MadMarketScientist

If you are an investor, high-frequency trading (HFT) is a part of your life even if you don't know it. You have likely purchased shares offered by a computer or sold shares purchased and then instantly sold by another computer. HFT is controversial. Traders disagree with each other and studies contradict other studies, but regardless of the opinions, what is most important is how HFT affects your money. What Is HFT? HFT is a broader term for various trading strategies that involve buying and selling financial products at extremely high speeds. Computers can identify market patterns and buy or sell these products in a matter of milliseconds based on algorithms or "algos." One strategy is to serve as a market maker where the HFT firm provides products on both the buy and sell sides. By purchasing at the bid price and selling at the ask price, high-frequency traders can make profits of a penny or less per share. This translates to big profits when multiplied over millions of shares. Does It Hurt the Market? One would think that because most trading leaves a computerized paper trail, it would be easy to look at the practices of high-frequency traders to provide a clear-cut answer to this question but that is not true. Because of the volume of data and the firms' desire to keep their trading activities secret, piecing together a normal trading day is quite difficult for regulators. Those who debate this issue often look at the "flash crash." On May 6, 2010, the Dow Jones Industrial Average mysteriously plummeted 10% in minutes, and just as inexplicably, rebounded. Some large blue chip stocks briefly traded at one penny. On Oct. 1, 2010, the Securities and Exchange Commission (SEC) issued a report blaming one very large trade in the S&P e-mini future contracts, which set off a cascading effect among high-frequency traders. As one algo sold rapidly, it triggered another. As more sell stops hit, not only were high-frequency traders driving the market lower, everybody, all the way down to the smallest retail trader, was selling. The "flash crash" was a financial snowball effect. This incident caused the SEC to adopt changes that included placing circuit breakers on products when they fall past a certain level in a short period. In the wake of the flash crash, many asked whether imposing tighter regulation on high-frequency traders made sense, especially since smaller, less visible flash crashes happen throughout the market with regularity. Does It Hurt the Retail Investor? What is important to most of the investing public is how HFT affects the retail investor. This is the person whose retirement savings are in the market, or the person who invests in the market in order to gain better returns than the near non-existent interest that comes from a savings account. A recent study shed some light on this question. According to The New York Times, a top government economist found that HFT firms are taking significant profits from what they call traditional investors, or those who are not using computer algorithms. Studying the S&P 500 e-mini contracts, researchers found that high-frequency traders made an average profit of $1.92 for every contract traded with large institutional investors and an average of $3.49 when they traded with retail investors. This allowed the most aggressive high-speed trader to make an average daily profit of $45,267 according to the 2010 data. The paper concluded that these profits were at the expense of other traders and this may cause traders to leave the futures market. Although the authors did not study the equity markets where high-frequency traders account for a large amount of stock trading volume - possibly 70% or more, according to some reports - they say it is likely that they would reach the same conclusions. The Bottom Line The overall sentiment that the small investor cannot win in this market is beginning to proliferate. Some blame the massive amount of uninvested cash as proof that many have given up and lost confidence in the markets. This has become such a problem that even high-frequency traders are looking to other world markets to find the liquidity they need to conduct operations. Regulators around the world are looking at ways to restore consumer confidence in the stock market. Some have proposed a per share trading tax while others, such as Canada, have increased the fees charged to HFT firms. Because of the relative newness of HFT, the process of regulation has come slowly, but one thing that does appear to be true is that HFT is not helping the small trader. http://www.investopedia.com/financial-edge/0113/has-high-frequency-trading-ruined-the-stock-market-for-the-rest-of-us.aspx

And eventually the discussion lead to why one was better\different than the other ... and hopefully you remembered that lesson the next time you were on the field. And don't you have fond memories of being a kid? Growing up sometimes sucks doesn't it? MMS

