High frequency trading (HFT) continues to grow across the globe, particularly in Europe, due in large part to the fact that the technology required to start an HFT operation is getting cheaper and cheaper.

Many traders are setting up their own high frequency trading shops, backed either by the money they have made in bonuses from investment banks or by private equity. They can do this because, according to the High Frequency Trading Review, it is now 80% cheaper to set up a new HFT operation than it was just five years ago, when the practice first came about.

In fact, it’s not just traders who are getting funding to start these operations. Reports from various sources state that graduates are coming straight from universities like MIT and being given substantial sums of money by private equity firms and venture capitalists to set up high frequency trading desks.

As the debate around high frequency trading heats up, one of the areas where banks have to be careful is how they structure their operations. It is now being outlawed in the US to run a proprietary trading desk under the same umbrella organization as a broking unit. So the banks who do client business are having to surreptitiously set up independent firms with a pure focus on HFT. Of course these firms have to be seen as private and not owned by the banks in question, but there are many loopholes the banks can use to get around these rulings.

The net result is that there is now a myriad of new firms entering the high frequency trading space, and that is only set to grow as the barriers to entry get lower.

It stands to reason that not all these startups will be successful, but the HFT landscape is changing all the time, so it will be interesting to see how it all pans out.

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If you’re short Amazon (AMZN), raise your hand and Tommy will come over and hit you on the head with a tack hammer.

There was no end to the stream of people getting killed trying to short this stock.  I’ll admit, this was one of the stocks that I talked about day trading yesterday. I tried to short it Friday morning after earnings and a huge gap up, but I quickly turned it around for a 3 point gain.  There was no way I was touching a short today.

There is NO reason to be short this stock right now.  It is in uncharted territory which means there’s no support or resistance to bounce off of.  We have no way to gauge how people will react as this stock runs because there’s no history.  At no point today did Amazon (AMZN) even feign weakness.  I don’t understand why the $AMZN stream on Stocktwits had so much talk about shorting this stock.

I agree that this stock is way overbought at the moment.  It will probably come down soon, but picking tops/bottoms is one of the worst trading strategies in the market.  Generally if you really have to try to pick tops/bottoms you should wait for a reversal pattern to emerge before entering a trade; Amazon (AMZN) showed none.  If you can find any, please share them in a comment.

Amazon (AMZN) doesn’t care what you think it should do.  This stock will tell you where it’s going to go when it feels like it.  Stop trying to force your beliefs on the stock market.  It doesn’t care and it will crush you.

If you’re holding a short position and it works out, you got lucky.  And lucky trades are bad trades.  I’ll take a good loss over a bad trade any day.

I like to rant on this subject frequently so here are some related articles:

• “The Market Doesn’t Give a Shit About You” – I describe what you can and can’t control when you trade
• “Thinking Instead of Trading?” – I describe a major missed trade in AIG because I sat  around waiting to short it rather than going long (Sound familiar AMZN bears?)

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Day Trading Mistakes Happen.  Get Over Them and Move On

Have you ever seen the movie Groundhog Day?  It stars Bill Murray as a disgruntled weatherman who’s pissed about his assignment to cover the events surrounding Groundhog Day in Punxsutawney.  Due to a blizzard after the events he is forced to spend the night in this town that he loathes.  He wakes up the next morning to find himself reliving Groundhog Day again.  This happens repeatedly until he straightens his priorities and gets his co-star (Andie MacDowell) into bed.

Groundhog Day came in October for Me

Bill Murray spends the first few days reliving February 2nd in utter confusion.  He allows the events to repeat themselves almost exactly as they had the last day with little deviation from his routine.

This is how I felt last week.  3 days last week I attempted to short strong stocks in the morning.  3 times last week I was spanked by the market and found myself losing 2/3 of my daily risk early on.  And each time, despite having recognized that similar events had unfolded the previous day, I simply sat there confused that patterns that normally work out for me were failing.

Making Quick Adjustments

I did make the adjustment each day and got long for some reasonably good results, but my overall results for those 3 days might have been doubled had I not continued to make these mistakes each morning.

