That is a good point, but I think he shorted it at the mid 18's when the stock was not down too much yet, maybe you can get a short off then. I don't know.
Trading Journal, December
- Thread starter STOCKKBROKER
- Start date
Originally posted by STOCKKBROKER
damm Penelope Cruz is cute!!
Yup, she is a hot babe... pity Tom got her before me
Check out her galleries >>
http://www.penelope-cruz.net/pictures01.htm
Extinction level event
I cannot explain it !!!!!!!!!!!!!!
I knew today was going to be a &*(^up day. Triple witching, don't the witches come on Saturday, let me have some peace and quiet to trade on Friday for crying out loud!!!
COH -$51
Stock opened down 90c, at $35.80. RLX was flying. I waited a little before getting, which is what I normally do, but a few prints later the stocks was printing $36.20, jumped in and got filled at 30c. Not a great fill since the low was 60c lower!! He can always print there again. So I put in a 20c stop ...... never do this, this is just inviting trouble, got out at 22c, and he didn't print there anymore the rest of the day. The stock is trading at $38.50!!!!!!!!!!!!!!! Dammmmmmmm
EPG -$182
absolutely the worst trade of the day. got filled twice on a $43.55 limit and I was long 1000 shares and I didn't even know it. There was a 8500 shares bid at 55c, and I got filled there, not good. Somebody hit the bid with 10000 shares and I have no where to run. The 15600 bid showed up at 50c, I thought I was safe. Bid start getting hit and I didn't get out. I am such a mook. Should have realize a thick stock like EPG, 10000 shares is nothing. 50c bid gone, and I am stuck with 40c bid and 50000 offer came in. Shit!! I hit whatever bid I can find and I got out at 40c and 38c. The stock printed 35c and did nothing for the rest of the day.
I have to be faster with my executions. I am so used to putting in stops and I pondered too much. Should have just hit the 50c bid and get out with 5c loss. There you go, you have to remain calm and have nerves of steel to execute quickly.
CAM -$111
This is another bad stock, bought it at 10:35, got filled at $37.85, offer keep refreshing and offer kept lifting, it went as high as $38:00 before coming in to chase out all the stops, XNG was really ripping I thought I could hold on, offer stepped down from the fig to 94c, then 85c, then 1800 shares printed at the fig. again, offer stepped down 98, 93, 90, 86, 85 with very small size, offer stepped down to 80c and bid start getting hit, I should have gotten out at 76c, but what possesses me to sell market I don't know, print after print after print went by and I got filled at 65c, what an idiotic thing to do. HIT THE FREAKING BID!!!!, He never printed there again after that!! Mfer.........
KMI -42
I am 0-3 so far and I tried another energy, XNG was still going at this point. Bought this at 10:47, got filled at $55.56, 56c offer refreshed and a long seller came in at 56c for 1700, no big deal since there was 2200 bid at 54c. 55c got hit, and next bid 50c!! What the hell??? For 4c, he pulled the bid and made the stock look weak. 50c got hit and I got out. This was a freaking trap and I walked right into it, here take my money, buy your kids some christmas present. But luckily I got out with minimal damage.
REI $43
At this point I can't even think straight, should have quit for a while, but I saw UTY ticking up and I bought some REI just 300 shares, I decided to cut my shares size at this point. Just my luck the stock that worked I bought 300 shares. bought this at $25.74 and sold it at 91c, the stock went as high as 98c, so nothing to cry about.
LLY -$94
Why this stock is getting killed is beyond me, stock gapped down $1 on 1.2 million print, usually a good thing, at the big print at $77.00, 50000 bid showed up at $77. 10c print, bid dropped to 9600, 15c print, 17 print, small bid stepped up 11c, 12c, 13c. All of the sudden, 13800 print at 01. What the (*&^ is going on. 99c print and long seller came in at $77, the 50000 was fake after all. Sons of bitches. There was no bid to hit, a really bad sign, 99c, 89c, 20000 market short and I was ready to pull my hair out lol.
83c print, and 82c and I got out at 81c, went as low as 70c, before going back up for good. THIS STOCK IS TOO THICK TO TRADE WHEN WILL I LEARN???????
Should I go on??
I am tired of writing all these losers down.....
Try as hell to make some back, but all I succeeded was to give more money away, here Christmas money for your kids, spec.
ABI -$4
Didn't follow the index, and moved so slowly, got rid of it. Actually went up 50c later in the day.
CRA -$56, Bad entry all the way, bought it at $26.94 and got shaken out like crazy, got out at 88c. The stock went up 60c later when BTK rallied. My timing sucks, just too desperate to make something out of nothing.