Van Tharp Back-To-Basics Series by Van K. Tharp, Ph.D. What Does Van Tharp Mean When He Says: "We Only Trade our Beliefs About the Markets"? If you are a regular student of Van Tharp's work or reader of this newsletter you hear this a lot: You can't trade the markets, you can only trade your beliefs about the market. Let's explore what this really means. As a long time modeler of what makes great traders great, Van understands that to model effectively you have to find out what highly accomplished people do in common. Once you get the common tasks that produce excellent behavior, you need to get the ingredients of those tasks. Those ingredients include the beliefs, the mental states, and the mental strategies necessary to carry out those tasks. Let’s look at some statements and see what you believe about them: The market is a dangerous place to invest. (You are right.) The market is a safe place to invest. (You are right.) Wall Street controls the markets and it’s hard for the little guy. (You are right.) You can easily make money in the markets. (You are right.) It’s hard to make money in the markets. (You are right.) You need to have lots of information before you can trade profitably. (You are right.) Do you notice the theme? You are right about every one of these beliefs (whether you said yes or no to any of them). If you don’t believe in any of these statements, what do you believe instead? You are right about that too! However, there is no real right/wrong answer. Some people will have the same beliefs and agree with you and others won’t. Therefore, whatever your beliefs about the markets are, they will direct your thinking and your subsequent actions. What is a Belief? Beliefs are a primary way to filter information from the world. Beliefs are judgments, categorizations, meanings or comparisons. They determine how we perceive reality and relationships in reality. What you expect (i.e. your reality) depends upon your beliefs and they are largely unconscious. Every sentence in this document represents one or two beliefs, including this one. One of the beliefs that is most productive for good trading is the belief that you are totally responsible for your own results as a trader. When you adopt this belief, then you can learn from your mistakes. However, if you tend to blame someone else (your broker, your spouse, the person giving you tips) or even the market for the results that you get, then you will tend to repeat the same mistakes over and over again. When traders “own their problems” and assume responsibility for the results produced, then they discover that their results come from some sort of mental state that either allowed them to 1) follow their rules, 2) not follow their rules, or 3) trade without having any rules. When traders take the time to write down all their beliefs (about themselves, the markets, money, etc.), then they can establish a much better idea of what they want to trade, and how they want to trade. They can also see flaws in their thinking much easier. It is valuable to know which beliefs support you as a trader, and which ones hinder your progress. What is a Mental State? Every task has an optimal mental state that will allow you to accomplish it effortlessly. For example, to execute a trade you benefit from courage and total commitment. Fear, in contrast, is a big disadvantage as a mental state for executing trades. Mental states are primarily what most people call discipline or emotional control. Examples include: being impatient with the markets, being afraid of the markets or being too optimistic about the markets. Controlling your mental states is just part of the answer, but when you can see that you are the creator of your own results as a trader, then you can really make progress. What is a Mental Strategy? To understand mental strategies, you have to understand how people think. People think in their five sensory modalities (that is, in terms of visual images, sounds, feelings, taste and smell). A mental strategy is the step by step way in which you use these modalities; it is the specific sequence of your thinking. For example, the most effective strategy for the action step of executing a trade is to 1) see the signal, 2) recognize internally that this is the signal you decided you should take, 3) feel good about it, and 4) take action. If you do anything else, you probably won’t be able to take action or it will be very slow. The Psychology of Trading Once you have a clear understanding of which beliefs, mental states and mental strategies are the core factors in top trading performance, you can then teach the same skills to others and have them perform well too. And when you can see this success duplicated in others, which we have been able to do in most aspects of trading, then you know you have a workable model. The key psychological traits of top traders are 1. Personal Responsibility 2. Commitment 3. Their psychological “profile” 4. Working on personal issues (e.g., self sabotage) Trading fundamentals include the Ten Tasks of Trading. 1. Self Analysis 2. Mental Rehearsal 3. Low-Risk Idea Development 4. Stalking 5. Action 6. Monitoring 7. Abort 8. Take Profits 9. Daily Debriefing 10.Periodic Review Traders need to be reminded of these tasks and to eliminate any self-sabotage that keeps them from following the tasks. Van teaches all of these steps in detail in his various products and workshops. Van Tharp believes that everything revolves around your beliefs, mental states and mental strategies, so with that in mind, everything about trading is 100% psychological, including why and how you trade and which system you will follow or build. Many traders have a hard time “believing” this and it is almost the antithesis of what people learn in academic finance. So only you can decide whether it is worth the time to learn more about yourself and the psychological aspects of trading. People get exactly what they want out of the markets. Most people are afraid of success or failure. As a result, they tend to resist change and continue to follow their natural biases and lose in the markets. When you get rid of the fear, you tend to get rid of the biases ~ Van K. Tharp, Ph.D.

