'picking off' retail traders
- Thread starter HungryMind1200
- Start date
This reminds me of my early days trading according to 'Safety In The Market' principals which had to be one of the biggest market educators in Australia in the 2000's. They pretty much taught a swing trading system where you put your stops 1c away from swings, profit targets at set swing percentages etc. Would have been hundreds of us placing trades in not very liquid markets, with stops at very predictable locations. I woke up one day when I pulled up the order book for the first time and could see someone spoofing the market in a particular stock right at these obvious swing thresholds and stop loss exits. It really is obvious where retail traders are placing orders - and if you have the resources of a market marker, you could no doubt scalp a cent or two around these exit points, knocking retailers out of positions. That was just the start of their black hole of education.... crazy how easy it is too have the wool pulled over your eyes.
EDIT: Ofc futures is a different matter - Maverick nailed it I think though. If a prop trader told his coach / mentor he got out of a trade because he saw a large order flash up in the DOM he would probably get laughed at and a kick in the but. I think retail traders are picked off by pros mainly because they don't have the ability to hang on when a position goes against them or in their favour - emotionally and risk tolerance. Technical levels will usually have games plaid around them and both pros and retail traders are paying attention to these levels, so its a survival of the fittest scenario imo.
EDIT: Ofc futures is a different matter - Maverick nailed it I think though. If a prop trader told his coach / mentor he got out of a trade because he saw a large order flash up in the DOM he would probably get laughed at and a kick in the but. I think retail traders are picked off by pros mainly because they don't have the ability to hang on when a position goes against them or in their favour - emotionally and risk tolerance. Technical levels will usually have games plaid around them and both pros and retail traders are paying attention to these levels, so its a survival of the fittest scenario imo.
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Most retail traders are dummies. They're looking at obvious S/R levels
I love these 'picking off' discussions.
I agree that there are a lot of strategies differentiate retail trading and institutional trading.
The only reason I love trading is because people like to 'hunt'. This creates inefficiency. Inefficiency creates trading opportunities(for instance, think about the overbought/sold levels ). Smart traders know that and capitalize on it.
Anyways, dumb people will always be slaughtered whatever they do. That's just how the world works. It's kinda important from an evolutionary perspective.
I agree that there are a lot of strategies differentiate retail trading and institutional trading.
The only reason I love trading is because people like to 'hunt'. This creates inefficiency. Inefficiency creates trading opportunities(for instance, think about the overbought/sold levels ). Smart traders know that and capitalize on it.
Anyways, dumb people will always be slaughtered whatever they do. That's just how the world works. It's kinda important from an evolutionary perspective.
Most traders love "feel good" trades on momentum, watch it breakout and go with it, I look at these trades with distain as they offer most risk and I might give them even less time to work out cause I know whoever took other side of my trades were more likely getting out.
The best "retail" trade I like to look for is breakouts from trendline breaks, they take any of them, even when they have no rules of what is considered a good trendline for starters or rules of what the break should look like. I feel or think in more of terms of programmer, have to have very defined rules of everything on the chart, and when I see increase of volume going against my rules based on back testing, I look at this as a divergence from the norm, so I wait till price comes back and then some for retail to be taking small losses or breakevens then I get in going their original direction, they often jump back in pushing market enough for me to get out.
Retail, often times trade with very small risk, noise alone often times hit their stops, they have little staying power to sustain bigger retracement cause they got in late. The differences between beginning and experienced traders are often no more than waiting, too many not knowledgeable on extremes so they lose there, while in trending they get in late.
The best "retail" trade I like to look for is breakouts from trendline breaks, they take any of them, even when they have no rules of what is considered a good trendline for starters or rules of what the break should look like. I feel or think in more of terms of programmer, have to have very defined rules of everything on the chart, and when I see increase of volume going against my rules based on back testing, I look at this as a divergence from the norm, so I wait till price comes back and then some for retail to be taking small losses or breakevens then I get in going their original direction, they often jump back in pushing market enough for me to get out.
Retail, often times trade with very small risk, noise alone often times hit their stops, they have little staying power to sustain bigger retracement cause they got in late. The differences between beginning and experienced traders are often no more than waiting, too many not knowledgeable on extremes so they lose there, while in trending they get in late.
Wait, I thought Navinder Singh Sarao caused the flash crash. Confused.
Spoofing does catch some algos, institutions, private and retail. In the situation involving Sarao, he gamed it well and it caused almost a trillion dollar market haircut. Simply, spoofing and other algo tactics is not exclusively looking only for retail folks. There's a few online articles about this for anyone to research.
Simply, algos want your money regardless if the algo is from someone private or firm. They don't care if you're retail, hedge fund, institutional, prop firm, institutional or another algo. That's why the went after the guy, a lot of the big boys took a big trimming that day and they were pssst.
From the article:
That is all you need to know. If you manage to outsmart the HFTs, you get thrown in jail.
HFTs have just as high (or higher) cancel rates than spoofers. HFTs should be given 3 year jail terms as well.
I talked about this issue in another thread. I don't know if he's guilty or not. The fact is that the big boys does spoofing (trading), layering are illegal but the big boys get away with it maybe due to the fact they are better at hiding it although some firms have been caught and heavily fined, barred from exchanges and suspension of license.
In contrast, there's been a few articles on bloomberg and reuter in which the biggest complaints about algo retail traders and algo private traders doing spoofing has been by the big boys themselves. Usually these algo retail traders or algo private traders are former institutional traders or former quants at firms.
I believe when Sarao (a private trader...not retail trader) is a scapegoat for that particular "flash crash". The CFTC, CME and Department of Justice needed a scapegoat and they ignored the big boys that were doing the same on that day but went after the private trader with a big bank roll that was doing the same. He was easy pickings because of his former connections with a institutional trading firm and he was doing it in large position sizes...they will need to prove that the program was designed to "defraud" (see article below about such involving someone else arrested that was not a private trader but a small firm).
Ironically, firms gotten smarter and know "not" to do such in large position sizes. They now do it in small sizes as in example involving the Emini ES futures involving 1 - 5 contracts but more often.
To further the contrast, read the article about Mr. Coscia for doing the same but he didn't cause a flash crash @ http://dealbook.nytimes.com/2014/10/06/a-new-crime-with-a-catchy-name-spoofing/?_r=0 (my article is about the same Mr. Coscia that Deuteronomy_24_7 posted about but my article occurred a few years before Mr. Coscia conviction)
I read in another article (I'll post it when I find it again) that up to 85% of the orders placed in the S&P 500 Emini futures are "cancelled". That's scary info for those trying to trade the Emini ES futures via analysis of the Bid/Ask screens and DOME traders.
Thus, it seems like anyone can cancel an order via an algorithm but the key is to prove that a program was design to do such for the purpose of "defrauding" regardless how little profit you made.
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