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I wanted to take a moment to respond to all the questions from my last
post regarding Electronic Trading. I received a number of private
E-mails asking questions which may be of interest to this list. So I
will try and answer some of those questions here. This is a "very" long
post so if you're not interested in Electronic Trading don't bother
reading any further. Also, if you didn't read the previous post on BOLT
then some of this won't make sense.
Most of the questions revolved around 4 broad categories.
1. Electronic Trading and what do I think of it, etc.
2. Commissions & Fills
3. Brokers
4. Questions about my hardware and Internet setup.
I will try to address these issues but they are somewhat intertwined so
please excuse me if I jump around a bit. If I repeat some of the items
in the previous post I apologize.
I am going to start at the bottom of the list. In order to understand
how and why I use ET (Electronic Trading) it will help to know a little
bit about me. I owned a software company for 15 years and had 25
employees. I have been in the microcomputer field for 25 years (you do
the math... Intel was just a startup). As you might expect, technology
has never been something that I was afraid of. I started out designing
computers and later on started my company by using my programming
skills. So, with that in mind I will tell you that currently I trade
for a living. I don't sell systems. I do a little consulting for some
of my old customers just to keep my hand in the industry but you will
not find any subliminal sales messages in what I cover in this letter.
I trade from my home. I have a 1300 sqft office that I share with my
wife and her bookkeeping company. I have a network here in our house
that has 10 computers connected to it currently and 2 laptops. I use
LFG's LeoWeb software to daytrade the S&P over the Internet. I am not a
big fan of trying to use 1 machine to do everything that one must do to
trade the markets. That is why I have 5 computers (and screens) on my
desk. Four of the screens are dedicated to one function. The fifth
screen is my general purpose machine for doing things such as word
processing, surfing the net and reading E-Mail, etc.
What I call my primary trading screen is a 21" monitor that has 80% of
the screen covered with a TradeStation chart that contains 1 minute bars
of the S&P, the DOW and the Bonds along with a quote window of these
markets and a few more. The other 20% of the screen is covered with an
Excel spreadsheet linked to the server via DDE. Once I enter a trade I
manually input the minimal information necessary to track the trade.
The spread sheet tells me a great deal of information in real time that
I find helpful. While it does tell me how much profit (or loss) I have
in the current trade I have learned to not watch the money and watch the
points. It (Excel) tells me how many points profit (or loss) I have in
the current trade. Learning to watch the points is much better that
watching the dollars. The market doesn't care about the dollars. It
moves in points. I know what my average point gain is so it doesn't
matter if I have 1 contract or 10, points are points.
This screen NEVER, NEVER, NEVER gets used for anything other than what I
just described. It stays on 24hrs a day, 7 days a week (as does
everything in my office). There are no indicators on this screen. All
I want to see with this screen is where is the market at this moment and
what has happened in the past couple of hours.
I have another screen that I use to look at the market in different time
frames. Sometimes I use 3 min bars compressed to the max to see the S&P
for 5/6 days. Sometimes I want to see TICK volume underneath the S&P,
etc. The point is, I use a second machine for this, not my primary
trading machine.
My forth system is a laptop that, while it has all of my standard
applications loaded on it, I only use it to connect to the Internet
(using Netscape) and run the LeoWeb software for ET. I use to run the
LeoWeb software on my main machine, but I found that I didn't feel
comfortable minimizing LeoWeb and doing other things. I want LeoWeb
active at ALL times. I have an ISDN line for the Internet and I have 2
Internet accounts so I can be on the net from more than 1 machine.
The great thing about the ISDN line is it also gives you two analog
lines. I plug my laptop modem into the analog port of the ISDN adapter
and still can use the other 64K of the ISDN line to surf the web which
is plenty fast in most cases.
I normally stay connected 24 hours a day using a standard dial-up line.
The solution is this. You need an ISP that charges a flat rate. Then
load Netscape and tell it to check for mail every 10 minutes. This
keeps the connection active forever. I have stayed connected for >3
days solid without being kicked off. I dial from both an ISDN line and
a 33.3bps standard analog line. It works fine on both. I have talked
to the LFG guys about polling the network every so many minutes so the
connection would be kept alive and I don't know if they will take the
suggestion or not. They may feel that it is a waste of bandwidth.
The fifth machine is another laptop that I have an Excel spreadsheet
running on that I use to analyze the current trade that I may be in and
give suggested exit points.
In addition I have two TV's. One for CNBC and the other for regular
stuff. Our network has several laser printers, label printers and
envelope printers, scanners, digital cameras, etc. All of the Techno
Junkie stuff.
You are probably wondering if you have gotten this far, "Why in the hell
is this guy telling me all of this stuff? I thought this was about ET."