Welcome to the forum! I look forward to seeing your contributions to the community MMS

Have a look at Greenshot (GPL). It's the best Windows-Screenshot maker I've seen so far, including direct editing of the taken images. MMS

Didn't they just jump off the cliff and ended up on another ledge with another cliff 2 months away? I second mitsubishi, at least these jokers are giving us something to trade. Conspiracy theory says these guys do this crap so their wall street buddies can trade with inside info. MMS

I would suggest deciding if you want to be a scalping-type day trader or a longer time-frame swing trader. Or maybe even you think you want to hold options or stocks for an even longer time frame. Decide what you think you will be best at and that will help you your decision. Check out this poll: http://www.traderslaboratory.com/forums/trading-markets/15171-who-makes-more-money.html MMS

Average investors can totally do this, I was just being making reference at the fact some people are cashing out $200MM! Geez ... MMS

I'm totally going to do this the next time I want to cash out my $200MM in company shares MMS

Welcome to TL! MMS

That is very interesting ... thanks for that golden nugget! MMS

Alan, Thanks for the posts ... so with AAPL, would you buy the stock or the options? thx MMS

So what does everyone think? Do scalpers collect enough pennies throughout the day? Or do the swing traders make more compounding their position? MMS

Whats wrong with the formatting code? Sorry I'm a little confused here thx MMS

Interesting analysis ... but what do you think about the technology and market environment changes since? With HFT and huge hedge funds and the extreme leverage being used, I tend to think we will see more big swings ... volatile ups and downs. However, I do think the next few years will be good for the markets. MMS

For equities, I simply use Excel with XLQ for price info MMS

gold, silver, and anything to do with food production MMS

Not a contradiction, I think the author meant to say 'need your *own* money' Not great but it's true ... it's just the way the game is played ... rich people realize and understand it and play it well. Don't hate the player hate the game! ... sorry for the lame saying ... MMS

You have a good point ... but I think the author meant average people are sitting on their ass hoping to hit the jackpot whereas rich people are working hard to win the 'lottery' MMS

21 rich people who were born rich 21 famous drug dealers these would be interesting 21 reasons why rich people are borderline criminals 21 reasons why average people hate rich people 21 ways rich people show their contempt for everyone else these would be funny 21 ways rich people exploit others just so they can get even more filthy rich. 21 ways rich people have found to "legally" avoid paying their fair share of taxes these would be educational ... 21 reasons why being rich can make you miserable. 21 rich people who say they are happier now that they're poor. 21 reasons why average people would rather be average these would be fiction ...

http://finance.yahoo.com/news/21-way...ly.html?page=1 1. Average people think MONEY is the root of all evil. Rich people believe POVERTY is the root of all evil. 2. Average people think selfishness is a vice. Rich people think selfishness is a virtue. 3. Average people have a lottery mentality. Rich people have an action mentality. 4. Average people think the road to riches is paved with formal education. Rich people believe in acquiring specific knowledge. 5. Average people long for the good old days. Rich people dream of the future. 6. Average people see money through the eyes of emotion. Rich people think about money logically. 7. Average people earn money doing things they don't love. Rich people follow their passion. 8. Average people set low expectations so they're never disappointed. Rich people are up for the challenge. 9. Average people believe you have to DO something to get rich. Rich people believe you have to BE something to get rich. 10. Average people believe you need money to make money. Rich people use other people's money. 11. Average people believe the markets are driven by logic and strategy. Rich people know they're driven by emotion and greed. 12. Average people live beyond their means. Rich people live below theirs. 13. Average people teach their children how to survive. Rich people teach their kids to get rich. 14. Average people let money stress them out. Rich people find peace of mind in wealth. 15. Average people would rather be entertained than educated. Rich people would rather be educated than entertained. 16. Average people think rich people are snobs. Rich people just want to surround themselves with like-minded people. 17. Average people focus on saving. Rich people focus on earning. 18. Average people play it safe with money. Rich people know when to take risks. 19. Average people love to be comfortable. Rich people find comfort in uncertainty. 20. Average people never make the connection between money and health. Rich people know money can save your life. 21. Average people believe they must choose between a great family and being rich. Rich people know you can have it all.

It's going to come back ...

Happy New Year to everyone ... and happy start to the markets! So what are everyone's predictions for the S&P this year? Slow and steady growth? Big booms and busts? War? MMS

Sorry - they are back MMS

Ok Guys ... this thread is almost getting out of hand ... let's tone down the name-calling please ... thx MMS