COF $.46
That's right I made .40c, who cares?? At least I made something, I went in with 100 shares, but the stock is dead today, after commission, I am up .40c
ACF -$61
BOught this at 2:25 at 30c, got shaken out again, where did all these sellers came from?????????? Took 10c loss, and I was about had it.....
ABK $111
Finally my salvation, at least I have a triple digit winner.................. JUST ONE........................ Good enough.
Bought 300 shares at $56.07 later in the day and IUX was just starting to tick up, trended nicely and it went as high as 50c, then 40,then 30, all of the sudden KABAAAMMMMMM, the stock gapped down to 05c. WHAT THE !@#$!!!???? I went from $140 to -$10. Just my luck, I am like what the hell, I 'll hang on and see if you break the fig. he didn't and the stock retraced all the way back up and I sold it at 40c. Did another stunt again 15m later and I went in again with 100 shares and got another 20c. I just wanted a triple digit winner, no matter what.
Finally,
APD $29
CEX was ticking up and I bought APD a little late, got it at 75c, when the low was 50c, the stock trended nicely all the way up to 95c, and hit a wall. Sold it at 88c for a small profit.
Well I didn't become extinct, but another game like this I might as well be.
I hesitated too much on exits, today was especially choppy because of triple witching, and I should have known to take it easy. PROFIT IS NOT GOING TO RUN ON A CHOPPY DAY.
I just wanted to take a little money from the market and I got killed because of a chaotic day. I have to forget about stops and hit bids when I see them, what the hell I think everyone and their mothers are doing it why would I go in with market orders, it is like I am asking to be spanked.
All in all a brutal day, ended the day down $440.!!! Ouch! That's almost half of my profit this week........... God damm.
Mr.S down $80, he shorted PDX and rode it for $1.5. Plus he didn't get in till 11 a.m. what a smart guy.
Mr.K down $600, he didn't even want to talk and left after the market close.
I don't know this was a good week that ended on a sour note, I hope I will really think about what I did today and not repeat any of this stupid !@#$ next week.
I cannot explain it !!!!!!!!!!!!!!
I knew today was going to be a &*(^up day. Triple witching, don't the witches come on Saturday, let me have some peace and quiet to trade on Friday for crying out loud!!!
COH -$51
Stock opened down 90c, at $35.80. RLX was flying. I waited a little before getting, which is what I normally do, but a few prints later the stocks was printing $36.20, jumped in and got filled at 30c. Not a great fill since the low was 60c lower!! He can always print there again. So I put in a 20c stop ...... never do this, this is just inviting trouble, got out at 22c, and he didn't print there anymore the rest of the day. The stock is trading at $38.50!!!!!!!!!!!!!!! Dammmmmmmm
EPG -$182
absolutely the worst trade of the day. got filled twice on a $43.55 limit and I was long 1000 shares and I didn't even know it. There was a 8500 shares bid at 55c, and I got filled there, not good. Somebody hit the bid with 10000 shares and I have no where to run. The 15600 bid showed up at 50c, I thought I was safe. Bid start getting hit and I didn't get out. I am such a mook. Should have realize a thick stock like EPG, 10000 shares is nothing. 50c bid gone, and I am stuck with 40c bid and 50000 offer came in. Shit!! I hit whatever bid I can find and I got out at 40c and 38c. The stock printed 35c and did nothing for the rest of the day.
I have to be faster with my executions. I am so used to putting in stops and I pondered too much. Should have just hit the 50c bid and get out with 5c loss. There you go, you have to remain calm and have nerves of steel to execute quickly.
CAM -$111
This is another bad stock, bought it at 10:35, got filled at $37.85, offer keep refreshing and offer kept lifting, it went as high as $38:00 before coming in to chase out all the stops, XNG was really ripping I thought I could hold on, offer stepped down from the fig to 94c, then 85c, then 1800 shares printed at the fig. again, offer stepped down 98, 93, 90, 86, 85 with very small size, offer stepped down to 80c and bid start getting hit, I should have gotten out at 76c, but what possesses me to sell market I don't know, print after print after print went by and I got filled at 65c, what an idiotic thing to do. HIT THE FREAKING BID!!!!, He never printed there again after that!! Mfer.........
KMI -42
I am 0-3 so far and I tried another energy, XNG was still going at this point. Bought this at 10:47, got filled at $55.56, 56c offer refreshed and a long seller came in at 56c for 1700, no big deal since there was 2200 bid at 54c. 55c got hit, and next bid 50c!! What the hell??? For 4c, he pulled the bid and made the stock look weak. 50c got hit and I got out. This was a freaking trap and I walked right into it, here take my money, buy your kids some christmas present. But luckily I got out with minimal damage.
