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Strategies & Market Trends : The Final Frontier - Online Remote Trading -- Ignore unavailable to you. Want to Upgrade?

To: TFF who wrote (6648)	3/6/1999 7:36:00 AM
From: steve goldman	Read Replies (1) \| Respond to of 12617

Afterhours Trading - Lessons from the Trenches (from our free e-newsletter; send email to tdesk@yamner.com with words SUBSCRIBE in subject) Trading after-hours and pre-open can often appear as a world of its own. Most investors feel they have no access to such trading. Yamner & Co., Inc. fully offers pre-open and after-hours trading through many of our execution system. Nonetheless, accessibility and prudence are two different things. While many perceive there to be significant upside to pre-open trading, few rarely perceive the risks. Yet there are significant risks. The hours of operation for the US equity markets is from 9:30am through 4pm, Eastern Standard Time. During these hours, on both listed and OTC exchanges, there exists parties who are responsible for maintaining an orderly market in a stock, standing ready with firm quotes, prices at which they will sell (offer) stock as well as buy (bid) for stock. And while you may not like or be satisfied with the prices that these parties post on your security, you will at minimum know that there is a market, regardless of price, for your stock. In the over-the-counter markets, such as the Nasdaq National markets, these parties are known as market makers, firms who act as principals in their clients' transactions, taking the other side to the trade, while presenting firm bids and offers. On listed exchanges, such the New York Stock Exchange, this individual is referred to as the specialist. And while the specialist and market maker are required to post firm bids and offers on their respective securities, these bids and offers are only firm during market hours, from 9:30am through 4pm. Thus, moments before the market opens and immediately at the close, without access to after hours trading systems, you effectively have no liquid access to the markets. Regardless of the pre-open volatility in the stock, market makers and specialists have every right to say, "not open, nothing done yet'. There are strategies to successfully navigating these markets. Trading in the after hours or pre-open will vary depending on the particular stock and its primary exchange. Lets start with the NASDAQ. The Nasdaq is more investor-friendly when it comes to trading after-hours. While market makers generally are uninterested in executing after the bell or pre-open, you can often find a market maker or an investor that is willing to do the trade. It takes some work, a few systems and skill. The systems that I might utilize include, but are not limited to: 1. Phone based trading to various market makers; market makers on the offer, other liquid market makers 2. SelectNet based trading to " " " " 3. ECN access; actively taking out an offer or hitting a bid; or more passively posting a bid or offer. If a client were interested in buying after the bell, I will immediately go to the market maker that was on the offer at the close. Being on the offer, the firm was displaying an interest in selling. Was is the key word. My hopes would be that the market maker was unable to find a buyer and still has a position to work. Perhaps the firm has a client order to sell at that limit and would like to clean up the ticket. The contra firm might have the discretion to trade the position after-hours. My recommended first course of action for trading after the bell would be go to the market maker on the offer. I would probably start with a direct linkage system or phone, then move to SNET. If the firm(s) with the closing offer declines my trade, I would then probably go to one of the leading market makers in the stock, perhaps MASH, TSCO or NITE. With high volume trading desks, these firms might have gone home with long positions that the traders are interested in cleaning up before heading home for the evening. Perhaps these firms have the other side and are simply interested in cleaning up one more ticket. If either of those fail options, I now have to make a critical decision as to how to approach the stock. My analysis here would goes as follow: First, I would analyze the after hours transactions which are occurring if any. There may be other stocks trading after hours and an analysis of the times and sales for these stocks might quickly tell you where stock is changing hands. Actually, this analysis applies regardless of the system you are utilizing. Always check times and sales after the bell or before the open. Since market makers "freeze" their quotes after-hours, times and sales is the more prudent technology for determining where the stock is trading is the extended sessions. The most utilized system for trading after hours in the OTC markets involves the use of ECNs. ECNs permit a client to instantly place a bid or ask on an OTC stock, visible to the entire market. There are a tremendous number of issues relating to manning rules and obligations of market makers to publish client quotes, etc., yet for our sake, lets just say that using an ECN gives the client immediate access to the market. The clients' bid or offer is instantly published. Electronic Communication Networks are a critical, though not the end-all; they are simply component of modern trading. We use ECNs in approximately 14% of the trades that we execute. We typically feel that during the market hours, unless you are joining the bid or joining the offer, more passive means of