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Iran: Bewertung der geopolitischen Dynamik und der US-amerikanischen Optionen Vorbereitetes Zeugnis vor dem Hauskomitee für bewaffnete Dienste Die Islamische Republik Iran ist nach wie vor eine der am meisten verstandenen Regime im Nahen Osten. Sein Array von Fraktionen, anhaltende interne Machtkämpfe und ein undurchsichtiger Entscheidungsprozess haben sich oft seinen Verteidigern und Kritikern entzogen. Nach siebenundzwanzig Jahren an der Macht beginnt sich der Teint des Regimes zu verändern. Eine asketische 8220war Generation8221, deren furchtbarste Erfahrung der langwierige Konflikt mit dem Irak in den 1980er Jahren war, nimmt die Macht mit der Entschlossenheit an, die revolutionären Brände, die lange erloschen sind, neu zu entfachen. Seit der Wahl zur Präsidentschaft des hartnäckigen Bürgermeisters von Teheran Mahmud Ahmadinedschad hat der Iran Schlagzeilen dominiert. Als die Ältesten der Revolution allmählich aus der Szene zurücktreten, beginnt eine neue internationale Ausrichtung zu beginnen. In seiner ersten großen Rede über außenpolitische Fragen im August 2005 stellte Ahmadinedschad die Prioritäten seines Regimes fest und stellte die Bedeutung der konstruktiven Beziehungen mit der islamischen Welt, der Persischen Golfregion und Eurasien fest. In gewissem Sinne sucht der neue Präsident nach Iran8217s unmittelbarer Nachbarschaft undAsia und legt weniger Wert darauf, die Beziehungen zu den westlichen Ländern zu pflegen. In einer Abkehr von früheren Patterns von Staatskunst teilen die jungen Konservativen ihre Älteren nicht mit den Vereinigten Staaten zusammen. Während der gesamten Präsidentschaftskampagne von 2005 war der auffällige Aspekt der jüngeren Hardliner-Botschaft die Vorstellung einer 822Ende-Orientierung.8221 Als Ali Larijani, der Sekretär des Obersten Nationalen Sicherheitsrates, stellte 8220 Es gibt große Staaten in der östlichen Hemisphäre wie Russland, China und Indien. Diese Staaten können in der heutigen Welt eine ausgewogene Rolle spielen.8221 In der Perspektive des neuen Rechts bedeutet die Globalisierung nicht, die USA zu kapitulieren, sondern die Beziehungen zu den aufstrebenden Machtzentren auf der globalen Landschaft zu pflegen. Sie hoffen, dass solche Beziehungen die Notwendigkeit vermeiden könnten, sich mit den Vereinigten Staaten zu verständigen. Als solche, Iran8217s neue Hardline-Führer zeigen ein gewisses Maß an Gleichgültigkeit und Passivität gegenüber Amerika. Wie Ahmadinedschad bereits bemerkt hat, ist die Nation weiterhin auf dem Weg des Fortschritts und auf diesem Weg hat kein bedeutendes Bedürfnis für die Vereinigten Staaten.8221 Die Vorstellung, dass Iranshould erhebliche Zugeständnisse über kritische Fragen wie sein Atomprogramm im Interesse Europas bieten würde Investitionen oder amerikanisches Wohlwollen haben ihnen nur wenig Nutzen. Nach einem Vierteljahrhundert der Feindseligkeit, des Krieges und der Sanktionen, Iran8217s aufstrebende Führungsklasse sieht nach Osten, wo seine Menschenrechtsrekord - und Proliferationstendenzen nicht besonders störend für ihre potenziellen kommerziellen Partner sind. Nachdem wir die kritischen Veränderungen, die Iran8217s neue Führung in Betracht zieht, festgelegt haben, ist es auch wichtig, die Kontinuitäten zu betonen. In den vergangenen zehn Jahren hat eine grundlegende Verschiebung der internationalen Orientierung in Iran8217 die nationale Zinsberechnungen als entscheidenden Faktor für ihre Weltanschauung verankert. Unabhängig von der Machtverhältnisse zwischen Konservativen und gemäßigten Jahren wird die Außenpolitik der Iran8217 durch bestimmte feste