REI $43
At this point I can't even think straight, should have quit for a while, but I saw UTY ticking up and I bought some REI just 300 shares, I decided to cut my shares size at this point. Just my luck the stock that worked I bought 300 shares. bought this at $25.74 and sold it at 91c, the stock went as high as 98c, so nothing to cry about.
LLY -$94
Why this stock is getting killed is beyond me, stock gapped down $1 on 1.2 million print, usually a good thing, at the big print at $77.00, 50000 bid showed up at $77. 10c print, bid dropped to 9600, 15c print, 17 print, small bid stepped up 11c, 12c, 13c. All of the sudden, 13800 print at 01. What the (*&^ is going on. 99c print and long seller came in at $77, the 50000 was fake after all. Sons of bitches. There was no bid to hit, a really bad sign, 99c, 89c, 20000 market short and I was ready to pull my hair out lol.
83c print, and 82c and I got out at 81c, went as low as 70c, before going back up for good. THIS STOCK IS TOO THICK TO TRADE WHEN WILL I LEARN???????
Should I go on??
I am tired of writing all these losers down.....
Try as hell to make some back, but all I succeeded was to give more money away, here Christmas money for your kids, spec.
ABI -$4
Didn't follow the index, and moved so slowly, got rid of it. Actually went up 50c later in the day.
CRA -$56, Bad entry all the way, bought it at $26.94 and got shaken out like crazy, got out at 88c. The stock went up 60c later when BTK rallied. My timing sucks, just too desperate to make something out of nothing.
COF $.46
That's right I made .40c, who cares?? At least I made something, I went in with 100 shares, but the stock is dead today, after commission, I am up .40c
ACF -$61
BOught this at 2:25 at 30c, got shaken out again, where did all these sellers came from?????????? Took 10c loss, and I was about had it.....
ABK $111
Finally my salvation, at least I have a triple digit winner.................. JUST ONE........................ Good enough.
Bought 300 shares at $56.07 later in the day and IUX was just starting to tick up, trended nicely and it went as high as 50c, then 40,then 30, all of the sudden KABAAAMMMMMM, the stock gapped down to 05c. WHAT THE !@#$!!!???? I went from $140 to -$10. Just my luck, I am like what the hell, I 'll hang on and see if you break the fig. he didn't and the stock retraced all the way back up and I sold it at 40c. Did another stunt again 15m later and I went in again with 100 shares and got another 20c. I just wanted a triple digit winner, no matter what.
Finally,
APD $29
CEX was ticking up and I bought APD a little late, got it at 75c, when the low was 50c, the stock trended nicely all the way up to 95c, and hit a wall. Sold it at 88c for a small profit.
Well I didn't become extinct, but another game like this I might as well be.
I hesitated too much on exits, today was especially choppy because of triple witching, and I should have known to take it easy. PROFIT IS NOT GOING TO RUN ON A CHOPPY DAY.
I just wanted to take a little money from the market and I got killed because of a chaotic day. I have to forget about stops and hit bids when I see them, what the hell I think everyone and their mothers are doing it why would I go in with market orders, it is like I am asking to be spanked.
All in all a brutal day, ended the day down $440.!!! Ouch! That's almost half of my profit this week........... God damm.
Mr.S down $80, he shorted PDX and rode it for $1.5. Plus he didn't get in till 11 a.m. what a smart guy.
Mr.K down $600, he didn't even want to talk and left after the market close.
I don't know this was a good week that ended on a sour note, I hope I will really think about what I did today and not repeat any of this stupid !@#$ next week.
I am going to call this my home. I really like it here, you get free breakfast every morning. Sometimes muffins, sometimes donuts, croissants, danishes, fruits, all the coffee and tea you can drink.
The best part, you have complete freedom here. You don't have to answer to anyone, and nobody is looking over your shoulders. And if you need anything, you can go to the company's website and make any requests or complaints you have about anything. You can also find out everything you want to need to know about the company on the website.
The firm is opened form 6 in the morning to 10 at night, so you can work as hard as you want. I thought it was very nice at my old firm, but here because of its size I have even more anonymity and more freedom. That said, if you are totally green, then this can be a scary place, because nobody really cares if you fail or succeed. But fortunately, I have already learned all the basics needed, and it is up to me to be disciplined and hone my skills and make tons of money.