trading, we have many other executions systems that offer better results. Nonetheless, when it comes to after-hours trading, ECNs get the nod. Most ECNs do permit trading after-hours. It is simply a matter of the client posting a bid or offer and another client taking down that offer or hitting the posted bid. For example, at 4:30, after the market has closed, if you desire to buy stock ABCD, and you have exhausted your first few options, you would need to look for an ECN offer. Scour up and down a Nasdaq Level2 screen and look for an ECN offering stock. The most common ECNs include INCA, ISLD and REDI, though there are several others. These ECNS are "live". That is, if you have access to them, you can execute a trade after-hours. A bid or offer posted at any time the ECNs is online is a live order. Enter a erroneous price, and you quickly learn how costly the improper use of an ECN can be. Access is the key. You need a firm that has either direct or indirect linkages to these ECNs. For the record, Yamner & Co., Inc. has access to virtually every ECN, offering our clients the broadest range of systems for after-hours trading. Note that the ECN bid or offer may deviate significantly from where the stock is printing in after-hours trading. For example, a stock might continue to print at 9 after-hours, yet the lowest ECN is offering stock at 10. One could decide to route an order to the live offer at 10, yet the client might be better suited to place a passive bid at 9 or 9 1/16 on the ECN, thus establishing an after-hours bid, displaying to the world that you wish to buy stock at 9 1/16. If sellers persist, your 9 1/16 bid has a better chance of being hit. Note that the Nasdaq, in all trading session, offers no 'trade-through' protection. You may have a bid at 9 1/16, yet stock might be trading at 9. This might seem disappointing and you feel you should be entitled to a fill. On the Nasdaq, it is a negotiated market. Someone must hit your bid specifically. Nonetheless, placing a passive bid does not ensure that you will own the stock. No one might hit your bid and you end up without your position. If the stock opens the next day at 20, it would have, in retrospect, been a wise move to have paid up and bought the stock at 10. Only retrospect helps here. The stock could also open at 2, proving the decision to be a foolish one. With listed stocks you have fewer options. On listed stocks, my first move would be to bid or offer the stock on the PCOAST, the Pacific Coast Stock Exchange. While not as active as the NYSE, the Pcoast offers the advantage of extended hours, trading to 4:30pm est. Thus sellers or buyers that evaluate positions and are interested in additional activity might simply go to the Pcoast as it is a centralized, listed exchange upon which they can trade stock. If the PCOAST proves fruitless, then Instinet, the ECN mentioned above, permits traders to trade listed stocks after-hours. Again, one must analyze their book to see the various prices at which stock is bid for or offered. This lets a trader know where one can actively get or sell stock, though again, these prices may significantly vary with the stocks' close or after-hour prints. The prices at which stocks trade after-hours can often deviate tremendously from where the stock opens the next day. A general lack of liquidity typically is the biggest factor driving the volatility. Traders and firms are adjusting their prices relative to this lack of liquidity, a lack of understanding of where the broad market will open the following session, etc. I often caution investors that there are typically bigger, better funded parties out there who know exactly what they are doing at the open. If our Trading Desk has 100,000 shares of ABCD to sell at the market at the open for one client, it would be foolish for some unknowing party to bid for the stock too aggressively. As well, most traders with size, as well as those traders handling client orders for large houses, probably don't show up to work until 8:30, 9am. (As a side note, we staff our trading desk from 6:30 am, available for pre-open trading,). This is similar to being allowed into a shopping mall a hour before it opens, only to find yourself walking the hallways with all the stores closed. The prices from last night look great but without a vendor will to sell to you, there is nothing that can be done. Without a contra firm, access to the markets pre-open means nothing. In addition to the speculative component of after-hours trading, such trading can be quite helpful when a trader makes an error on a stock. For example, a trader may believe they had sold an entire position when infact only a partial fill was executed. As a result, the trader may make the prudent move of eliminating the position after-hours. While the price may deviate, it might be considered a worthy consideration given the risks perceived by the trader of holding the stock overnight. Some consider it insurance. While there are significant risks associated with trading during these periods, as volume on the exchanges continues to grow, traders will look for every opportunity to process trades. Ultimately, the savvy trader should at least have an understanding of how such markets operate, as well as be with a firm that fully understands the complexities of such trading. Yamner & Co., Inc. is fully experienced and technically equipped to handle this component of business if our clients desire it. *********************************** The Hard Right Edge Technical Analysis by Alan Farley Alan Farley is a trader and editor of The Hard Right Edge web site. The Hard