Grundsätze getrieben, die von allen politischen Eliten geteilt werden. Die intensiven Fraktionskämpfe, die den klerikalen Staat geplagt haben, verdunkeln die Entstehung eines Konsenses über wichtige außenpolitische Fragen. Unter dem Obersten Führer Ayatollah Ali Khamenei entstand eine lockere Koalition um die Vorstellung, dass der Iran nicht in der globalen Ordnung isoliert bleiben kann. Obwohl die islamische Republik ihre entzündliche Unterstützung für terroristische Organisationen fortsetzt, die Israel kämpfen und sein Atomprogramm vorantreiben, ist ihre Außenpolitik nicht mehr die eines revolutionären Staates. Die beste Art und Weise des Verständnisses Iran8217s Außenpolitik ist es, ihre Herangehensweise an ihre wichtigsten Betrachtungsfelder zu beurteilen: den Persischen Golf, die Eurasien und die nukleare Proliferation: Trotz Iran8217s, die oft als pan-islamische Ambitionen bezeichnet wurden, war der Persische Golf seit jeher seine wichtigste strategische Priorität . Die kritische Wasserstraße stellt Iran8217s am direktesten Verbindung zum internationalen Erdölmarkt dar, dem Lebenblut seiner Wirtschaft. Die islamische Republik, wie bei all ihren monarchischen Vorgängern, sieht, dass der Iran durch die Tugend seiner Größe und seiner historischen Errungenschaften das Recht hat, als der lokale Hegemon aufzutauchen. Die veränderten Dimensionen der Iran8217s Außenpolitik sind in diesem Bereich am deutlichsten, da der revolutionäre Radikalismus allmählich pragmatische Machtpolitik erlangt hat. In den achtziger Jahren irrte ich über den Nahen Osten, um die etablierten Behörden im Namen der islamischen Revolution zu untergraben. Teheran8217s maladroit Politik nicht nur scheitern, führte es die Golfstaaten, sich gegen den Iran zu verfestigen. Führende regionale Akteure wie Saudi-Arabien haben die diplomatischen Beziehungen mit der Islamischen Republik abgetrennt, während die Scheichs ihre historischen Feindschaften beiseite legten und sich im Golf-Kooperationsrat zusammensetzten, einer Organisation, die den iranischen Einfluss enthielt. Entlang dieser Zeilen verfestigten die arabischen Fürsten und Monarchien ihre Sicherheitsbindungen mit Amerika. Die bedeutendste Veränderung in Iran8217s Regionalpolitik kam mit der Wahl des reformistischen Präsidenten Muhammad Khatami im Jahr 1997. Khatami schätzte, dass frühere Versuche, die Golfstaaten zu untergraben, nur den Iran isoliert hatten. Teheran setzte fort, gegen die US-Militärpräsenz im Golf zu protestieren und bestand darauf, ein indigenes Netz zu fordern, um die amerikanische Armada zu vertreiben. Die Ablehnung der Golfstaaten, die Iran8217s Vorschläge zu umarmen, ließ jedoch keine Gegenreaktion des entfesselnden Terrors auslösen. Khatami war bereit, die Beziehungen zu den Golfstaaten zu normalisieren, trotz ihrer Anhaftung an die Vereinigten Staaten. Für alle praktischen Zwecke war Iran bereit, in einem Golf zu leben, dessen Gleichgewicht der Macht von den Vereinigten Staaten bestimmt wurde. Heute, als eine harte Linie Regierung seine Macht festigt und verkündet den Wunsch, zu den Wurzeln der Revolution zurückzukehren, sind scharfe Warnungen am Horizont. Sowohl die Washingtoner Politiker als auch ihre europäischen Pendants scheinen vorzuschlagen, dass das neue Regime wieder auf Gewalt und Terror zurückgreifen wird, um seine Nachbarn zu untergraben und seine islamische Revolution zu exportieren. Ein solcher Alarmismus übersieht Iran8217s Realitäten. Unter Khatami8217s auspices, Iran8217s Golfpolitik unterzog sich einer grundlegenden und dauerhaften Umwandlung, die sich ändernde Gesicht von Iran8217s Polity nicht ändern wird. Um sicher zu