Should scalping be banned?

According to Zero Hedge article about high frequency trading (HFT), it should be. Everyone should be an investor no more traders. It is best for the market if there is only a buy and hold strategy. If you guys feel so strongly about it than how about give back any profits you made as pattern day trader. That is defined as 4 or more trades within 5 business days within.

Aside from the fact that it is illegal to indicate a quote without a trade intent, this form of quote stuffing is in fact manipulative when conducted by HFT.

I do not trade stocks, so I am not aware of the rules. And apparently SEC’s site is not searchable. According to T3Live, 99% of all visible orders are cancelled. It may be illegal but so is speeding.

Well take a look at the millions in fake, and thus illegal, bids demonstrated below and tell us just how any of this manipulation is “providing liquidity”

Despite competition from Bats, Nasdaq, and others, the NYSE has had increasing volume. I realize not all stocks are cross listed. The only true measure of liquidity is volume and the spread. This can happen because of the lowering of the tick size. There are other factors that contribute to volume but there is increasing volume, increasing liquidity. The exchange is evolving from a facilitator to collector. This has been expedited by being a publically traded company. Link to NYSE volume.

It does destroy traders.

Liquidity, volatility, and “quote stuffing” are not good for everyone. My friends were almost was whipped out by it. They are pure scalpers in the S&P 500. The game that is happening to the book is that algorithms will pad the book. By being in both sides of the market they can determine what percentage of the bid and offer they are. When a large trade is executed they can follow it or force them to take it to the market to get out. This eliminates the edge. This in not a market, failed price discover, but either is scalping .

Trading evolution.

Isn’t a scalper the HFT trading of the 20th century? I believe that to some extent the random walk theory happens because of scalpers. Said many times before, the market in the short term is a voting machine, long term a weighing machine. Not everyone has the cash, vision, whatever to see it become a weighing machine. The market will eventually return to a fundamental market, probably.

Fundamentals.

I never believed in fundamentals. It assumes that everyone is following the same rules, looking at the same time frames, interpreting information the same way. As a speculator the markets job is to force me to a place I do not want to be. Shifting my actions from what I want to do to what I have to do. The market hates uncertainty but without it the market will not move. Check a bond chart from 3 years ago.

The market needs to be Illogical for its participants to stay alive.

There has always been a tension between brokers, their clients, and speculators. If a broker executed the orders of a mutual fund or hedge fund at the end of each month(orders that have to be done) with an hour till the closing bell, the speculators would drive the price up. The clients would be pissed, the brokers would get fired, and the speculators would only be trading with each other. This is partly what happened with individual investors in 2009. The best brokers in the world hide their orders well. Do they have another 500 lot behind this 100 lot? This makes the market more instable for speculators and efficient for brokers and their clients. We can’t always take.

A slow death.

Without risk there is no reward said again, without volatility not enough people failing to make trading profitable. I do not have the patience to wait days for a trade to develop. I trade a single market for the most part. Without volatility I would be a Ron Propel trader, set it and forget. Waiting, no hoping to get filled. I do not want to work an order 3 points away from my entry just to get filled, it does not fit into my risk reward ratio in the long term. Whether rational or irrational, the longer I am in the market the more bad things can happen. My personality makes it easier to trade short term, I want instant feedback.

Uncomfortable.

I am extremely uncomfortable talking about stocks. There is no shortage of people talking about shit they do not know about. This post is partly about stocks but mostly about market mechanics. I want to distinguish me from the rest of the financial writers, commentators, etc by talking about what I know. The people at Zero Hedge and the commenter have way more experience than I do trading stock stocks and potentially trading. This post is not a rip piece, I respectively disagree with them. I was hyperbolic about saying they wanted to end scalping it was a negotiating tactic. You are selling for $1000, I want to buy for $100. At $500 we both feel like we got a deal. They want HFT to end but to me it is the natural progression of scalping. I am always uncomfortable criticizing anyone. It forces me to redirect my thoughts away from my growth and on to a generally unwilling, unsolicited party. Even if I promise you that I do not have a bias, I am promising now, it is natural to believe I do when I criticize something.

Learning what not to do is still learning.

Because someone fails or is disappointing does not mean I cannot keep learning from them. I had the chance to meet with one of my entrepreneurial heroes. I openly disagreed with him and he blocked me on twitter. I understand I may have not done it the right way. As he openly faced his detractors, I think he did in a way to portray his persona. The part I originally disagreed with but he has family to feed and others family to feed and has a perspective I do not. If I had stopped learning from him I would have lost the lessons he continues to provide. Being around the CME/CBOT has been invaluable. After awhile it is easy to know what to do in trading. The biggest incremental changes happen by knowing what not to do in trading, failing or seeing failers.

I am tied to a process.

Processes break less often than trading strategies. The markets are filled with blow outs and failures caused by market shifts. How can a trader be broke after making $50 million? He is unwilling to change. I have heard my mentor talk about these traders; I have seen the men who paved the way for all of us. Some of them are broke and broken, 50 year old men who look 80. I do not know much about @pointsnfigures but in the brief moment I did talk with him, he understood change. His use of twitter and a website are also indicative of his understand of change.

Breaking the cycle.

As much as my mentor talked about his mentor blowing out, it did not stop my mentor from almost being forced out of the business. It leads me to believe that I will also have a propensity to fall in this trap. There is nothing more reinforcing than success. The more you make with a trading style the more committed you are to it. Will I be a big enough person to see my trading style failures as a trend and not an aberration? I would like to think so but I will find out soon enough. If you have a friend who is always nice and one day he punches you in the face. How many times will it take before you stop seeing him? It is proportionate to what you received in the past. The more you received the more times you are willing to get hit in the face.

What I am not advocating.

I am not advocating always looking for the next big thing. Experience is important and it is a separating factor. Some portion of your time needs to be spent on monitoring change. Traders see the future right?What got you here is not always what gets you there. It is awesome to see the conviction of my 78 year old grandfather. He has earned that. It is not good mindset with me, you show me someone who is not a hypocrite at some point and I will show you someone who thinks very little. Conviction is the devil of staying relevant in a changing business. Just ask the newspapers and music business. Thanks again Zero Hedge, I visit your website almost daily. I offer my unsolicited opinion out of appreciation not jealously or hatred. If you need me I will be enjoying my random walk.

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9 Responses to Should scalping be banned?

  1. […] This post was mentioned on Twitter by Eli Radke, trader habits. trader habits said: Should scalping be banned? http://dlvr.it/3JgWZ […]

  2. chicagosean says:

    Regarding High Frequency Trading: As the market continues to speed up, I continue looking for ways to slow myself down. I can't compete on speed, and have no intention of doing so.

  3. Anonymous says:

    Nice,” I continue looking for ways to slow myself down”.

  4. Anonymous says:

    Nice,” I continue looking for ways to slow myself down”.

  5. traderhabits says:

    Nice,” I continue looking for ways to slow myself down”.

  6. chicagosean says:

    I'd been meaning to write about that. And now I have: http://www.chicagosean.com/2010/08/as-hft-conti

  7. […] had a conversation with another trader, it happened because of the post about scaling . I never push my trading techniques on others. In fact, what makes me different from most […]

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