Right Edge provides comprehensive traders resources including original tutorials and strategies on multi-trend technical analysis and short-term trading . Alan also authors complete on-line training courses on technical analysis in association with independent sites. He has been featured in Barrons and Smart Money magazine.Visit The Hard Right Edge at hardrightedge.com. Perfect Trade Entry Successful traders must manage time better than investors. Executing short-term positions requires far more skill than just buying a stock and holding it. But trading has a more attractive time/cash profile than investing. In other words, you can make a lot more money quickly. But you can lose it even faster without thoughtful preparation. Short-termers exploit individual quirks of market behavior and take fast, high probability profits. And you don't need a lot of different methods. Some futures traders earn a good living just selling the same 5-min ledge formation over and over again. While not as crowd pleasing as chasing EBAY or SEEK, these well timed entries produce extremely high percentages of profitable trades. Focus on optimizing entry and exit over all other considerations. Fully understand the time character of each part of the market day. For example, never buy weakness in the last hour if price is near the bottom of its daily range. Time of day sentiment favors continued declines for issues near their lows at this time. Remember this golden rule of trading: over time, excellent entries on mediocre trades make more money than bad entries on good ones. Consider trading single direct moves rather than holding through inevitable pullbacks. Increase position size or improve the time/cash profile to risk more money. Or only scale in with part of a position while waiting for the next big price move. Cross verification must be part of your trading analysis. When identical price hot spots appear in different forms of evaluation, odds increase that position will succeed. An assumption exists that each new verification (convergence at a specific price zone) raises the positive to negative feedback ratio. At rare times, Fibonacci retracements, moving averages and trendlines all work together in perfect unison. When they do, jump on board quickly. CAPTION 1. yamner.com yamner.com Sometimes the fog lifts and the trading message becomes crystal clear. As General Electric descended into a well-deserved correction, four classic pattern measurements pointed to a reversal at the exact same point. This rare CVx4 revealed a perfect time/cash profile setup.

To: TFF who wrote (6648)	3/6/1999 8:39:00 PM
From: TFF	Respond to of 12617

Is Trading Futures Right For you?: Whether you have the makings of a successful speculator in commodity futures remains to be seen. No book or person can teach you this demanding skill. Nor can a book or person make the key decision to trade or not to trade, for this decision must be made by you alone. Most outsiders think that commodity futures trading is not for the typical investor--whoever that may be.But as with so many popular impressions, this one is apt to be false. True, commodity futures trading is not for everyone. But there are many would-be speculators with the potential for success in the commodity markets who have held back because they just haven't been exposed to commodities or have considered them too complicated to understand. Apart from a knowledge of the mechanics of the market, however, the requisites for trading success are not all that rigorous. Certainly, an adequate supply of risk capital is necessary. But money alone cannot ensure your success. There's a saying about the markets that one sure way to make a small fortune trading commodities is to start with a large one. And not a few well-financed traders have confirmed the truth of this statement. But your psychological makeup is perhaps the single most important factor in determining whether you will be successful at trading futures contracts. Your attitude toward your risk, your ability to admit a mistake, your independence in making your own market judgments apart from the crowd--will all have a vital impact upon your trading results. The importance of your own psychological makeup cannot be overstated. For this factor will decide whether you fall victim to one of the many pitfalls in the way of commodity futures traders. One of the most devastating pitfalls, incidentally, is opinions. Everybody has them, especially in commodity trading; and, to paraphrase Humphrey Neill, when everybody has the same opinion, everybody is likely to be wrong. Let's consider an example of the speculator who has recklessly lost money in futures trading. If he gets wind of your notion to trade commodities, is he going to tell you of his mistakes in the market? No,indeed. You are going to hear that making money in commodity futures is an impossibility. It can't be done. In a sense, he may be telling you the truth; it probably can't be done--by him. But what about you? Are your temperamental factors identical to his? Are you likely to make the same mistakes? How about your attitude toward risk? Your knowledge of the futures markets and your grasp of the strategies that will be disguised later will determine if you win or lose! All these factors may be different. So don't let someone else's lack of accomplishment stop you, if you feel up to the task. If you let yourself be swayed, you will only have yourself to blame. The easily discouraged don't belong in such a high-risk, high-gain game as futures trading anyway. W. Somerset Maugham, the distinguished author, used to make