Keeping losses small on the NYSE

[fatrat]

The key to trading is to keep losses small. I've ingrained this in my head, but in practice, there are situations where I can't keep those losses so tiny. In my mind, as a scalper, I don't like to take losses > 3 cents.

First, let me explain my situation and frustrations:

Typically, I will trade a volatile issue like DNA or VLO. When I take a position, I like to take a position where if I go long, I like there to be someone at a price level underneath me that I can sell into if I'm wrong. If there's a large order in the book, I try to keep my order not too far from them (usually 1-3 cents), so if I'm wrong, I can react quickly and sell into the levels beneath me. (Same for shorts, just the price level above me has to have a lot of sellers.) This strategy USUALLY works, but when it doesn't, it's extremely frustrating, since the losses get big.

If I do the mental math and figure out in a slow upward advance that I think the trading will stop at a certain level, in some cases the advance will happen so fast that the specialist will basically print off the entire block and the stock will burst against me. The same for downward advances.

Also, I find that in a stock like VLO, if someone comes into the order book with an order for 8000 shares or more, the market seems to rapidly move with people building 10 cents worth of cushion all the way out from that order, so I have an EXTREMELY tough time getting filled anywhere near that guy's order. If I do get filled near the large block order, the odds are that the stock is going to move against me so fast it hurts.

I'm finding that when the stock bursts against me and I'm trying to panic out, it screws with me psychologically so bad because then I want to get a winner to fix the situation. The longer I go without getting a large winner, the more desperate I become, and it becomes a downward spiral.

I'd like to ask other scalpers how they manage to consistently keep their losses under 3 cents. I know there are guys who can do it, because I've seen them do it.

Thanks to all who assist me. I'm still somewhat of a n00b, with just three months of trading under my belt.

Please share the wisdom! Keeping my losses tight has never been harder, and it's driving me insane.

 

[fatrat]

One more thing: the 10 second lag in the NYOB seems to be a problem also. By the time I see an 8000 pop into the book, it's like every trader out there has seen that order and has stuffed orders in. I wonder who actually gets filled and if it's worth getting filled so far out from the volume in the book.

Are computers doing this, or what? How can I compete with the other guys in VLO? Does anyone trade these super fast energy stocks with any success?

 

[BOSS_HOG]

NYSE OB is all smoke and mirrors!!! You can't rely on size like you could back in the day. Often, it is there to entice hyperactive traders to take a position becuase "Well, there is 100K bid 3 cents down" Guess what? you enter your orders to get long and it is really a guy who is trying to get short that you provide liquidity to (and who entered the fake bid). When he establishes his position- vamoosh- the bid is gone, a huge offer comes in a few cents away, all the longs panic, sell and the short seller places a bid 10 cents down, cleans up his size and makes money, then on to the next trade. happens all the time......

 

[fatrat]

Quote from BOSS_HOG:

NYSE OB is all smoke and mirrors!!! You can't rely on size like you could back in the day. Often, it is there to entice hyperactive traders to take a position becuase "Well, there is 100K bid 3 cents down" Guess what? you enter your orders to get long and it is really a guy who is trying to get short that you provide liquidity to (and who entered the fake bid). When he establishes his position- vamoosh- the bid is gone, a huge offer comes in a few cents away, all the longs panic, sell and the short seller places a bid 10 cents down, cleans up his size and makes money, then on to the next trade. happens all the time......

So what are your techniques for keeping losses small? I mean, you don't have to reveal everything, but what are you looking for? Multiple levels of support beyond just 1 price level? Or are you simply looking for a trend to form so you can add an extra level of confirmation to the NYOB, so you can see through the smoke and mirrors?

If I can find just one technique or trick to keep me from having losses blow up against me, it would help. It seems like every day, I have at least 1-2 explosions against me that I want to weed out.

 

[Steve Tvardek]

Learn to read the tape well, this will help you gain a good understanding of what is going on in the stock you are trading and will help you keep your losses to a minimum. You will hopefully soon learn how to trade using the NYOB, the way you are trading now isnt right from what you've described. Yes, certian times you can rely on the bids or offers you see for protection but only after you've learn to properly tape read. I am to the point now where I know to a high degree of accuracy when to trust a bid or offer and when not to. Yes, sometimes I am wrong but the majority of the time, once I've identified what the specialist and others floor traders are doing, I can position myself accordingly with very little risk. Sometimes that bid or offer is actually me pushing the stock up or down because I've identified that someone is desperate on the other side of the trade and I can squeeze them out and make a profit in the meantime. Just remember, it takes time, 8-12 months at least to get consistent, and once you've established consistency, then you can start to make some nice gains.

Quote from fatrat:

So what are your techniques for keeping losses small? I mean, you don't have to reveal everything, but what are you looking for? Multiple levels of support beyond just 1 price level? Or are you simply looking for a trend to form so you can add an extra level of confirmation to the NYOB, so you can see through the smoke and mirrors?

If I can find just one technique or trick to keep me from having losses blow up against me, it would help. It seems like every day, I have at least 1-2 explosions against me that I want to weed out.

 

[fatrat]

Thanks for the reply Steve. I do use the tape. Probably just not as effectively as you.

How about some tips to look for with regard to when to distrust the book based on the tape? Just one sign or two that you've seen that can alert me. If this takes away your edge, I understand and you can ignore the request.

I focus on the tape quite a bit, mostly because I want to see where the price action is headed. Except, I'm not sure I'm reading it properly always.

For example, the specialist on a stock like HD will actually show a x1 and blatantly buy. Other specialists rarely show the x1 and do a bunch of transactions. Some specialists never show anything, but do all kinds of prints inbetween the spread. If they're doing prints inbetween the spread, does that mean they are trading out of their own accounts?

Does this really vary from specialist to specialist? Is it worth my time to review e-signal T&S prints through the day to figure out what is going on?

Quote from Steve Tvardek:

Learn to read the tape well, this will help you gain a good understanding of what is going on in the stock you are trading and will help you keep your losses to a minimum. You will hopefully soon learn how to trade using the NYOB, the way you are trading now isnt right from what you've described. Yes, certian times you can rely on the bids or offers you see for protection but only after you've learn to properly tape read. I am to the point now where I know to a high degree of accuracy when to trust a bid or offer and when not to. Yes, sometimes I am wrong but the majority of the time, once I've identified what the specialist and others floor traders are doing, I can position myself accordingly with very little risk. Sometimes that bid or offer is actually me pushing the stock up or down because I've identified that someone is desperate on the other side of the trade and I can squeeze them out and make a profit in the meantime. Just remember, it takes time, 8-12 months at least to get consistent, and once you've established consistency, then you can start to make some nice gains.