Learning From the Mistakes

Bill was stuck in Groundhog Day for long enough to learn piano, chainsaw ice sculpting and just about everything about everyone in town.  This must have taken “years” of being stuck repeating this same day.  It wasn’t until he had constructed the perfect day that he was allowed to proceed to February 3rd.

Hopefully it won’t take me as long to learn from my mistakes.  At the end of each day, I recognized what I was doing wrong.  I was repeatedly attempting to short stocks that screamed “Don’t short me!”  They were strong stocks with big news and lots of momentum.  Next week, I’d like to forget the losses but remember the lessons learned; that way I can progress to the next “day” in my trading career.

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An alliterative title and a simple message; trade the trend.

Sam of Tradersam’s Blog wrote a this post today about a website called Wordle.  This program takes any block of text, including that from a website, and converts it into a word cloud.  This allows you to visualize what the site might be about.

Click Here to Delve Into My Psyche

Trade the Trend

I decided to check it out for myself using ChartShark.com, and look what the largest two words are; “Trade” & “Trend.” Apparently, subconsciously, I’ve been really hammering this point.  Trade the trend, the trend is your friend, don’t fight the trend.  You can say it a million ways and it always means the same thing and it’s a very important concept to understand when trading.

Like Tradersam, I invite you to delve deeper into my cloud of words and see if you can unearth anything else about my psyche.  Comment below with any thoughts.

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The market doesn’t care if you’re a bear or a bull. It doesn’t care if you think it’s oversold or undervalued. It doesn’t care about your fundamental analysis or your charting skills. The market will do what the market will do, with or without you. You are not in control.

Accept It

One of the worst things you can do is a trader is to start to feel like you’ve lost control of the market.  You should never feel that way because you never had control in the first place.  You can have all the indicators in the world telling you to buy only to enter the trade and have it immediately go against you.  Accept it, you are not in control.

Ego

Sometimes you let your ego get the best of you.  It happens to the best of us.  You make a few great trades and you feel like you’re running the market.  Inevitably, though, the market will give you a brutal lesson in humility.  It is up to you whether or not you get your ego back in check and persevere.  Always remember, you are not in control.

What Can You Control?

The only thing you can control is yourself. You can not control the market, but more importantly, the market can not control you. Only you control when you enter and exit the market.

Entry

You control your entry. The market can not pull you into a trade. As much as it seems like a stock is screaming at you to make a trade, it can not pull the trigger for you. You enter when your predetermined entry criteria have been met, not when the market tells you to. Now, you are in control.

Exit

You know the saying “plan the trade and trade the plan,” and that includes a planned exit on a failed trade.  You have spent countless hours honing your trading skills.  You know the set-ups you are looking for and you enter trades based on these set-ups.  If that set-up fails, you have to punch the eject button.  You take the loss and you move on.  Losing is a part of trading; accept it.  Once again, you are in control.

The market doesn’t give a shit about you.  It will exist whether or not you do.  On the other hand, as a trader, without the market you are nothing.  You are essentially a parasite and the market is your gracious host.  A host organism will learn to fight off and destroy harmful parasites, but it will allow useful ones to coexist.  Learn to accept what you can and can’t control and harmonize with your host and you will have a long and happy life of day trading.

PR: wait… I: wait… L: wait… LD: wait… I: wait… wait… Rank: wait… Traffic: wait… Price: wait… C: wait…

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I wrote here that I would provide a replay of the StockTwits and Data Junkies Closing Bell Ceremony. Well, here’s a quick overview of my time in NYC, the NASDAQ Closing Bell Ceremony, and the after party.

Getting There

As mentioned in my previous post, I took this crazy midnight bus to Chinatown. The trip there was rather uneventful, until the sun came up and I couldn’t sleep anymore. This is when I noticed that the driver was driving a busload of people through busy traffic as if he was rolling in a souped up Honda Civic. He was blasting past cars like they were standing still, weaving in and out of traffic, and riding asses harder than Ron Jeremy. It was one of the most terrifying experiences of my life.