E.T. go homeeeeemmmm
The best part, you have complete freedom here. You don't have to answer to anyone, and nobody is looking over your shoulders. And if you need anything, you can go to the company's website and make any requests or complaints you have about anything. You can also find out everything you want to need to know about the company on the website.
The firm is opened form 6 in the morning to 10 at night, so you can work as hard as you want. I thought it was very nice at my old firm, but here because of its size I have even more anonymity and more freedom. That said, if you are totally green, then this can be a scary place, because nobody really cares if you fail or succeed. But fortunately, I have already learned all the basics needed, and it is up to me to be disciplined and hone my skills and make tons of money.
E.T. go homeeeeemmmm
Originally posted by DeeMan
Let's assume this happens for the rest of the week. I've now sold 100,000 shares and the stock is down $1.25. This is why a discount bid right off the bat is a more attractive proposition. But, there's nothing I can do about that, so at a certain point I have to lay off for a while (as you mentioned earlier) and most times the stock will start to rise on light volume. Unfortunately it never seems to go back to the level from where I started (barring any news, market conditions, etc.), so I start the process all over again.
I also forgot to mention that limits are a necessity. Giving a large market order to a specialist is crazy. Many times I tried giving medium sized orders (25,000 - 50,000 shares) to the specialist and tell him he's "not held" (meaning he can use his discretion as to how to execute the order - similar to a market order but he is not held accountable if stock trades and I am not included). But most specialists don't like that kind of responsibility (maybe because it involves thinking), and in turn treat the order like a market go-along (or a market participate). That means that anytime a seller comes in and hits the bid I will sell the same amount as the other party and split the print. You can imagine how fast a stock can go down on only a few thousand shares trading using this method. That's why limits are essential in stocks like these.
Unfortunately (or perhaps fortunately for you), not every institution handles their orders like that. Some really do give market orders for fear of missing out on a print, thus not seeing the big picture. One thing to look for are those double prints on the tape heading in the same direction, especially near or on the bid. Two (or sometimes three) lots of 1500 shares of PSC trade at $26.90. A few minutes go by and then two lots of 1200 shares trade at $26.80. Next comes two lots of 2600 at $26.65. This let's you know that there are two sellers out there, and their fear of each other will probably push the stock down harder and faster than it needs to be. The problem is that neither seller knows how much size the other trader has, and does not want to miss out on any prints. In those situations though, I would cancel the order off the floor and see how the other guy reacts. If he keeps going and the prints get larger I'll have to get involved again. But many times the other trader will sell a little more, and then realize he's all alone and try to let the stock lift. Once he decides where he wants to sell some more stock, I'll join him with the same amount of stock for sale, with the same limit - sort of a "gentleman's agreement" where we both realize it is to our mutual benefit to cooperate with each other. Of course, it doesn't always work this way - sometimes (very rarely though) one guy will take advantage and that's when the fun begins. Once the "rules" have been broken otherwise normal stocks start trading all over the map.
One word of caution though - identical prints of 500 shares or less are rather useless in my opinion since small retail dot orders get executed all the time. Anything over 1000 shares is preferable...
Another probably obvious thing to look for is size on the offer, but even if it disaappears. I can't tell you how many times I gave an order of 25,000 or 50,000 shares to a specialist, specifically telling him not to show it, and then punching up the ticker and seeing 50,000 shares just sitting on the offer. This was almost a daily occurrance. Specialists are human and make mistakes. Many mistakes. I would then have to call the floor and rant and rave, and have him remove it, with the damage already being done. When you see size offered on an illiquid listed stock and then it disappears, it most likely is still for sale. Yes specialists DO type in an extra zero sometimes, but the clue there is watching a 50,000 share offer turn into a 5,000 share offer. In that case, you probably need to wait to see what happens.
A typical pattern to look for in this example, is when an illiquid listed stock sells off on decent volume, where the offer is constantly being refreshed at let's say at least 10,000 shares. Then a larger print goes up at a new low, say 20,000 shares or more. You then see another 10,000 shares offered at this new low, and then it just disappears. As an institutional trader, you're more likely to take a brake after a big print goes up, so after you get your report you tell the floor broker to lay off for a minute to let it lift. Meanwhile the specialist still has more stock to sell for you in his book. It takes a minute for the floor trader to tell the specialist to lay off, and then the offer disappears. The spread will now widen, and most likely the stock will lift on smaller prints (this gives the buyer of that last print a warm fuzzy feeling). When the stock lifts enough, or volume starts to get a little heavier, you give the order to the floor again and we see another 10,000 to go at a higher price. If this offer stays out there and nobody's buying, now is a good time to go short. Eventually the seller will get impatient and start hitting bids. Remember, the seller has already sold a significant amount of stock at a lower price, so he will have no problem selling it down. The buyer on the other hand is less likely to step up and pay higher prices, especially when he knows that the seller is willing to sell at a lower price, since he did it before. Obviously this is not foolproof (nothing in the market is), but I have seen this happen over and over again.
