Times are hard for active traders these days. The ridiculous growth of HFT algos with their noise is starting to weed out the unable to adjust, overly frustrated and under capitalized traders in the industry. Last week I heard on the squawk box that Goldman’s HFT operation lost money only one day last quarter. That is just ridiculous. Talk about having an edge.
JP sent me this picture last Friday after we got ran over by the HFT algos in our stocks. (sorry to the animal lovers out there, just a pic we found on the net. That is exactly what happened to the shark tank last Friday)
We had three amazing setups that worked great right from the start. As the play started to develop we were looking for places to add big daddy size to the position on confirmation. The problem was that every time we loaded the boat and thought we had it we got madly shaken out. We couldn’t put ourselves in a position of strength to counter the nonsense in the middle caused by the HFT algorithms. And there’s nothing they love more than a trader in a position of weakness to move the stock to the places that surpass our threshold of pain by just a couple of cents.
I have spent the last couple of days rethinking about how I trade. Thinking about my plays so that I know how to put myself in a position of strength. The adjustments I need to make to my trading to redefine my edge. The plays I need to avoid now to make sure I don’t end up like the sharks in the picture above.
While at dinner last week with a few of the shark tank traders and an honorary guest, we talked about an important concept. Namely, spending your energy on the things you can control and spending less and less time worrying about the things that we can’t control. Here is my list of things I can control:
1. Getting enough rest at night.
2. Being in the office by 7:30am to prepare for the day and watch key levels on the stocks trading in premarket.
3. Staying until 5-6 pm looking at my tape, writing in my journal, looking at the top gainers/losers/volume, finding trading ideas for the next day and talking trading with other traders.
4. Being mentally prepared to trade every single day.
5. Sharing information with the desk.
6. Thinking obsessively about your edge and how you need to redefine it when the market changes.
7. Controlling my emotions. (easier said than done but know I can do better)
8. Staying disciplined and patient.
9. Come in with at least 1-2 really good trading ideas every day.
10. Stay after hours watching stocks after hours to identify key levels for the next trading day.
I have witnessed a lot of people come and go in my short 4 years of trading. I can count on my hands those who I think honestly do all the things above. Most people just come in by 8:30-9am, look at briefing and expect to find something by the open. They are often the ones pacing out shortly after 4pm. Surely there are a select few that have been able to be successful without worrying consciously of the things they can control. But they are often the most affected when the market shifts suddenly and their edge diminishes.
I am a victim of worrying and spending too much energy on those things I can’t control at times. It infuriates me to look at my work and find that I am making perfectly sound trades and I am losing constantly to the dopey HFT programs. But the good news is that I know that focusing on the things that I can control makes me money. While I look at my work putting all feelings aside I know the things that work, the plays that used to work that no longer work, and the ones that never worked before fundamentally but now work beautifully because of the “mind fudge” game out there.
So if you are starting to feel the effects of the HFT algorithms it is time to step it up. I am not the least concerned about my trading. I know what I need to do and have thought about the changes I need to start making starting tomorrow. Do you?
10 Comments on “Sunday Thoughts From the Shark Tank”
I heard you, even on FX pairs where the depth is much more profound I can see candidate patterns that suggest HFT manipulation, previous highs being breached by a couple of ticks before the move reverses, all in a few ticks. Naturally stop losses are piled up at these levels so its an easy arbitrage for the T-1000 et al. Then you’ve got Dark Pool volume, admittedly a bigger issue in equities where the depth is lower. If tape reading is like looking at the cars instead of the traffic light, then this volume is like an invisible mack-truck.
The conclusion that myself and my associates came to is that intraday signals no longer are reliable due to the frequent painting of the tape, but the good news is that due to the reporting requirements of dark pool volume being constrained to the end of each business day, signals on the daily scale can work. This means you should either completely re-evaluate your firm’s approach to the markets from daytrading to swing trading, or perhaps you could train yourself and your people to read the tape with an apprehension that the level will probably be violated on funny volume and still hold on the hourly scale. In other words, traditional concepts of technical analysis no longer apply, the point where you’d want to get out is now precisely the place you wnat to enter, since the HFT algorithms are ripping off all the folks following traditional TA.
I heard you, even on FX pairs where the depth is much more profound I can see candidate patterns that suggest HFT manipulation, previous highs being breached by a couple of ticks before the move reverses, all in a few ticks. Naturally stop losses are piled up at these levels so its an easy arbitrage for the T-1000 et al. Then you’ve got Dark Pool volume, admittedly a bigger issue in equities where the depth is lower. If tape reading is like looking at the cars instead of the traffic light, then this volume is like an invisible mack-truck.
The conclusion that myself and my associates came to is that intraday signals no longer are reliable due to the frequent painting of the tape, but the good news is that due to the reporting requirements of dark pool volume being constrained to the end of each business day, signals on the daily scale can work. This means you should either completely re-evaluate your firm’s approach to the markets from daytrading to swing trading, or perhaps you could train yourself and your people to read the tape with an apprehension that the level will probably be violated on funny volume and still hold on the hourly scale. In other words, traditional concepts of technical analysis no longer apply, the point where you’d want to get out is now precisely the place you wnat to enter, since the HFT algorithms are ripping off all the folks following traditional TA.
How about we just find real work?
Oops, I forgot, there are no jobs left.
How about we just find real work?
Oops, I forgot, there are no jobs left.
Patrick, thanks for a great comment. You described perfectly the way we must adapt to the dopey HFT algorithms. It has taken me a couple of weeks to adapt to this new pattern but I’m finally catching up to it.The bottom line is that if it looks to obvious of a setup on the charts then GS is all over that to screw the short term trader. So you must wait for the screw job and then lay into it hard.
Seymour, no need to panic just yet. Yes there are no jobs out there but even though these are rough times in the industry, this is still the best job ever. Hang in there.
Patrick, thanks for a great comment. You described perfectly the way we must adapt to the dopey HFT algorithms. It has taken me a couple of weeks to adapt to this new pattern but I’m finally catching up to it.The bottom line is that if it looks to obvious of a setup on the charts then GS is all over that to screw the short term trader. So you must wait for the screw job and then lay into it hard.
Seymour, no need to panic just yet. Yes there are no jobs out there but even though these are rough times in the industry, this is still the best job ever. Hang in there.
Where have you been GMan? Miss your blogs and tv appearences
Where have you been GMan? Miss your blogs and tv appearences
Tao,
Thanks for the comment. Sorry I’ve been off the desk for a week or so working on some personal stuff and moving into a new apartment by the office. Things are hopefully back to normal. Will be blogging later this afternoon.
As pops would say: “If you think nobody cares if you’re alive, try missing a couple of payments”; glad to hear that’s not the case! Happy Trading!
Tao,
Thanks for the comment. Sorry I’ve been off the desk for a week or so working on some personal stuff and moving into a new apartment by the office. Things are hopefully back to normal. Will be blogging later this afternoon.
As pops would say: “If you think nobody cares if you’re alive, try missing a couple of payments”; glad to hear that’s not the case! Happy Trading!