sein, hat sich in der Mittleren Osten seit dem 11. September Tragödien verändert. Die Invasion des Irak hat Irannew Möglichkeiten geboten, seinen Einfluss zu erweitern. Im Gegensatz zu den vorherrschenden Vermutungen, Iran8217s Annäherung an die Iraker nicht motiviert durch islamistische Werte, sondern praktische Politik. Für die Wächter der Theokratie bleibt das bedeutendste Ziel, die sunnitische Herrschaft der irakischen Politik zu verhindern. Ein unruhiger Konsens hat sich unter der iranischen Führung entwickelt, dass der Impuls für den Iran-Irak-Krieg die sunnitische Herrschaft war. Die sunnitische Minderheit suchte ihre Herrschaft zu rechtfertigen, indem sie eine pan-arabische Ideologie umfaßte, deren Streben nach Ruhm im Ausland zu einer Behauptung der Hegemonie in der Persischen Golfregion und einem verheerenden Krieg mit dem Iran führte. Die Ermächtigung der kongenialeren Schiiten entstand als ein wichtiges Nachkriegsziel der islamischen Republik. Ironischerweise schätzen die iranischen klerikalen Hardliner, die so unnachgiebig sind, die Reformbewegung zu Hause zu unterdrücken, zu schätzen, dass das beste Mittel, um ihre Interessen nebenan zu fördern, durch den Wahlprozess ist. Solche Wahlen werden einen Staat mit starken Provinzen und schwachen föderalen Strukturen ergeben. Ein Irak, der mit seinen internen Streitigkeiten beschäftigt und an sektiererischen Linien geteilt ist, ist unwahrscheinlich, Iran8217s hegemoniale Entwürfe herauszufordern. Für die absehbare Zukunft wird der Iran wahrscheinlich als der mächtigste Staat in der kritischen Persischen Golfregion auftreten. Eine solche Entwicklung ist die natürliche Konsequenz ihrer Stärke und der amerikanischen Politik, die alle Hindernisse für die Behauptung ihres Einflusses beseitigt hat. Obwohl nicht mehr ein revolutionärer Staat, bleibt die islamische Republik eine opportunistische Macht, die die günstigeren Umstände nutzen wird, um ihren Einfluss zu projizieren. Obwohl Pragmatismus und nationale Zinsberechnungen Iran8217s Politik zum Persischen Golf führen können, ist seine Annäherung an Israel immer noch von einer selbstbesiegenden islamistischen Ideologie abgeleitet. Für Iran8217s Herrscher8212Moderate und konservative8212Israelis ein uneheliches Konstrukt und ein Usurpator der heiligen islamischen Länder. Als Agenten des amerikanischen Imperialismus sahen Israelis die Aufmerksamkeit der regionalen Staaten auf Geheiß ihres Supermacht-Wohltäters. Angesichts eines solchen Antagonismus und Argwohns war der Iran ein großzügiger Anhänger verschiedener Terrororganisationen, die gegen den jüdischen Staat plotten. Es ist unwahrscheinlich, dass sich eine solche verankerte ideologische Position in der unmittelbaren Zukunft ändern wird. Im Gegensatz zu ihrer Politik gegenüber den Vereinigten Staaten und Israel, Iran8217s Annäherung an seinen nördlichen Nachbarn war einer der anhaltenden Realismus. Die Nähe eines starken russischen Staates und die Aussicht auf Handelsverträge und wichtige Waffengeschäfte hat immer ein Maß an Pragmatismus in der Iran8217s Politik eingeleitet. In einer merkwürdigen Weise schien die islamische Republik trotz ihrer erklärten Mission, die Revolution zu exportieren, immer wieder gleichgültig gegenüber der Not der kämpfenden Muslime in Zentralasien. Ein belagertes iranisches Regime, das Waffen und Handel braucht, und eine verletzte ehemalige Supermacht haben eine wichtige Beziehung geschmiedet, die die Ideologie um konkrete Interessen wünscht. Die islamische Republik musste eine der wichtigsten strategischen Anpassungen machen, sobald das sowjetische Reich zusammenbrach. Während der sowjetischen Ära hatte