Hope this helps...
Let's assume this happens for the rest of the week. I've now sold 100,000 shares and the stock is down $1.25. This is why a discount bid right off the bat is a more attractive proposition. But, there's nothing I can do about that, so at a certain point I have to lay off for a while (as you mentioned earlier) and most times the stock will start to rise on light volume. Unfortunately it never seems to go back to the level from where I started (barring any news, market conditions, etc.), so I start the process all over again.
I also forgot to mention that limits are a necessity. Giving a large market order to a specialist is crazy. Many times I tried giving medium sized orders (25,000 - 50,000 shares) to the specialist and tell him he's "not held" (meaning he can use his discretion as to how to execute the order - similar to a market order but he is not held accountable if stock trades and I am not included). But most specialists don't like that kind of responsibility (maybe because it involves thinking), and in turn treat the order like a market go-along (or a market participate). That means that anytime a seller comes in and hits the bid I will sell the same amount as the other party and split the print. You can imagine how fast a stock can go down on only a few thousand shares trading using this method. That's why limits are essential in stocks like these.
Unfortunately (or perhaps fortunately for you), not every institution handles their orders like that. Some really do give market orders for fear of missing out on a print, thus not seeing the big picture. One thing to look for are those double prints on the tape heading in the same direction, especially near or on the bid. Two (or sometimes three) lots of 1500 shares of PSC trade at $26.90. A few minutes go by and then two lots of 1200 shares trade at $26.80. Next comes two lots of 2600 at $26.65. This let's you know that there are two sellers out there, and their fear of each other will probably push the stock down harder and faster than it needs to be. The problem is that neither seller knows how much size the other trader has, and does not want to miss out on any prints. In those situations though, I would cancel the order off the floor and see how the other guy reacts. If he keeps going and the prints get larger I'll have to get involved again. But many times the other trader will sell a little more, and then realize he's all alone and try to let the stock lift. Once he decides where he wants to sell some more stock, I'll join him with the same amount of stock for sale, with the same limit - sort of a "gentleman's agreement" where we both realize it is to our mutual benefit to cooperate with each other. Of course, it doesn't always work this way - sometimes (very rarely though) one guy will take advantage and that's when the fun begins. Once the "rules" have been broken otherwise normal stocks start trading all over the map.
One word of caution though - identical prints of 500 shares or less are rather useless in my opinion since small retail dot orders get executed all the time. Anything over 1000 shares is preferable...
Another probably obvious thing to look for is size on the offer, but even if it disaappears. I can't tell you how many times I gave an order of 25,000 or 50,000 shares to a specialist, specifically telling him not to show it, and then punching up the ticker and seeing 50,000 shares just sitting on the offer. This was almost a daily occurrance. Specialists are human and make mistakes. Many mistakes. I would then have to call the floor and rant and rave, and have him remove it, with the damage already being done. When you see size offered on an illiquid listed stock and then it disappears, it most likely is still for sale. Yes specialists DO type in an extra zero sometimes, but the clue there is watching a 50,000 share offer turn into a 5,000 share offer. In that case, you probably need to wait to see what happens.
A typical pattern to look for in this example, is when an illiquid listed stock sells off on decent volume, where the offer is constantly being refreshed at let's say at least 10,000 shares. Then a larger print goes up at a new low, say 20,000 shares or more. You then see another 10,000 shares offered at this new low, and then it just disappears. As an institutional trader, you're more likely to take a brake after a big print goes up, so after you get your report you tell the floor broker to lay off for a minute to let it lift. Meanwhile the specialist still has more stock to sell for you in his book. It takes a minute for the floor trader to tell the specialist to lay off, and then the offer disappears. The spread will now widen, and most likely the stock will lift on smaller prints (this gives the buyer of that last print a warm fuzzy feeling). When the stock lifts enough, or volume starts to get a little heavier, you give the order to the floor again and we see another 10,000 to go at a higher price. If this offer stays out there and nobody's buying, now is a good time to go short. Eventually the seller will get impatient and start hitting bids. Remember, the seller has already sold a significant amount of stock at a lower price, so he will have no problem selling it down. The buyer on the other hand is less likely to step up and pay higher prices, especially when he knows that the seller is willing to sell at a lower price, since he did it before. Obviously this is not foolproof (nothing in the market is), but I have seen this happen over and over again.
