Trading like a Local

Quote from dandxg:

There are a few markets that algos have dominated just yet.
More...

I'm not sure what you mean... algo's have dominated most or few markets?

And, about algos, here is my researched but inexperienced 2 cents... most of what I read about "pure HFT" is done on equity exchanges where some firms can post and cancel "flash" orders before other firms get the chance to hit them (I saw a video on youtube that described it pretty well). I will concentrate solely on futures, were as far as I can tell, there isn't the two-tier system like there is on stock exchanges. Also there are messaging limits on futures exchanges which I think help curb it down.

On futures, I know that autospreaders (especially in financial futures) play a big part, and on futures where it's FIFO I can see how fastest spreader / latency makes a big difference... but since you're probably talking micro-seconds for a computer to do it's thing, and the average humans reaction time is like 200 milli-seconds, I wont spend any time sweating over it.

Another thing about futures is that all trades are reported on the time and sales... so whatever an algo does it reported. I think most algos are designed to execute big customer orders without anybody ever noticing, i don;t think they are designed to snoop out where someone might be caught... i think (hope) that is a skill that takes a human to perform, and that I can learn it!
 
Quote from Jestersofmalice:

the idea of 'earning the spread' as a strategy has always interested me, although I don't think i've ever really understood it, so i'll look forward to your video.

What market would you do it on?
Could you do it on the ES? Wouldn't you want something with a big spread and something less liquid?

When people have spoke about it to me in the past, they make it sound like free money; ''just buy the bid and sell the ask and pocket the spread'', but that makes me instantly skeptical.

cheers
More...

making a video turned out to be a pain in the ass so I'm not going to bother.

buying the bid and selling teh ask is indeed the idea I have, but there is a bit more to it than that, like other traders competing for the same fills, managing trades that go against you as well as trades that go in your favour, and so on...

earning the spread, IMO, is only one part of it.
 
As mentioned technology has eliminated buy the bid and selling the ask, unless you have a membership. I believe people like Bone, and others whom spread have it a bit more complex than that.

Besides that test it out for yourself. If you think you can manually execute in less than 2-3 seconds good luck. Algos, HFT, whatever you would like to call it in futures or stocks can execute in milliseconds. You will never beat them. They have better access to resources than you will ever have.
 
Quote from dandxg:

There are a few markets that algos have dominated just yet.
More...

haven't I meant. A few of those markets that are still open outcry you can front run. A guy gave me a tour of the merc several years about joked about just that. Of course, they will never use that word front run.
 
I hear you and I'm interested in this trading style too. However, I think you will need strong trading skills first. Like I almost consider myself a "local" now even though I don't profit from spreads but I trade same market all the time (trade == provide signals in my case). Anyway.. I think without serious technology and capital that you will need already strong trading skills.

I think it is a possibility for someone like myself. I mean if you can already know where the market is going (like I do -- much of time) then I can imagine some sort of semi-edge that would boost the returns. Not a sure thing but better then just calling direction... But then I always enter on market orders.. hehe :)

But yes.. I think there must be big money in it. Again not as a pure strategy though... It would have to be combined with another sort of edge.

If you could limits on both then you'd be capturing the "spread" plus the "spread". The spread of the tick size and the spread of the trade. But again it wouldn't be a pure edge.. it'd be like taking another edge and adding in 1 tick profit per trade. Risk might have to be high.. maybe risking 10 to 1 to win on something like that but it could work.

The benefit isn't even really if you have a better edge then a regular system. The benefit is the VOLUME that you could do which would translate to massive profits.
 
my expenses were less than a local. When they invented ES and firms like IB started offering unheard of low commissions, I lived out in the middle of nowhere. All I needed was a house and a computer. The average local in Chicago spent more just getting to work and all other higher living expenses plus the lease on the seat than I spent on commisions in a month.

It's a rough way to make a living. How far are you going to let it get away from you? 1 full point? Now you need 5 scalps just to get even.

I wore two hats. One was for buying the bid and selling the ask. The other was for position trading the ones at the end of the day I ended up with at a huge paper loss.

If you ever really want to own something, just try always buying it at the bid. Now imagine that you're short and buying the bid is the only way to get out with a profit. Once the mkt moves higher it may never come back in yours or my lifetime.

How many successful traders or investors have you ever heard of that have a rule, "ALWAYS buy the bid"? Probably not many, because it is hard to get filled consistently.

Scalping is just backwards from classical trading. In scalping, you hope to have many small profits to make up for the few big losses.

In classical trading you can be clueless and still make money as long as your few big winners pay for all your small losers. In scalping there is no such thing as a "big winner" just many many small winners.

For me, trading is 90% money management, and about 10% common sense reading of the market. It's easier to figure out what the market may do when you buy or sell than it is to figure out what a woman may do when you say something.