der Iran seine islamistische Botschaft über die Atemwege in einer Vielzahl von lokalen Sprachen ohne offensichtliche Erwartung propagiert, dass es einen großen Einfluss haben würde. Eine solche begrenzte Propagandamaßnahme befriedigte seine ideologischen Imperative, ohne die Beziehungen zu ihrem mächtigen Nachbarn unangemessen zu belasten. Aber der Zusammenbruch der Sowjetunion und die Unabhängigkeit der zentralasiatischen Republiken stellten den Iran mit der Notwendigkeit einer Umsicht vor. Teheran musste seine strategischen Beziehungen mit dem Russischen mit seiner Mission des Exportes des Islam ausgleichen. In einer einzigartigen Darstellung der Vernunft hat der Iran seine Ideologie weitgehend gemildert, was im Wesentlichen die Bedeutung von Handel und Stabilität über die Verbreitung seiner islamischen Botschaft bedeutet. Angesichts solcher Bindungen hat der Russische keinen Grund gesehen, den Iran über seine nuklearen Provokationen unangemessen zu unterdrücken, ganz zu schweigen von der Verhängung von Strafsanktionen. Zu lange haben wir vorgetäuscht, daß Meinungsverschiedenheiten zwischen Moskau und Washington über das, was über den Iran zu tun war, im Jahre 8221, dass es im Laufe der Zeit eine Konvergenz zwischen der russischen und der amerikanischen Position geben würde. Es ist sehr wahr, dass weder Russland noch die Vereinigten Staaten wollen, dass der Iran Atomsprengköpfe besitzt. Aber jenseits dieser gemeinsamen Position gibt es keine Grundlage für einen gemeinsamen russisch-amerikanischen Ansatz für den Umgang mit dem Iran. Seit dem Ende des Kalten Krieges und trotz einer jüngsten Annäherung an Israel ist die islamische Republik Russland8217s wichtigster Partner im Nahen Osten. Vieles davon ist auf ökonomische Faktoren zurückzuführen, der Iran hat sich als wertvoller Markt für seine kaschinell verletzten Verteidigungsindustrien herausgebildet. Obwohl die nukleare Zusammenarbeit zwischen den beiden Staaten die meisten Schlagzeilen gesammelt hat, war Russland auch bereit, den Iran eine große Menge konventioneller Waffen zu verkaufen, darunter auch anspruchsvolle U-Boote. Darüber hinaus ist der Iran im Gegensatz zum Westen, der hauptsächlich Rohstoffe aus Russland kauft, bereit, eine Vielzahl von Industriegütern zu erwerben. Die Schaffung neuer Nord-Süd-Verkehrskorridore hat Russland virtuellen Zugang zu den Persischen Golfhäfen gegeben und die Möglichkeit einer stark ausgedehnten Handelsbeziehung nicht nur mit dem Iran, sondern auch mit anderen lukrativen Märkten wie Indien eröffnet. Kurz gesagt, es gibt mächtige ökonomische Lobbys, die den Ausbau der russisch-iranischen Bindungen unterstützen und keine Lust haben, die Verhängung von Wirtschaftssanktionen zu sehen, die ihnen potenziell Hunderte von Millionen Dollar Einkommen berauben könnten. Angesichts dieser Tatsache ist die Vorstellung, dass Russland bei der Anwendung eines erheblichen wirtschaftlichen Drucks auf den Iran für seine nuklearen Infraktionen helfen würde, weit hergeholt und phantasievoll. Doch selbst wenn man davon ausgeht, dass die Vereinigten Staaten bereit waren und in der Lage waren, die iranischen Verträge mit Russland zu vertreiben, gibt es eine fundamentalere Kluft. Washington nimmt an, dass der Rest der Welt seine Einschätzung von Teheran als ein unverantwortliches, gefährliches Regime, basierend auf seiner Verfolgung der Atomwaffenfähigkeit, seine Ablehnung, Israel und seine Unterstützung für Gruppen wie Hisbollah und den islamischen Dschihad zu erkennen, teilt. Russland hat eine weit andere Ansicht, der Iran hielt in Zentralasien nach dem Zusammenbruch der Sowjetunion ein niedriges Profil und arbeitete