Hope this helps...
I. Think Like an Institution
Like everything else in life, we tend to see things in our own image, and we try to explain things by using our own motivations. Trading as if everyone out there was a daytrader can be a costly mistake. If the market is an ocean, being tiny little fish, we are better off feeding off the scraps of larger fish than going head to head with other tiny fish. So what is the motivation of the institution? Obviously to make money, but not like us. An institution is not buying 1,000,000 shares of ANN to sell it back .25 cents higher. Most of their buy/sell decisions are based on fundamental analysis. Nowadays there are quite a few hedge funds that I know of that base everything on technical analysis, but even they are looking for a few points gain at least. The point is this: How many times have you bought a stock after spotting a significant buyer, saw a little resistance and subsequently sold for a 25 cent profit, and then watched the stock go up another dollar or more throughout the day? It can be very frustrating. What you need to understand is that what is important to you may not be important to the institutional trader. Yes, you care about that 10 cents. On 1,000 shares that's $100. But to the institutional trader who needs to buy those 1,000,000 shares it does not matter. What? That's $100,000! Well not really - could I really buy 1,000,000 shares at one price? No, not unless I negotiated upstairs (read the other thread). But what if I could buy 10,000 ANN at $31.50, 25,000 at $31.70, or 50,000 at $32? What would I choose? If I had 1,000,000 shares to buy I would easily choose 50,000 at $32. Why? Because of the most important aspect of institutional trading: opportunity costs. By saving a few pennies but having less shares I have just cost the firm money (and thus the clients), if the anticipated result occurs. It is more important for the institutional trader to complete the order than to get the best price. Sounds incredible but it's true. Remember, with the exception of some hedge funds, money managers make their money from management fees and commissions, not performance. True, if your performance is really bad, you may lose some clients, but from what I've seen, just plain bad performance interestingly enough doesn't seem to have any harsh consequences.
-cont-
Like everything else in life, we tend to see things in our own image, and we try to explain things by using our own motivations. Trading as if everyone out there was a daytrader can be a costly mistake. If the market is an ocean, being tiny little fish, we are better off feeding off the scraps of larger fish than going head to head with other tiny fish. So what is the motivation of the institution? Obviously to make money, but not like us. An institution is not buying 1,000,000 shares of ANN to sell it back .25 cents higher. Most of their buy/sell decisions are based on fundamental analysis. Nowadays there are quite a few hedge funds that I know of that base everything on technical analysis, but even they are looking for a few points gain at least. The point is this: How many times have you bought a stock after spotting a significant buyer, saw a little resistance and subsequently sold for a 25 cent profit, and then watched the stock go up another dollar or more throughout the day? It can be very frustrating. What you need to understand is that what is important to you may not be important to the institutional trader. Yes, you care about that 10 cents. On 1,000 shares that's $100. But to the institutional trader who needs to buy those 1,000,000 shares it does not matter. What? That's $100,000! Well not really - could I really buy 1,000,000 shares at one price? No, not unless I negotiated upstairs (read the other thread). But what if I could buy 10,000 ANN at $31.50, 25,000 at $31.70, or 50,000 at $32? What would I choose? If I had 1,000,000 shares to buy I would easily choose 50,000 at $32. Why? Because of the most important aspect of institutional trading: opportunity costs. By saving a few pennies but having less shares I have just cost the firm money (and thus the clients), if the anticipated result occurs. It is more important for the institutional trader to complete the order than to get the best price. Sounds incredible but it's true. Remember, with the exception of some hedge funds, money managers make their money from management fees and commissions, not performance. True, if your performance is really bad, you may lose some clients, but from what I've seen, just plain bad performance interestingly enough doesn't seem to have any harsh consequences.