Well, I understand that my setup may not be your normal setup, but when
I tell you that I daytrade the S&P using LeoWeb you now understand a
little better how I do that. Certainly all of this equipment is not
required but when I am trying to "scalp" a point or so from the S&P I
want all the cards stacked in my favor and the technology I use helps me
do that.
I have been using LeoWeb for about 8 months so I have endured some of
the development pains that goes along with software development.
Without repeating all the information about "Parked" orders from the
previous post, I was a "squeaking wheel" about when this feature would
be implemented. It finally was delivered in November (after the
obligatory 6 month delay.)
Is it perfect? Probably not. Does it work for me? Absolutely!
I should say that since I have a RT data feed (BMI) that most of my
market entries are "limit" orders very close to where the market
currently is trading and my exits are almost without fail "market"
orders. As I stated previously, I don't place resting stops. I use the
alert function of TS to alert me to the market approaching my exit
point. Once the exit point is reached, I do one of the following:
(A) If the market is moving very slowly I will click the mouse the
minute the alert goes off and exit the trade .... period.
(B) If the market moved through my stop with a very large 1 minute bar
then I watch the clock on my wall and wait no more than 1 minute. If it
comes back to my exit price I get out. If not, I get out at the end of
the 1 minute.
I will tell you that it takes a great deal of discipline to do this but
I never need to deal wit the argument "Did the floor traders run my
stop?". The market reached my exit point (for whatever reason) and I
made the decision to exit.
If this is important to you, LeoWeb does not support the FOK and OCO
type of order. You can trade the E-Mini on the globex session but not
the standard S&P. They say that it is a TOPS issue and as soon as TOPS
is connected to Globex they will be also. I thought I read that this
was supposed to happen by April 1, 1998 but I could be mistaken.
If you have trouble pulling the trigger I think that ET makes it
easier. Take my word for it ... it is much, much easier. It is also
easier to "nurse" a trade. If you make a trade and 1 minute later you
see that you screwed up, you can be out in a heartbeat. If you had to
call a broker you run the risk of feeling stupid in the brokers eyes so
you wait and watch your money go away. The computer doesn't care how
many times you trade. And if you have traded for any length of time at
all you know the feeling when 10 seconds after you place the trade the
market goes against you. You think "Why couldn't I have waited just 10
seconds longer?". Well, using ET makes getting out of those situations
much easier with less egg on your face.
I really don't have much to say bad about LeoWeb or LFG. I haven't had
any major problems that I couldn't deal with. Let me be the first to
tell you that the first time you place an order via LeoWeb the "pucker
factor" is pretty high. Twice, the Internet fill receiver has been down
and I called the order desk to get a fill. This was not catastrophic
because I am looking at the market when I enter or exit and can come
very close (many times to the tick) of what my fill will be. LFG says
to watch the screen, click the mouse, count to 10 and whatever you see
on TS will most likely be your fill. That's not too far off. In the
beginning, the fills were longer than they are now. I have waited 2
minutes for a fill but that was in the early days (ie November) when LFG
was getting the bugs out. Besides, there are very few times that the
EXACT fill will change what I am doing. If I use a Market order I know
that I am in the market I just don't know the exact price but I can
guesstimate pretty close. If I am using Limit orders to get in then I
know if the market goes through my price that I am filled (worst case at
my price, maybe better.)
If the market goes to my price and backs up then I may wonder but
generally the big fish get the fills and not the small guys. Then, like
I said, I generally use Market orders to exit so again, I know I'm out,
I just don't know the exact price( but I can get close).
LeoWeb has been down a couple of times but I have to say that it didn't
cause me any grief. Once, a utility company cut the phone lines in the
Chicago area that LFG used to connect to their ISP (who I think is UUNet
but I'm not sure). They sent E-Mail to everyone saying the system was
down and to use the order desk. You need to remember, just because
LeoWeb might go down does not mean everyone will be calling in. You
only call when you want to place and order. No big deal.
What I really wish I could tell you is how well it did on Oct 27.
Unfortunately (or maybe fortunately for me), I was out of the country
during that whole mess so I don't know what happened. When I returned I
read the E-mail that LFG had sent and nothing indicated that they had
any technical problems. They obviously were encouraging people to sit
on the sidelines and they did raise the daytrading margin requirements
for a short period until things settled down.
I have talked with them about the user interface with LeoWeb. It could
be an order of magnitude better but it works for now. Just remember,
Rome wasn't built in a day. The EASIEST part of what they are doing is
the user interface. The hard part is the security issues, the Internet
interface, the TOPS and CUBS interface. All in all, I wouldn't do it
any other way.