After getting off the bus in one piece (thankfully), I started walking around downtown New York City, which I’d never done before. I eventually made my way to the beginning of Broadway, spent some quality time with the Charging Bull, and began walking up Broadway toward my hotel.

By the way, this is about it for the pictures. Turns out I’m a horrible photographer. I either take shitty blurry pictures, or I forget I even have a camera with me.

Eventually I reached Times Square and my hotel was just around the corner. After napping & grabbing some coffee, it was time to get ready for the Closing Bell Ceremony.

The Ceremony

Upon arriving at the NASDAQ Marketsite studio in Times Square, I checked in with security, and entered the growing cluster of Stocktwits & Data Junkies. While waiting, I had a couple quick convos with some people you might know. I’d list the names here, but Warren Buffet once told me that name dropping is totally lame.

I'm the one in the back to the left who's looking up.

After standing around in the lobby for a bit, we walked down this little hallway to the actual studio right on the corner of Times Square. A NASDAQ representative went over the whole process with Howard Lindzon.  We then lined up to have group and individual photos taken at the podium. After about 45 minutes it was time for the show. The entire show is about 8 minutes long and here it is for your viewing pleasure. Thanks to Andrew Maiman for YouTube’ing this. He was also in attendance.

We then shuffled outside to have more pictures taken of us in front of the NASDAQ Marketsite from the middle of Times Square. While we were out there we got to see all the pictures taken inside presented on the giant video board in Times Square.  Then it was inside for the schwag bag handout. 

Schwag

Stocktwits? Data Junkies? Need a spokes model? Yeah you do. Have your people call my people.

The After Party

That was about it for the ceremony.  Then it was back to the hotel for a quick wardrobe change, and then off to the bar.  I hopped a subway over to Spring St and took the short walk to a bar called Antarctica.  This place was very cool because it was cheap (for NYC) and low-key; totally my style.  I said I wouldn’t drop any names, but Kim, the bartender, was a gracious hostess throughout the night.  The rest of the details of the night are a little bit vague, but I met a lot of really cool people and overall it was an experience I will never forget.

Related Blog Posts By People You Might Know

• Howard Lindzon of StockTwits – “Stocktwits and the NASDAQ… Bringing Data to the Stocktwits Community“
• Peter Corbet of iStrategyLabs – “Social Media Marketing at the NASDAQ Marketsite.“
• Andrew Maiman of Maiman.com – “Ringing the Closing Bell at NASDAQ“
• Nick Fenton of NickFenton.com – “Nasdaq Closing Bell Awesomeness“
• David Buffalo of The Buffalo Trader – “Is social media and investment information, opinion, trade sharing and perspective a good mix?”
• StockTwits Blog – “RingTheBell Contest Recap”

If you were there and you wrote about the event and you’re not on this list, please let me know and I’ll add you here.

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In just a few hours I will be boarding a crowded bus in the middle of the night for the 6 hour trip to NYC.

I am Going to NYC Because I am a Winner

Stocktwits and Data Junkies had a contest with 1 prize for 30 people.  That prize was to join Stocktwits & Data Junkies in Times Square for the NASDAQ Closing Bell Ceremony.   I ended up winning one of these spots, and I am headed out of here in t-minus 3 hours (I should probably start packing).

I am Taking a Bus for 3 Reasons

1. I’m a cheap bastard – If I can take a bus for $40 instead of a flight for $110, I’m doing it.  Especially since it’s through the night & I can sleep through it.
2. It might make for an interesting story – This bus stop is in the middle of a strip of bars, and I’ve always seen these people gathered around waiting for this midnight bus.  I’ve always been curious what the deal is, and now I get to find out.  It could be very boring but who knows, it might make for a great story to tell.
3. I HATE airlines – Boarding a plane has become such a hassle these days that if I can avoid doing it, I will.  If I can save money doing it, even better (see reason 1).

