TAPE READING (chat room cont.)

[FastandFurious]

Quote from Maverick74:

The idea of of tape reading is very similar to a pit trader at the CBOT or Merc trading off of flow. In other words, the best floor traders made their money front running large orders, getting good flow from brokers, and reading the flow in the pit. Once that flow went to the screen and became fragmented, the bond floors became ghost towns. The front month Euro Dollar futures are so empty now you could sell rugs down there.

The edge was in having single listed markets. Where all the paper and flow came to you. You know what everyone was doing and when they were doing it. This applies to options as well. The equity option floors are a ghost town.

The only viable pit left is the SPX pit at the CBOE. Know why? Because all the paper still goes to the floor. They are the only exchange that trades that product.

Once you start splitting up and fragmenting order flow, the game of trading off of it is over. That's the bottom line.

With the ECN's getting more and more of the volume for listed stocks and the new trade through rules going into effect in October, the market is going to become very fragmented. What does this mean?

It means now the buyers and sellers are going to be harder and harder to find. They might be bidding for stock at the NYSE and offering it out on the ECN's. Now instead of watching one tape for a stock you will have to follow all the tapes. This will make trading a lot of stocks near impossible. The writing is on the wall.

There is a reason why most of the equity only shops have folded. It's not because of the penny spreads or the low volatility. In fact, we actually have a great trading market now. They folded because the most consistent day traders were tape readers and most of them are leaving the equity shops. That leaves you with all the bottom and top pickers that inevitably blow out within months. Why do you think Don Bright is pushing what's left of his daytraders into pair trading?

No, I do not daytrade anymore. I left the game when they took away bullets. That was awhile ago. I also left because you can't build a long term career daytrading. At least not in the money management business.

very interesting. I heard that the specialist on NYSE is being more and more automated as well. You're saying that pair trading is the answer (or at least a good answer) to the future market changes/exchange changes that's ahead? How long are these changes going to start happening?

 

[Maverick74]

Quote from FastandFurious:

very interesting. I heard that the specialist on NYSE is being more and more automated as well. You're saying that pair trading is the answer (or at least a good answer) to the future market changes/exchange changes that's ahead? How long are these changes going to start happening?

No, I do not endorse pair trading. The changes are already happening. The ship has sailed. Equity trading is all done by autobots now. Human trading in equities is nearing an end, at least for intra-day.

 

[eusdaiki]

Yeah I hear that much of the volume for institutions is going through block trades in shadow books... such as pipeline, NYFIX, lava, etc... they are seeing it as an alternative to the specialist.

 

[Spxdes]

Quote from Maverick74:

The idea of of tape reading is very similar to a pit trader at the CBOT or Merc trading off of flow. In other words, the best floor traders made their money front running large orders, getting good flow from brokers, and reading the flow in the pit. Once that flow went to the screen and became fragmented, the bond floors became ghost towns. The front month Euro Dollar futures are so empty now you could sell rugs down there.

The edge was in having single listed markets. Where all the paper and flow came to you. You know what everyone was doing and when they were doing it. This applies to options as well. The equity option floors are a ghost town.

The only viable pit left is the SPX pit at the CBOE. Know why? Because all the paper still goes to the floor. They are the only exchange that trades that product.

Once you start splitting up and fragmenting order flow, the game of trading off of it is over. That's the bottom line.

With the ECN's getting more and more of the volume for listed stocks and the new trade through rules going into effect in October, the market is going to become very fragmented. What does this mean?

It means now the buyers and sellers are going to be harder and harder to find. They might be bidding for stock at the NYSE and offering it out on the ECN's. Now instead of watching one tape for a stock you will have to follow all the tapes. This will make trading a lot of stocks near impossible. The writing is on the wall.

There is a reason why most of the equity only shops have folded. It's not because of the penny spreads or the low volatility. In fact, we actually have a great trading market now. They folded because the most consistent day traders were tape readers and most of them are leaving the equity shops. That leaves you with all the bottom and top pickers that inevitably blow out within months. Why do you think Don Bright is pushing what's left of his daytraders into pair trading?

No, I do not daytrade anymore. I left the game when they took away bullets. That was awhile ago. I also left because you can't build a long term career daytrading. At least not in the money management business.

I hate when you talk negatively about tape reading. It makes me want to quit my firm and get a "normal" job.

 

[FastandFurious]

Quote from Maverick74:

No, I do not endorse pair trading. The changes are already happening. The ship has sailed. Equity trading is all done by autobots now. Human trading in equities is nearing an end, at least for intra-day.

autobots run on scripts and conditional statements don't they? I would imagine a real successful equity trader is better than a robot...I guess most of that advantage comes from knowing how to read the tape well...why is pair trading being looked at as an alternative besides being hedged in the market?


Spxdes, can you elaborate on market shorts and how chasers happen?

so instead of giving a large order to the specialist to work, an institutional buyer/seller would just program a blackbox and go?

 

[Maverick74]

Quote from FastandFurious:

autobots run on scripts and conditional statements don't they? I would imagine a real successful equity trader is better than a robot...I guess most of that advantage comes from knowing how to read the tape well...why is pair trading being looked at as an alternative besides being hedged in the market?


Spxdes, can you elaborate on market shorts and how chasers happen?

so instead of giving a large order to the specialist to work, an institutional buyer/seller would just program a blackbox and go?

No freaking way does an a real trader beat an autobot. The best autobots I have seen can do 5k transactions a second. And in many cases they are trading with internalized order flow. No trader in the world can touch that.

Pair trading is not being looked at as an alternative. It's just a totally different style. It's getting pushed for two reasons. One, it generates a lot of commissions for the firm's owners. And two, it reduces the general market risk for the firm.

 

[KenLay]

So Maverick, in your opinion, what's the best weapon the daytrader now has? Charts? Is it even worthwhile to daytrade at all with the way automated trading is taking over? For a beginner trader, would you suggest swing trading over day trading? What are your thoughts?

 

[Spxdes]

fast,
A market short is what it is. Someone is trying to short the stock and has to follow the uptick rule. They are easy to spot. I don't know why this happens or who places these orders and I don't care. It works, thats all that matters.

One thing to remember, there are no market shorts in reg SHO stocks because there is no uptick rule.

 

[FastandFurious]

Quote from Maverick74:

No freaking way does an a real trader beat an autobot. The best autobots I have seen can do 5k transactions a second. And in many cases they are trading with internalized order flow. No trader in the world can touch that.

Pair trading is not being looked at as an alternative. It's just a totally different style. It's getting pushed for two reasons. One, it generates a lot of commissions for the firm's owners. And two, it reduces the general market risk for the firm.

so if you are trading listed now, how long do you think we are until we are jobless?

when you are talking about autobots, are you talking about institutions using them or daytraders or NYSE specialists?

 

[FastandFurious]

Quote from Spxdes:

fast,
A market short is what it is. Someone is trying to short the stock and has to follow the uptick rule. They are easy to spot. I don't know why this happens or who places these orders and I don't care. It works, thats all that matters.

One thing to remember, there are no market shorts in reg SHO stocks because there is no uptick rule.

Without bullets, etc...doesn't most day traders, etc... have to follow the uptick rule? what are the signs that a market order is going to take place or is taking place? if the bids are repeatedly printing lower and lower?