it a practice to discourage any would-be writers who came to him for advice about the writing profession. "I always try to discourage them," said Maugham, adding, "and if they are any good they never listen to me." The same could be said of good speculators. They don't rely upon someone else's judgment to tell them what to do. They know what they want. And they know how to get it. Futures trading is simply the vehicle they use to advance themselves along their chosen avenue of success. Your Goals Before you decide one way or another about futures trading, you should take a hard look at your personal goals. For unless you consider where you want to go, it may be hard deciding how to get there, There are investments and speculations available for practically every pocketbook and lifestyle. You have to look at the vast array of opportunities from savings accounts to securities, antiques to diamonds to decide which one will satisfy your needs. And when you look at the various investments competing for your discretionary dollars, you must be aware that each has its advantages and disadvantages in terms of safety and growth of principal and equity. Barring some unforeseen economic disaster, savings accounts are reasonably safe places to keep funds, but how will your investment fare in the light of continued inflation? Real estate tends to provide a good return on investment, but it is not as liquid as stocks. Diamonds are presently fashionable, but will buyers be willing to pay higher prices in five years? What about buying silver and gold bullion? Or storing your wealth in a harder currency than American dollars, such as Swiss Francs in a foreign bank account? These are just a handful of the considerations that a thinking investor or speculator must make. What's more, the typical middle-income investor will have an army of salesmen pitching him on everything from insurance to income property as the ideal way to guarantee his future against the possibility, if not probability, of absolute ruin if he doesn't get out his checkbook and close the deal immediately. Commodity brokers, of course, are no exception. Amid all the clamor, one sometimes does and sometimes doesn't make the right choice. Commodity futures do offer one advantage (or disadvantage, depending upon how you look at it) that makes them unique. And that is leverage. By trading contracts with margin requirements as low as 5 percent of the total value of the underlying commodities, the speculator avails himself of an asset worth twenty times the value of his capital. This means that $5,000 can control a commodity worth $100,000,whereas $50,000 will margin commodities worth $1 million. As a result of this incredible leverage, futures trading represents one of the few ways in which yon can take a relatively modest amount of money and turn it into a significant amount of money. This is the singular advantage of futures trading that distinguishes it from nearly any other type of investment. If this is one of your goals, then futures trading might be for you. Your Attitude Toward Risk (This is the most important section) Unless you are comfortable in taking risks, you are going to be unsuccessful as a futures trader. For futures trading is the art of taking prudent risks in the pursuit of profit. Knowing how to take risks is a difficult process to master,however. Most people are poor risk takers. They want a sure thing with a predictable outcome before they are willing to take a chance. Unfortunately, the two are mutually exclusive.Where there is no risk, there is no opportunity. Indeed, in the commodities markets, opportunity is commensurate with risk. Seasoned traders know this, and they wouldn't have it any other way. Cognizant of the risks involved, the experienced commodities speculator will proceed with caution. The inexperienced speculator, however, will wait until he has a "sure thing" and then proceed with abandon. The difference in temperament between risk averters and risk takers is significant. A risk averter, waiting for a sure thing, will allow a market to go up and up before he decides the market is indeed headed higher. He then finds himself buying at the top at the same time, of course, that the risk taker, a contrarian by nature,is selling short in the final rally. It isn't hard to see who wins in this situation. Risk takers acknowledge the likelihood of failure, risk archers do not. Risk takers plan for losses, even welcome them (assuming they are kept to a minimum) and thus have the advantage over those with no margin for error. They know that you can lose many battles in the struggle for profits and still win the speculative war. If their judgment is proved wrong in the market and it frequently is they simply cut their losses and abandon their positions immediately. They don't agonize over taking a loss and perhaps stay with a losing trade that could then grow truly significant. They accept reality as it is. Knowing they will be wrong more often than they are right, they play the commodity game as it was intended to be played with agility, shrewdness, and speed. They thrive on the pace and competitiveness. And if they have a losing series of trades, they accept them. They also know how to walk away from the markets for a while in order to refresh their mental outlook and return in a winner's frame of mind. They have an attitude toward risk that is not common among investors. Risk Capital Your attitude toward risk will be influenced by your attitude toward the money you use to trade with. To begin, you must have risk capital in order to trade successfully. Risk capital