-cont-
There is a poster here whose signature reads "Trade what you see, not what you think." That is my favorite quote. Did you ever see a perfect setup - the market is up, the sector is up, the tick is positive and even a ray of sunlight is shining on your enter key to transmit your buy order, only to watch the stock continuously drop from unrelenting pressure? Somebody must know something, right? Let me tell you a little story. One morning I went into the morning meeting as usual, where the futures were up strong and one important stock had beat the street with good numbers. One of our holdings was a much smaller company but in the same sector as the larger stock was. One of my bosses had called the CEO to discuss the ramifications of the day's news, only to be treated "rudely" by the secretary. One hour later I had instructions to sell all of our 1.2 million shares. By the end of the day the sector index was up 4%, the stock was down $2 (about 7%). Only now can I feel the pain of the poor daytrader who just couldn't understand why. Why is not important. I have many stories similar to the one above. If you only knew some of the reasons of why I have bought/sold tons of stock you would be in shock. If any of you watch Seinfeld, then just picture the character of George Steinbrenner running an investment firm. (Big Stein wants his calzone!) It was certainly an interesting period of my lifeâ¦
What's my point? When there is heavy buying pressure you should be buying, and when there's heavy selling you should be selling. In my last firm, we managed about $2.2 billion in equity. On average, I would trade about 1.5 ~ 2 million shares of stock per day. There are tens of thousands of other institutions out there that are much bigger than that buying and selling all day long for a number of reasons that may never have occurred to you. I never once looked at a chart and said 'Hey, ANN is at its 50 day moving average, I think I'll stop buying it'. My head would be on display on the trading desk as a warning for all those who dare to go against Big Stein. I can honestly say that most days I went home not knowing whether the market closed up or down. It was never a factor. It only mattered on extreme days - i.e. if the Dow is down 200+ there's no need to step up on any buy orders. Actually it's very common. As a test we used to call the other traders on the street through the direct lines and say 'Quick - what's the market doing?' Almost always there was a long pause with the occasional ummmmm, and after they looked at their monitor we would get an answer. The most important numbers for an institutional trader are the high and low of the stock, and round dollar prices ($32, $33, etc) which act as "mental" barriers of support/resistance. As much as I love and believe in technical analysis it is important to see it for what it is; a tool to measure investor/trader sentiment. Over the long haul it probably works pretty well, but it can never know the urgency of today's institutional buyer/seller. For that information we only have the specialist and the tape.
What's my point? When there is heavy buying pressure you should be buying, and when there's heavy selling you should be selling. In my last firm, we managed about $2.2 billion in equity. On average, I would trade about 1.5 ~ 2 million shares of stock per day. There are tens of thousands of other institutions out there that are much bigger than that buying and selling all day long for a number of reasons that may never have occurred to you. I never once looked at a chart and said 'Hey, ANN is at its 50 day moving average, I think I'll stop buying it'. My head would be on display on the trading desk as a warning for all those who dare to go against Big Stein. I can honestly say that most days I went home not knowing whether the market closed up or down. It was never a factor. It only mattered on extreme days - i.e. if the Dow is down 200+ there's no need to step up on any buy orders. Actually it's very common. As a test we used to call the other traders on the street through the direct lines and say 'Quick - what's the market doing?' Almost always there was a long pause with the occasional ummmmm, and after they looked at their monitor we would get an answer. The most important numbers for an institutional trader are the high and low of the stock, and round dollar prices ($32, $33, etc) which act as "mental" barriers of support/resistance. As much as I love and believe in technical analysis it is important to see it for what it is; a tool to measure investor/trader sentiment. Over the long haul it probably works pretty well, but it can never know the urgency of today's institutional buyer/seller. For that information we only have the specialist and the tape.
II. The Specialist
What is the Specialist's motivation? Most of us see the Specialist as some evil guy who's sitting on a 10,000 share sell order, just waiting for us to buy a few hundred shares so he can fill us and immediately knock the stock down half a point. While it can feel like that at times, his primary goal is not to screw us. His primary goal is to maintain a fair and orderly market. That's his job. In doing so, if he happens to make money, all the better for him. In order to keep the market as fair as possible, the Specialist will work harder for the large institutional orders, for a few reasons. First, because the large orders dictate in which direction the stock will move. Next, because of the relationships on the floor. If I'm going to sell 1,000,000 shares of ANN, it's going to take me a few days, and I'm going to be on the phone with my floor broker who in turn will be dealing with the specialist during that time. Is the Specialist going to screw me on 5,000 shares just to make a few pennies, risking a bad relationship with the guys on the floor who have to tell their client the bad news? (Actually, some have done that before, but it's not the norm) As discussed in that older thread, the Specialist will always want to know from the floor broker if there's more stock behind it. The more he knows, the more he can act accordingly, and the more he can profit from it. He realizes that the institution does have power in the form of size. If he has 5,000 shares left of a 25,000 share sell order from me, and he prints the 5,000 down an inexcusable amount and buys the stock from me just to try to make a buck, I can stuff a few hundred thousand shares in the form of a market order (where he cannot get out of his position) down his throat and he will lose money. In the long run that type of behavior won't benefit the Specialist.
