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In a message dated 98-02-28 19:49:49 EST, Ray Rafferty writes:
<< That sounds like an excelent year of learning eventhough it wasn't
profitable monitarily. Could you go into more detail about these three
situations, particularly in reguard to how an off floor trader can avoid being
turned into hamburger.
Good luck and good trading,
Ray Raffurty
>>
Ray:
I apologize for responding a bit late, but here is a few of my perceptions /
experiences:
I had very little experience trading when I went to the floor - it was obvious
to the guys there. Most wouldn't even take the other side of my trade
because:
1) I was new and they were afraid of out-trades (trades that don't match up
the next morning)
2) I am from West Virginia and I spoke with a southern accent and I was fairly
clean cut - that may not seem like a very good reason, but at this time ('88
and '89) there were some "sting" operations going on in the pit and a few
traders had just been nailed (I didn't even know it). Later on, I was told by
a couple of locals that I became friends with, that I looked like the agent
(and stood in the same spot in the pit) that had nailed several guys for
illegal trades. Many locals called me "G-man" and used to ask me how long I
had been working for the government. They said they knew that the FBI was
based in Virginia (they didn't seem to distinguish that West Virginia actually
was a separate state).
3) Most of the paper tended to go to their buddies - even if I was the best
bid or offer.
I found generally (not true in all cases):
a) Many locals would bid through the offers (or offer through the bids) in
order to get at stops.
b) Many brokers (filling paper or customer orders) weren't interested in
getting a good fill for the customer (especially on small size), they just
wanted to get it done and collect their fee for filling the order. I have
seen some that would even set their own stops off so they could get the fee
for filling the order.
c) If a large local was mad at a broker (for not sending enough paper to him
or whatever) he would try to hang a broker on an order. Ex. He would
deliberately try to get a trade printed on the board that was below a limit
order that the broker was trying to fill and then the local would bid the
market up. The broker, if he couldn't get the price taken out, would have to
make the customer good on the order and buy them, at his own expense, at a
higher price.
d) Big orders move the market and often create vacuums - the price just keeps
getting bid up or offered down with little or no chance of making a trade.
e) Many locals know where the stops are.
f) There is a true "herd" mentality and much of the pit would have the same
position at the same time (all long or short). A few smart locals would
perceive this and would begin pushing the market the other way causing the
rest of the pit to try to bail out at the same time.
g) The lunch hour is the deadest time in the pit - much of the pit would be
vacated - that's generally the time I could actually get up near the brokers
(filling paper) and have a chance to take the other side of some orders. The
market could be easily moved at this time.
h) The pit is so large and there are so many people in it that there usually
is different prices being traded all over the pit. There may be a 30 bid on
one side of the pit and a 10 offer at the same time. Locals love this.
Most of these observations may or may not be interesting, but what I think I
have learned is:
1) Use a limit order when possible.
2) If you want to trade many times a day, be a local and trade for about 25
cents per trade.
3) Try not to place stops at obvious points
4) Be leery of lunch time moves.
5) Look for what I call "head fakes" - where the market takes out what had
been strong support or resistance (so the locals can get to the stops) and
then quickly reverses.
6) Keep asking your FCM (commission house you are trading through) to try
another filling broker group / person (if you are unhappy) until you get one
that is diligent about filling your order - and generally that person/group
charges more. It's worth it to pay more if you find the right filling broker.
My slippage has changed dramatically by trying new brokers and asking for
their names and badges - which they endorse the order with.
7) Realize that it is very difficult to day trade this market profitably if
you are trading very frequently.
8) A close stop these days is 2.50 points or less. For me, it is hard to
trade this market with close stops.
Ray, I'm not sure I have covered anything new that I haven't read here
before on RT (about trading the S&P), but I do have a few more stories I may
share at a later time. Thanks for the inquiry.
Good luck to all,
Jim Hamer
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