is not money you need to purchase necessities. It is not money you need to pay the mortgage. It is not money you need to pay for your child's education. It is money you can afford to lose. Your attitude toward the money you use to trade with will affect the way you trade. As we have already mentioned, if you wait for a "sure thing" to come along, you are almost certain to lose. Experienced speculators know the difference between risk capital and money needed for everyday expenses. They never substitute the latter for the former. Some have suggested that if you already have all the financial resources that a conservative-minded commodities speculator should have, you don't need the additional funds that futures trading could provide anyway. This is a good point. After all, if you have the mortgage taken care of, if you have a conservatively managed stock and bond portfolio,substantial savings, income property, tax shelters, and the rest, why trade commodities? It comes down to a question of values. These well-heeled speculators might very well enjoy futures trading. On the other hand, the not-so-well-heeled speculator might very well be willing to forgo some current consumption or degree of security he could achieve by, say, purchasing bonds in order to trade commodities. Your definition of risk capital, therefore, depends upon your personal circumstances. Discipline Even speculator who hopes to succeed at the difficult art of trading commodity futures must exert a rigorous discipline over all his trading activities. He must be judicious in selecting commodities to buy and sell, and he must not overtrade. He must be mindful of commission costs and losses and never risk more than a small portion of his total trading capital on a single position. Ideally, he will have a trading plan that covers his money-management techniques, and he will stay with his plan until it becomes clear to him that another method of trading would be more desirable. The disciplined trader has an edge on others in the markets because he is immune to the emotionalism that characterizes the trading activities of his fellow speculators. He knows what he will risk by going into a trade, and he knows what his profit objective will be. Should the market then surprise him and perform more impressively than he had suspected, he will use a method of trailing stops to exit the market. But he will never move his stops to expose himself to greater risk once he decides on his predetermined level. The disciplined trader knows that losses are inevitable. Because of this knowledge, he decides in advance how much adversity he will absorb before he calls it quits. He will use either actual or mental stop loss orders and be precise in placing his trading orders when he initially enters the market. He follows the market closely and keeps his charts and other technical indicators up to date. The disciplined trader may be quite independent in his judgment, hut his strongest commitment is to understanding the realities of a situation. He knows how to read the "footprints" of a market and ride with it--not against it. Above all, the trader who is successful weds his discipline to his intuitive thinking process. He knows that the time-honored adage that you should "run away to fight another day" is nowhere more applicable than in futures trading. He is strong yet pliable. He knows when to press and when to relent. And, like all successful traders, he knows that his consistent, disciplined manner will bring him profits over time. Knowledge There is no substitute for having a comprehensive knowledge of the commodities you trade and the mechanics of the commodity game. Surprisingly, a great many speculators lose money because they don't know what they are doing. A course like this one can go a long way in supplying you with some of the information you need to trade commodities, but there much more that you can learn on your own. If you trade an agricultural commodity, acquaint yourself with the seasonal influences on price. Many commodities adhere to a rather rigid seasonal pattern, deviation only during of abnormal supply-and-demand conditions. For instance, pork bellies have a decided seasonal tendency to rally in July and August. Pork belly traders acquainted with this tendency, which occurred eleven out of twelve times in recent years, will be a step ahead of those who are unaware of this seasonal pattern. Do you know when your commodity is harvested? The impact of various weather conditions on your crop? Orange juice traders are always looking for an untimely hurricane or sudden frost to send their market limit up. A lumber trader might be more interested in seeing the statistics on housing starts. A multitude of information is available for the speculator who wants to research his commodity. The important thing is to be knowledgeable in your area of specialization. The Future Today's commodities speculator is a new breed of investor. A few years ago, he wouldn't have considered abandoning the stock market for such a risky venture as futures trading. But in these days of economic uncertainty, many former stock market investors are finding the futures market more to their liking. Together with the stock option markets, which, after all, are only futures markets for stocks, the commodity futures exchanges have attracted a significant portion of the speculative participation that once flourished in the securities markets. Drawn by the leverage, opportunity for profits, and pace of the commodity game, the new speculator is rapidly adapting to the demands made by these competitive markets.