|
Chas,
This topic has always kind of confused me, so please
pardon my questions if they seem stupid. The way I see it, people
are still making the decisions as to what programs to trade and whether or not
to trade them. In some cases, computers are simply doing what people used
to do by hand, so in this respect program trading doesn't seem to be much
different. But, in other cases computers are executing strategies that aren't
humanly possible, like scalping systems that execute 1000 trades in a
day. In this case, program trading does seem to be
different.
Exactly how does one distinguish between trades
executed by a program and trades not executed by a program? If one could
differentiate between the two, then it certainly seems possible that volume
indicators could then be modified. How did someone determine that the drop in
the Dow last Friday was the result of program trading? In order to front run
those orders, it seems one would have to know of them in
advance.
I don't understand why you refer to program trades as
not being 'pure supply and demand'. Aren't the forces of supply and demand
simply the sum of all market participants regardless of who or
why?
Best
Regards,
Trey
Group-
I was wondering if I can get some feedback
on the subject of program trading; as it relates to volume
analysis. I've been doing
a lot of studying on this subject and here's
the issue. In the old days; total volume of shares traded was just that;
insofaras it accounted for all the exchange
trading. Today; end of day volume of shares traded on both the NYSE and
the NASDAQ is greatly influenced by program
trading. It is said to account for about an estimated 50% of all
volume. Stated simply; program trading
greatly influences total volume. Now; it seems to me this has to
greatly impact the INTERPRETATION OF VOLUME
BASED INDICATORS; because we are no longer
seeing the pure forces of supply and demand as in the days when program trading didn't exist?
To further complicate matters (if it is necessary
to do so; but I am getting ahead of myself here) of all program
trading;
only 10% is the index arb variety where stocks
are sold; and futures are bought simultaneously; and vice versa.
However;
there are OTHER
and perhaps MORE IMPORTANT types of program trading strategies which must
impact the analysis
of supply and demand vis
a via volume based indicators? If I may provide an example. Last Friday sell programs drove the Dow
down about 50-points when sell price levels were hit and program trading came into the market. For
DAYTRADING purposes this was valuable information since one could have
front run these orders on the short side.
However; on some days one would lose money and the correct strategy would be
to fade a sell program by buying into the
market at those levels and times.
Daytrading impact aside; is there a way to modify
volume based indicators which would provide a clearer
representation
of pure supply/demand market generated
information for the purposes of swing and end of day trading? If someone
could
please share their experiences and there are no
answers to this dilema; it will at least save me a lot of wasted time and energy trodding a worthless
path.
If you have been with me this far; thank you for
your time and attention; and any feedback.
Chas
for by program trading
Yahoo! Groups Links
|