I Haven’t Booked Return Transportation for 2 Reasons

1. This bus thing might be a nightmare greater than the airlines - Riding this weird bus might be interesting, but it also has the potential to be the worst idea ever.  I’d rather avoid reliving a 6 hour nightmare if at all possible.
2. I am not sure when I will feel like returning home – I’m not married, have no kids, and don’t have any real responsibilities calling me back home, so there’s no reason I can’t stay in NYC through the weekend.  I plan on coming home Wednesday evening, but who knows.  I hear NYC is pretty grand, and I might want to hang out for a bit.

What You Have to Look Forward To

1. All kinds of cool inside info – About the event itself as well as the after party with the folks from Stocktwits and Data Junkies.  I don’t expect a lot of shop talk, so it’s not like I’m going to come back with super insider trading secrets, but perhaps someone will get drunk enough to embarrass themselves.  That’s always fun.  It will probably be me.
2. I have a digital camera & an itchy trigger finger – Expect a nice photo album of the adventure of closing the NASDAQ.

You Can Watch This Event Starting at 3:45 EST On August 25th, 2009 Online By Clicking the Link Below

Streaming Video of NASDAQ Closing Bell Ceremony

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What happens when you combine day trading zombies, explosions, and automatic weapons?  You get Daytraders of the Dead. This game is part Smash TV, part Dead Rising and all awesome.  The concept is very simple – zombies come and you shoot them. More zombies come, and you shoot them too, and so on.  There is a “story mode” as well as “survival mode.”  The only real difference being that the story mode has levels, while the survival mode is a constant wave of ever increasing quantities of zombies.  There are also a handful of weapons to aid in your survival including a minigun & a sawed-off shotgun.

Power Up!

There are also some very helpful power-ups like a shield and a 2x power-up that doubles fire rate as well as reload rate.  The most entertaining part of the game is the destructive power-ups such as the “Multi-Rocket,” which shoots a 360 degree ring of rockets out at the waves of zombies,  a “Nuke,” which has the  obvious effect of blowing the crap out of the brain-hungry day traders, and the “Hip-No Disc,” which shoots a spiraling wave of razor-sharp CDs at your foes.

Cleared Hot!

Another entertaining aspect of the game is the air strike.  Talk about danger-close; a jet (which appears to be an F-15) carpet bombs straight across the screen, leaving behind it a clean streak due to the incendiary affects of its ordinance.  No blood, no guts, just white hot pavement.  On occasion, instead of the jet, the “air strike” causes a school bus to plow through the hoards for no particular reason.  The bus absolutely devastates everything in its path leaving blood, guts, money & power-ups in its wake. This game has nothing to do with Day Trading, aside from its name, but it’s good clean fun if you need a break from staring at your charts and scouring the news for stocks. I promise I won’t post any more game reviews. Well, I might do one about M.U.L.E… Here’s a screen shot from my highest scoring game.  You can see my dude’s brain and eyeball there since apparently zombies toss their meal in the air before devouring it. How did I get such an amazing score?  Two words – “super shotgun.” Click here to play.  Can you beat my high score?  If so, post it below in the comments.

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I was born in the year of Pac-Man.  As a matter of fact, I think it’s no coincidence that it debuted a week after my birth.  They knew I was coming.  And as far back as I can remember remembering, a large portion of my life has been dedicated to gaming.  In those 30 years of gaming I believe I’ve picked up some skills that are useful when day trading.

Gamer’s Trigger Finger

When it comes time to pull the trigger, we gamers do so without hesitation.  We are no stranger to watching a screen all day and having to point and shoot at exactly the right moment.  We expect accurate and precise results every time, and can accept the consequences, good or bad. If you’re new to trading and you have trouble pulling the trigger, whether out of fear or a slow reaction time,  I recommend you install a good first-person shooter like Counter Strike or Call of Duty 4 and hone those no nonsense point-and-shoot skills.   You’ll be a stone cold stock sniper in no time.