mit Russland, um Tadschikistan zu beenden8217s verheerender Bürgerkrieg im Jahr 1997 und Iran hat nicht versucht, die muslimischen Regionen innerhalb Russlands zu entzünden. Wie für Iran8217s Übertretungen, für einige Russen gibt es wenig Unterschied zwischen Iran und U. S.lyly Pakistan, eine andere Macht, die ein heimliches Atomprogramm hatte, das die Waffentechnologien über den A. Q. Khan-Netzwerk, und das hat in den letzten zehn Jahren auch ein staatlicher Sponsor von Terroristen und Militanten in anderen Teilen Südasiens. Russland zog eine große Unterscheidung zwischen der Taliban-Regierung in Afghanistan, die es als eine gefährliche Krebs, die Al-Qaida, um Tod und Chaos auf der ganzen Welt zu exportieren, und die islamische Republik, die es als vorhersagbare, rationalen Akteur in globalen Angelegenheiten, . Der Fehler, den die EU-Politiker gemacht haben, geht davon aus, dass die Zusammenarbeit mit Russland über Afghanistan in ein gemeinsames Verständnis dessen, was zuerst im Irak und jetzt im Iran ist, Die aufkommenden Bindungen zwischen Iran und China sind weit weniger entwickelt, aber dazu bestimmt, zu wachsen, da Peking stärker vom östlichen Öl abhängig wird. Zu einer Zeit, in der China8217s industrielle Macht vom Zugang zu einer zuverlässigen Energiequelle abhängig wird, erscheint der Iran ein wertvoller und sicherer Markt. Die jüngste Unterzeichnung eines 100 Milliarden Dollar Öl - und Gas-Explorationsabkommens zwischen den beiden Mächten ist ein Hinweis auf weitere solche Angebote. Allerdings muss China bei der Herstellung seiner Beziehungen zum Iran auf amerikanische Anliegen und Empfindlichkeiten achten. Die Vereinigten Staaten Schatten Webstühle groß in Asien, wie it8217s ein unverzichtbarer Schauspieler bei der Stabilisierung der Ostasien Sicherheit Umwelt. Es ist die Vereinigten Staaten, die die Fähigkeit haben, die Flut der Proliferation auf der koreanischen Halbinsel zu stürzen, und den Japan8217s Verteidigungsappetit zurückzuhalten. Darüber hinaus ist Amerika auch eines der größten Handelspartner von China8217 und die zahlreichen kommerziellen Beziehungen zwischen den Mächten bieten Washington noch einen wichtigen Hebel. Im Gegensatz zu Russland müsste China seine Beziehungen zu Amerika und dem Iran sorgfältig ausgleichen, was bedeutet, dass es unwahrscheinlich ist, dass es in den Vereinten Nationen gegen die U. S.-Initiativen die Führung übernehmen wird. In der Zeit nach dem Kalten Krieg war eines der Hauptanliegen der Vereinigten Staaten, die Verbreitung von Massenvernichtungswaffen zu stoppen. Unter der größten Angst vor aufeinanderfolgenden amerikanischen Verwaltungen war Iran8217s nukleare Tendenz. Iran8217s Verfolgung der nuklearen Option stammt aus einer Reihe von ineinander greifenden Motiven. Als Staat, der entschlossen ist, regionalen Einfluss zu projizieren, bedarf es einer glaubwürdigen militärischen Einrichtung, die in der Lage ist, ihre Interessen zu verteidigen und ihre Ziele voranzutreiben. Seit dem Ende des Iran-Irak-Krieges hat Teheran ein umfangreiches Programm zur Erweiterung und Modernisierung seiner Streitkräfte eingeleitet. Der Imperativ der Wiederbelebung einer moribund-Wirtschaft hat jedoch die Begeisterung innerhalb der klerikalen Einrichtung verringert, um die hohen Kosten für die Aufrechterhaltung einer großen konventionellen Armee zu tragen. Um die Kluft zwischen ihren Bestrebungen und ihren Fähigkeiten zu überbrücken, hat der Iran daher seine Ressourcen auf den Erwerb von Raketentechnologie und Massenvernichtungswaffen verlagert. Wie bei der New Look-Strategie in Amerika während der 1950er Jahre, erfüllen Atomwaffen Iran8217s Verteidigung