I wouldn't want to discourage anybody who wants to scalp, but scalping because you think it is too hard to read the market is a bad reason. The only good reason to scalp is lack of money.

Once those big losers you took home turn out to be big winners, you'll thank God you survived your scalping training and pray you never have to do it again.
 
The folks who do this strategy profitably through screen trading are for the most part registered market makers and their big advantage, aside from lower transaction costs and better info on large order flows, is having the ability to have both sides of the market (bid and ask) working at the same time. Being able to have both sides working at the same time is quite a big advantage over a retail trader who must first be filled on one side before he/she can post a limit to close on the other side. From what I understand retail traders are not allowed to have two opposing orders in the market at the same time from the same account. So with these things stacked against the retail trader it would seem a very difficult strategy to work profitably.
 
you are better off selling bids and buying the offer when it turns down or vice versa,if you are bid on the bid,not offer ,and get filled,you are buying a dip that has only just begun,hence selling the bid say 1215 bid in es and buying 1214.75..basically you theory has been around for newbies since day one,and it only works in your mind,not in reality trading,thought the same before i started,better off doing the opposite
 
I've actually been trading like this for two years. I stumbled upon the method several years ago and its taken a while to work out the kinks. Still working them out. But I'm getting there. In my opinion, its the safest method. And it works most of the time when executed correctly. But it is a grind. It is blue collar in a sense. It is true that profits are small and consistent (I like it that way)-- then a big loss, like a rouge wave, can come out of no where to set you back. That really hurts. my primary focus now-a-days is draw down control. I have been making good progress in this area.

It was an amazing feeling when I first started this and realized I was onto something. For the first time, I was making consistent profits. And it was easy. That was before I started to understand the multitude of lurking dangers to separate me from my built up profits.

There used to be a saying on the floor that scalpers survived while position traders/specs blew out over time.

The Key is knowing how to work your platform. I use J-Trader.. I'm no tech wiz. Where to put the orders, when to do it, and why. Where you gonna get out. The vast majority of my fills are on the bid/offer. When things go wrong or I just want out, I may hit the bid or lift offer.

Some of the points made in the thread are accurate some are not.

Let's just say I'm not a member and don't have unusually low commission costs. They are about as low as you can go retail. I do however run up heavy commissions on occasion. My commissions average around 25 - 30% of profits. My heavy trading days are usually on days I get into trouble and costs will be higher as I attempt to trade my way out of a mess. The worst are losses plus heavy commissions. I think my worst commission day was around $700 ouch!!!! Its not unusual for me to turn over 100 contracts in a day -- I tend to start late (there is a well learned reason for this).

Im seriously thinking of setting up my own Introd. Broker (IB) to trade thru to save on commission costs. Then I can bring in a few customers to trade thru my brokerage to supplement my own trading.

I never trade a full session. I've learned to focus on certain key factors...they must be in place for this to work. Going in there and just placing b/o won't work in the long run. Too many things can go wrong. It may work in the short run during periods of stability. The trader will gain a false sense of security because profits can grow nicely for weeks. Then POW.....The nature of the markets change.they go from stable to violent. Your caught off guard. Can't believe that the mf'ing market is doin what its doin. The first time is a killer. Profits built up over weeks evaporate. Problem...not knowing the caveats of when to play and when to watch. I learned this the hard way of course.

I've run my account up nicely and consistently from just $7500. But there were some gut wrenching draws. When that happens you don't know if you can make it back. You question your self and your ability. Draws are a setback to progress. But that's where the learning comes from. Draws teach trading for the long run imo.

My suggestions. I don't think this will work well in the ES. That market is prone to sudden reversals and programs. You might want to try this approach in the 5 yr note for starters. If serious go in there now and see how you do. I'd like to hear your reports and findings. Forget the SIM. Get your bearings there. Stick to strategically placed bids and offers. Concentrate on the price action. Also stay with 1 lots in the beginning. Possibly learn how to add a second when it goes against you... Learn how to get out with a profit. Learn how to keep losses contained ( by far the hardest part). This is trading like playing video game really.

Please don't ask for specifics about what I do. I will not discuss the caveats. It takes a long time to learn them. And its a painful journey. For those of you who know the story of Ben Hogan (the golfer)...when asked by the other golfers on the tour what he did to start winning as much as he did --- Ben pointed to the range and said the answer is over there. Go dig it out of the dirt like I did.
 
yeah, I was going to mention that. Scalping is good for late sleepers. All it takes is a power failure or internet breakdown and one of those gets away from you on the right side of the market and you see you made more on one trade than you use to make on hundreds of scalps and you are on your way.
 
You must log in or register to reply here.
Back
Top