I have a comment in the form of a question. After pondering the nature of
program
trading that is NOT an arbitrage strategy why is it so different
from trading in general?
Aren't the non-arbitrage programs buying stocks that reach a buy price
level and
selling vice versa? The fact that one could program to buy/sell
baskets of stocks
instead of deciding at the end of a staff analysis meeting should not
make much of
a difference.
Remember I'm not talking about ARB or hedge strategies which supposedly
account
for only 10% of the program trading volume.
Also what is the difference with the regular market if a Hedge fund
places buy and sell orders separately and not as a program trade?
So the issue stated by Charles Meyer is that arbitrage trading does not
reflect supply
and demand and my questions ask why not.
Thank you
Stan Rubenstein
----- Original Message -----
Sent: Wednesday, February 02, 2005
10:58 AM
Subject: RE: [RT] PROGRAM TRADING
Pure volume has very little meaning for the reasons you
state. In stocks it has been quite some time since you could get
genuine directional volume data. It's worse in derivates where
probably two thirds of the trading is hedge relayed. Some people try
to filter back to public only, but that data is rarely
realtime.
-----Original Message-----
From: Charles Meyer
[mailto:chaze@xxxxxxxx]
Sent: Wed 2/2/2005 9:55 AM
To: REAL
TRADERS
Subject: [RT] PROGRAM TRADING
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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