Ability to Take Losses

We are also no stranger to losing or “dying.”  That’s the beauty of proper risk management.  If you only risk 1% of your account on a given trade, you have the video game equivalent of 100 lives.  Every 1% you increase your account is an extra life!  Just don’t let that account dwindle too low or it’s GAME OVER. (For you math lovers who are thinking “Wouldn’t only risking 1% of your account on each trade theoretically imply that you would have infinite lives?” – use your imagination for the purposes of the analogy.  I’m sticking with some very basic concepts here.  Or you can just go UP DOWN UP DOWN LEFT RIGHT LEFT RIGHT A B A B <select> <start> yourself.)

Persistence

Like any gamer, I’ve seen the dreaded GAME OVER screen many times.  I have also reached this point on my trading account a couple of times.  This will likely happen to most traders as they develop.  This is where most traders tend to give up and contribute to the 90% failure rate that is often talked about for day traders. How do you think like a gamer in this situation?  A gamer would find a strategy guide, check out GameFaqs.com, or simply restart the game with an adjustment in mind to get past the offending obstacle.  The key is learning from your mistakes and having the ability to move on and continue playing.

A Love of Dull and Repetitive Tasks

In order for a gamer to hone their skills, it requires a love of the mundane.  I didn’t get to the point where I could beat “Zelda 2″ in 1 life without about a million tries where I could not.  This guy did not beat Mario 3 in 10 minutes the first time he picked up the controller. He’s not Jimmy Woods. And my college roommate didn’t achieve the world’s fastest Super Metroid run-through (at the time) without hours and hours of screen time.  I’m saying 2 things here: 1) We obviously didn’t get laid much and 2) and to be successful we had to do the same things over and over again for hours and hours until we achieved perfection.  And we loved every second of it. The same holds true for trading.  It is often very repetitive.  You see the same set-ups and day after day and while some days play out differently from others, every day is very similar to a day you’ve seen a 100 times before.  And the same goes for every trade.  This does not mean you can stop learning, however, because there are always way to improve.  Ways to shave a few seconds off of that game run or ways squeeze a few more pennies out of a trade.  You must stay alert to the opportunities that come along and not become complacent.

Conclusion: Gamers and Day Traders Are Very Similar

And if you still have doubts about the similarities between trading and gaming, behold the following pair of videos. They are strikingly similar.

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In a previous post I talked about the alignment of moving averages on the SPY.  I color-coded the moving averages according the colors of the rainbow for visual clarity and order. MA (5) = Red MA (10) = Orange MA (14) = Yellow MA (20) = Green MA (50) = Blue MA (100) = Indigo MA (200) = Violet

Rainbow Moving Average Update

When we took a look at these moving averages back then, the alignment was R(V)OY-G-BI.  The violet (MA 200) was the only moving average that was out of order.  Well, today this still remains the case.  We have made some progress in the right direction, however.  The current order stands as ROY-G-(V)BI with the MAs 50 & 100 standing as the only remaining MAs that have yet to cross above the MA 200. The real sign of a long-term bull market will be that final crossing-over of the MA 100 over the MA 200.

What’s the Significance?

Here is a stock chart from March-May of  2003.  Looks kind of familiar doesn’t it?  This was what the market looked like shortly after it bottomed out after the dot com bubble burst.  From this point forward, there was no turning back.  The MA 50 pulled above the 200, followed by the MA 100, and they didn’t roll over again until early 2008.

A Down Week for the SPY Doesn’t Mean It’s Over

As I stated in my last post, I believe the market looks like it’s setting up for a down move this week.  I don’t think this will significantly impact the current uptrend.  You can see in the 2003 chart that on May 19th, there was a huge down day. This was followed by two more down days and an overall down week. This didn’t really slow the upward momentum though. I still expect to see Thursday’s gap closed and a possible test of resistance around 96 on the SPY.  I also expect that with the market’s current momentum, the MA 50 has a chance to pull above the MA 200 next week, depending on how deep and extended the down move is. What about you? Where do you think we’re headed tomorrow? Next Week? This year? Do you agree with my analysis or think it’s complete garbage? Let me know by leaving a comment or by hitting me up on Twitter.

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