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  • Saturday, August 20, 2005

    Trading Style

    My trading style is somewhat similar to that of a scalper and a momentum trader.I am very big on reading multiple time frames on the charts,but not entirely dependant on that. I will also look to the nyse book to determine the depth of interest in the stock for the time periods I am trading.When I started out I was only looking at the charts,then I progressed into reading the nyse open book,and now I am using a combination of the two.

    On the charts I am mainly watching 3 time frames the 1 minute,5 minute,and 60 minute.I will look to the daily and weekly charts from time to time just to locate major points of support and resistance where stops may be run through and volume is likely to increase, but they do not play a huge role in my strategies.Basically it is a top down approach setting the daily and weekly charts aside, I start with the 60 minute looking for pivot points of interest,then move down to the 5 minute for confirmation of trend,and finally the 1 minute for entries.I will also watch the MACD line for trend and slope,and pay attention to the stochastics for trend and turning points.Moving averages also come into play when applicable.I use a 20 period from the bollinger bands, and a 5 period,and 15 period through all time frames.My main focus on those is the 5 minute,and 15 minute charts.If I'm really focused on the moving averages I will turn to a 6 minute,and 13 minute chart,but that's a whole different post in itself.

    Now I look in the nyse book for orders moving up or down,holding price levels,or a discrepency in share size on the inside bid or ask of the book,compared to the inside NYS on the level 2 market maker box.Confused yet! If the orders don't match between the book and level 2 on the inside bid/ask then you have found the specialist!

    Example:The inside bid of the nyse book shows "nyse 1000" shares, you look over to your level 2 box and see "NYS 8000" that means the specialist is bidding 7000 shares more than the limit order of 1000 shares that is in the book.The specialist may have more shares than is showing,but we never really know that,all we can do is act on what we see at hand.Now if I see this pattern sitting at say 50.25 and the specialist moves up to say 50.28 and there are 1000 shares at 50.30 on the offer I will take these shares out(buy the offer)since I have the specialist "walking the stock up".I also want to see that I have some shares behind him still in the book say back down at 50.24 and 50.22 and maybe some ARCA orders in between.I always want to have an exit.The specialist can create a powerful move and at the same time pull his entire order.Always make sure you have a backup plan to get out.In other words make sure there are enough shares to exit on depending on the size of your position and what's in the book.Now,back to the trade that is moving in our direction,as the specialist walks up you want to see additional offers be bought or you may decide the trade has real momentum and take the shares out yourself,just make sure you still have the specialist at your back.As he walks the stock up additional offers will be taken out,once you get a substantial move which will be determined by your own risk/reward targets you have to decide if it's time to start pairing out of some shares.This may also be decided by the charts,maybe there is a previous resistance or pivot point that the stock is approaching.If the specialist is starting to lose shares it may be time to take some off the table.Continue to monitor your exits behind the specialist,ask these questions,have the orders behind the specialist moved up in the book,have additional orders come into the book,or have the bids really thinned out?The book has a slight delay so you really have to pay attention,if your other exits have all dissappeared it may be time to exit the entire position.The rule of thumb is,if you still have the specialist on your side then you should still be in the trade,easier said than done.When your looking at a .25 to .50 cent profit it's hard not to want to take a little off and book some profit,but you should really keep some shares if the specialist is still there,because you never know when they might run it up hard and give you a stick(1 point) or more. Always know your out/exit,I can't say this enough,it will save a lot of pain,and money,and shorten the learning curve in the long run.This whole process can be repeated for shorting stocks. There are a lot of different factors that I also consider throughout the trading day,concerning time of day,volume,geopolitical factors,OIL,etc..., that's another post.

    My main philosophy is be consistant,manage your risk tolerance levels,and enjoy what you do! Take consistant profits,small losses,and always be focused.This style of trading may not be for everyone,but it really is a combination of many other styles.My one hope is that you can take a small piece of this,integrate it into your own strategies,and profit from it.If you are new it is a great way to learn.Start out by watching for the specialist in many stocks over and over,until it becomes second nature.

    For other strategies see TraderMike and Daily Dopeness,and also TraderEyal,some good reading at all of these.

    Good Trading!!!

    4 Comments:

    At 11:05 PM, Blogger Michael said...

    Good post. Let me show my utter ignorance by asking how does one get access to the NYSE book?

     
    At 3:11 AM, Blogger txtrader said...

    Thanks Mike,

    Most direct access firms should offer it as an add-on with a small subscription fee.I would think Cybertrader has it,no? Assent.com offers it.The hammer or anvil is their software, I use the hammer.Low per/share commissions also.If you ever decide to go with them or know anyone who might,email me first at txtrader91@yahoo.com

     
    At 5:30 PM, Blogger TraderEyal said...

    Hi Doug, very interesting post. I hardly ever touch NYSE stocks on intraday because of the reputation of the specialists. Sounds like the NYSE book is very similar to Naz level 2. I heard or read somewhere before that playing market depth and level 2 is now almost impossible because of all the tricks and fakes MM do. Is that not the case with NYSE open book?

     
    At 8:19 PM, Blogger txtrader said...

    Eyal,
    I hear your concern about MM fakes,and such. Yes it can happen with the specialist,you just have to be selective with your trades.Trade stocks you know well,watch the patterns of the specialist.When trading other stocks,say off a scan,always make sure you have additional exits beyond just spotting the specialist.Corruptive practices/games/fakes they will never go away,you just have to be cautious like any other form of risk.The occasional gap will happen and thier are ways to deal with that,but for the most part I always make sure I have additional exits.

     

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