The Specialist makes money in two ways: when traders buy and sell the spread that he has created for the stock, and by buying and selling out of his own inventory when certain situations occur where he is almost certain that he will make money. Playing the spread is easy. The Specialist can trade in front of a limit order, so he can basically adjust his spread all day. He'll normally do this when there is little activity in the stock (like the Dead Zone) and an absence of institutional buyers/sellers.
The other way the Specialist makes money is by buying or selling the stock at specific times in order to profit from moves; much like us, but with a lot more certainty. This is an example of when a little knowledge can be dangerous. Once people learn this they start to assume that the Specialist was part of every decent size print that trades. Next they assume that the Specialist is a participant of every opening trade. This is simply not true. The Specialist is not a risk taker. He doesn't have to be. If the opening of the stock is uneventful, there is no need to participate. He does not know in which direction the market is going to go, so why take the risk? It is only on those special circumstances, where some form of news will affect the stock, when there will be a gap up or gap down, that the Specialist might be involved. And even then, there is no guarantee that the Specialist bought stock on that gap down. Remember, a Specialist sees all the order flow on that stock that morning, which includes cancelled sell orders because the price is getting too low, and cancelled buy orders when the opening price looks to be too high. We only see the opening price after the delayed opening on a large print. We don't know how many institutions "checked" him. Floor brokers will be constantly checking the Specialist and changing their orders and reporting back to their clients with the opening indications, which eventually are displayed on a news server (unfortunately delayed and usually inaccurate). The Specialist gets a good sense of where buyers might come in and where sellers will start to unload and is pretty sure of whether he will be able to profit from it or not.
What is the Specialist's motivation? Most of us see the Specialist as some evil guy who's sitting on a 10,000 share sell order, just waiting for us to buy a few hundred shares so he can fill us and immediately knock the stock down half a point. While it can feel like that at times, his primary goal is not to screw us. His primary goal is to maintain a fair and orderly market. That's his job. In doing so, if he happens to make money, all the better for him. In order to keep the market as fair as possible, the Specialist will work harder for the large institutional orders, for a few reasons. First, because the large orders dictate in which direction the stock will move. Next, because of the relationships on the floor. If I'm going to sell 1,000,000 shares of ANN, it's going to take me a few days, and I'm going to be on the phone with my floor broker who in turn will be dealing with the specialist during that time. Is the Specialist going to screw me on 5,000 shares just to make a few pennies, risking a bad relationship with the guys on the floor who have to tell their client the bad news? (Actually, some have done that before, but it's not the norm) As discussed in that older thread, the Specialist will always want to know from the floor broker if there's more stock behind it. The more he knows, the more he can act accordingly, and the more he can profit from it. He realizes that the institution does have power in the form of size. If he has 5,000 shares left of a 25,000 share sell order from me, and he prints the 5,000 down an inexcusable amount and buys the stock from me just to try to make a buck, I can stuff a few hundred thousand shares in the form of a market order (where he cannot get out of his position) down his throat and he will lose money. In the long run that type of behavior won't benefit the Specialist.
The Specialist makes money in two ways: when traders buy and sell the spread that he has created for the stock, and by buying and selling out of his own inventory when certain situations occur where he is almost certain that he will make money. Playing the spread is easy. The Specialist can trade in front of a limit order, so he can basically adjust his spread all day. He'll normally do this when there is little activity in the stock (like the Dead Zone) and an absence of institutional buyers/sellers.
The other way the Specialist makes money is by buying or selling the stock at specific times in order to profit from moves; much like us, but with a lot more certainty. This is an example of when a little knowledge can be dangerous. Once people learn this they start to assume that the Specialist was part of every decent size print that trades. Next they assume that the Specialist is a participant of every opening trade. This is simply not true. The Specialist is not a risk taker. He doesn't have to be. If the opening of the stock is uneventful, there is no need to participate. He does not know in which direction the market is going to go, so why take the risk? It is only on those special circumstances, where some form of news will affect the stock, when there will be a gap up or gap down, that the Specialist might be involved. And even then, there is no guarantee that the Specialist bought stock on that gap down. Remember, a Specialist sees all the order flow on that stock that morning, which includes cancelled sell orders because the price is getting too low, and cancelled buy orders when the opening price looks to be too high. We only see the opening price after the delayed opening on a large print. We don't know how many institutions "checked" him. Floor brokers will be constantly checking the Specialist and changing their orders and reporting back to their clients with the opening indications, which eventually are displayed on a news server (unfortunately delayed and usually inaccurate). The Specialist gets a good sense of where buyers might come in and where sellers will start to unload and is pretty sure of whether he will be able to profit from it or not.