each individual order. That info is seen primarily via the ISLD electronic limit order book as well as the INCA limit order book. These books show the pending bids and offers they have for any security, and since they are by far the two most active ECN's, they give a fairly good representation of where people want to buy and sell stocks at. For example, let's say that a stock is trading at 10 x 10 1/8 and you have decided that you'll buy it when it dips to 9 1/2. If you immediately placed a limit order through a broker such as Datek that uses the Island ECN, any MM (or anyone else with an Island terminal) will be able to see your order sitting there at 9 1/2 even though the stock is still currently at 10 x 10 1/8. Like I said before, that applies only to unfilled limit orders. However, that's not to be confused with stop orders. A Stop Order is a service that's provided by your broker and that's why day trading firms like MB Trading don't provide them while other firms like Datek do. Stop orders can be limit or market, and they aren't entered into the market until the stop price you specify is reached. Let's look at the same example but instead let's say you want to place a buy stop limit order to buy the stock when it hits 10 1/2. Even though you might send the order to your broker well before the stock ever hits 10 1/2, it's never entered into the market by your broker's computer system until the ask price reaches your stop price, which in this case was 10 1/2. So on stop orders, there is no way for the MMs to see them ahead of time because they aren't entered into the market until the stock reaches the stop price where they can be filled immediately. Hope this helps, Baron Robertson Editor and Publisher Elite Trader elitetrader.com