----- 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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