Quote from JGTrader:
I have been trading listed stocks at a prop firm for a few months and am finally starting to get a handle on executions and the games the specialists play with stocks.
But with the hybrid, what I learned seems to be irrelevant and I have to come up with a new way to play the game.
Do any of the senior traders have any input on how to adapt? Trading from the open book and MM window seem less important as someone can swipe the size immediately vs having the specialist work the order.
D1010 mentioned he now trades thicker stocks. Any input on this strategy?
Jonathan
Sorry man. I saw it a couple of days ago and wanted to answer, but I forgot. This is a great thread, but the problem is that no one has a clue as to how to adapt to this Hybrid event. Even our seniors are trying to figure this one out. We're all on our own on this one. We have to take it slowly and learn exactly how these hybrids trade. Trading thick hybrid stocks is a good/safe way to learn the hybrid features. But I don't know of any strategies for thick stocks. Personally, I stay away from thick stocks as it doesn't fit my personality. Other than that, I can tell you what I have experienced. Here's what I have learned in my 2 month hybrid face-off with MA & ODP:
Positives-
1. Fills are extremely fast. You get what is available on the open book and counter market orders that are coming in as you send your order.
2. The "Hold and Match" technique is completely history on hybrid stocks. Specialist does not hold marketable orders anymore.
Negatives-
1. Although fills are fast. Fills can become pretty nasty on stocks like MA when there are no bids and offers on the book and no specialist regulating orders. This leads me to think, "What good is a fast fill if it is filled 10-15 cents away from the market?" So watch out with your "market" orders!
2. The specialist is still able to spread the price up and down(as he sees fit) away from the inside market as usual. This is where it really differs from nasdaq. Therefore, this hybrid can never match nasdaq.
3. And you all know about the infamous LRP. When LRP triggers, all electronic traders will be locked out while the specialist fills himself and/or his floor buddies.
4. The moves are not nice and sweet as it used to be in nyse. If a stock is going down, offers will continue to come in and step down before. But now, the offer rarely has a chance to step down. It just gets taken as soon as it comes in. Thus, creating tremendous whipsaws.
5. Price improvement is gone forever. Before when you buy a stock and if it is going up and you place a market order to sell, you can get a fill that is way better than the current market price.
Now, if you place a market order. You immediately get filled on what's available.
As you can see, If you are a pure nyse trader, then you've got a lot of negatives to work with. I think the best way to adapt is to take it slowly and learn it. Hybrid is a totally new market.
Main Point: Forget about trading with size. Size trading is becoming extinct. Your out has to be gut feeling or some other technical stop price.
I hope this helps somewhat...
Thats what it seems like.