----- Original Message -----
Sent: Wednesday, February 02, 2005 9:51
AM
Subject: RE: [RT] PROGRAM TRADING
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
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