However, with that said that leads me to my next area. If you are
reading this post and are paper trading and think this might be the way
to go, DON'T. In my humble opinion, you absolutely need a broker that
can help guide you through the murky waters of commodities trading.
There are so many questions that you will have that no book can answer
all of them. I was extraordinarily lucky to have a broker who is a
great personal friend today. His name is Ray Flowers here in Dallas and
I would trust him implicitly (and did) with my account. Originally we
operated in a Managed Account mode. I let him make the trades but I
tracked them just as if I had made them. I had TS and BMI at the time
and could monitor the trade in real time. I asked him where his stop
was going to be and why we made the trade. His 16 years in the
commodities market was so helpful that I can't imagine how I could still
be doing this today without his initial help.
But, all good things must end. The problem was I was paying a huge R/T
commission. We negotiated a lower commission, but unfortunately he (or
his brokerage firm) was not in a position to compete with the LFG's of
the world so I switched to LFG. There is, however, a happy ending to
this story. He is now a broker for LFG so at the end of this post I
have supplied his phone number.
The second most asked question in the E-mails was "What do you pay for
R/T commissions?" I don't mind telling you. I pay $22.60 R/T. That
includes "all" fees". Originally they quoted me $15.00 + fees and I
thought great that will be around $17.60 R/T based on the fees I was
paying at the previous broker. What I learned is that not all brokers
address the "fee" issue the same. So I don't care what they advertise,
ask what the "Drive-Out" price for the S&P is. I even had them fax me a
break down of each fee so I would have it in writing
In addition, my previous broker charged a $10/mo statement fee (as does
BOLT I believe). LFG doesn't.
One last thing I like about ET and the S&P's. With the previous broker
who used Rossenthal-Collins as the clearing firm I had a slew of
keypunch errors. I have not had a single keypunch error to date (knock
on wood). I reconcile my spreadsheet to LFG's equity run every
morning. They send the equity run via E-mail.
I was told that another firm (using LFG) was offering $13.50 all fees
included. That sounds odd because of the "even" amount of the number.
I haven't called them yet but I intend to. This broker uses LeoWeb
also.
I was also asked if I purchased anything that made me successful in
trading the S&P's?
I don't consider my self successful. I earn a living. The answer is
"sort of but not really". Fortunately, as I said in the beginning of
this post I sold my software company in ‘96 to a competitor. For those
of you who don't know what that means it means that I was out of there
in less that 30 days. They didn't need me around to tell them how to
run the company, they already knew the market and just wanted our
product and customer base. This gave me both the financial means and
time to devote 100% to trading. I started out both slow and fast at the
same time. I had TradeStation and BMI up and running before I ever
opened an account with any broker.
Once I opened the account, while Ray made some of the initial decisions
I followed what he was doing just as if I had made the trade. I will
say it again, I can't tell you how important it is to have someone that
you trust and that knows the market help you when you first get started.
I have always been an avid reader and read everything that I can put my
hands on. I have attended several seminars, and while I don't think
they were a waste of time or money, they were just one small piece in
the education process. I am firmly convinced that if you sit in front
of TradeStation all day long for a year and watch the S&P you will learn
some of it's nuances. Trying to do this with EOD data and charts
doesn't tell the real story of what went on in the market that day. I
have seen several times that the market went up 80pts down 90 points and
ended the day down 5 points. All you hear on TV is the market closed
down 5 points. You didn't hear or see that it had a 170 point swing.
Someone also asked me why I use Excel to monitor my trade? Doesn't
LeoWeb show the Profit or loss on each order?
The answer is no. LeoWeb is stickily an Order Entry system. There is
no portfolio or trade tracking capability at all in LeoWeb.
I think I have answered everyone's questions. If I have bored you, I
again apologize. I hope there aren't too many typo's. I just feel that
it is difficult to relate to someone my experiences using ET if you
don't know my background and my setup. Someone else who may be slightly
more "technically challenged" than myself may find LeoWeb unsuitable for
them.
Below are the names and numbers of people who may be able to help if you
are considering ET.
Good Luck and Good Trading . . .
Mark Byrd
Richardson, Texas
(972) 699-7788 Office
(972) 699-7795 Fax
===========================================
LFG
(800) 257-6842
Bill Kaiser - President & Owner of LFG
Very knowledgeable.
===========================================
LFG Broker
Ray Flowers - Broker
(214) 826-8023 Dallas
I can't begin to tell you how much this person helped me. If you are
new to trading don't let the commission be your only decision in
selecting a broker. Find someone you can trust. ***** (Five Star
Rating)
===========================================
Web Sites you may find useful.
LFG has two sites
www.lfgllc.com
www.zapfutures.com
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