Haltung zu einem akzeptablen Kosten für seine steuerliche Gesundheit. Neben den regionalen Ansprüchen entsteht auch das Motiv des Iran8217 zum Erwerb von Atomwaffen aus der Notwendigkeit einer glaubwürdigen Abschreckungsfähigkeit. Heute ist der Iran von der amerikanischen Macht umgeben, die die klerikale Elite mit dem Imperativ der Abschreckung eines potenziellen US-Angriffs besessen hat. Der Unterricht der Operation Iraqi Freiheit ist, dass die Vereinigten Staaten letztlich weder von der großen konventionellen Armee des Iraks abgeworfen wurden, noch durch die Wahrnehmung, dass Saddam chemische Waffen besaß. Mittlerweile bietet die koreanische Halbinsel einen eigenen, verlockenden Unterricht an, nämlich der Besitz der nuklearen Fähigkeiten, nicht nur die amerikanische Gefahr, sondern auch potenzielle wirtschaftliche und sicherheitstechnische Vorteile. Die Tatsache, dass die sehr hawkische Bush-Regierung ihre Politik umgekehrt hat, nicht mit dem Iran zu verhandeln und ein eigenes Anreizpaket zu betrachten, zeigt den Verhandlungswert des Atomprogramms. Da der Iran seine nukleare Strategie aufgreift, fordern die amerikanischen und europäischen Forderungen, dass sie ihre Treibstoff-Zyklus-Bestrebungen aufgeben, die ihr durch den Nuclear Non-Proliferation Treaty (NPT) gewährt wurden, einen intensiven nationalistischen Aufruhr geweckt haben. Als ein Land, das historisch das Thema der ausländischen Intervention und die Verhängung von verschiedenen Kapitulationsverträgen war, ist der Iran uneingeschränkt empfindlich auf seine nationalen Vorrechte und Souveränitätsrechte. Die neuen Herrscher des Iran glauben, dass sie nicht wegen ihrer Provokationen und früheren Vertragsverletzungen herausgefordert werden, sondern wegen der Supermacht Mobbing. In besonderer Weise sind das nukleare Programm und die Iran8217s nationale Identität in der Phantasie der Hardliner verschmolzen. Um gegen ein unverschämtes Amerika zu stehen, ist es, einen revolutionären Eifer und Sinn des Nationalismus zu bestätigen. Es ist an der Zeit, sich der Realität zu stellen, dass der Mittlere Osten wahrscheinlich einen Iran mit einer robusten nuklearen Infrastruktur haben wird. Durch phantasievolle multilaterale Diplomatie und die Bereitstellung einer klugen Mischung von Strafen und Anreizen ist es vielleicht möglich, den Iran daran zu hindern, die nukleare Schwelle zu überqueren und eine Waffe zusammenzusetzen, aber der Begriff der vollständigen Abrüstung ist zunehmend unhaltbar. Bei der Formulierung seiner regionalen Vision hat die islamische Republik versucht, zwei disparate Stränge von Iran8217s Identität zu heiraten: Persischer Nationalismus und schiitischer Islam. Als eine große Zivilisation mit einem scharfen Sinn für Geschichte hat sich der Iran immer als rechtmäßiger Führer des Nahen Ostens wahrgenommen. Seit Jahrhunderten dominierten persische Reiche die politische und kulturelle Landschaft der Region und inspirierten eine nationale Erzählung, die Iran8217s Hegemonie als vorteilhaft und gutartig aussah. Zur gleichen Zeit, als verfolgte religiöse Minderheit, waren Schiiten im Iran immer misstrauisch und vorsichtig von ihren Nachbarn. Die Realität der aufsteigenden arabischen Staaten, die dominierenden westlichen Imperien und der religiöse Außergewöhnlichkeit des Iran8217s hat die Wahrnehmung von Teheran nicht als das Zentrum des Universums beendet, 8221 eine Gesellschaft, die von den benannten arabischen Massen emuliert werden sollte. Aufeinanderfolgende persische Monarchen und regierende Mullahs würden diese nationale Selbstwahrnehmung abonnieren, was Teheran eine übertriebene Sicht auf seine historische Bedeutung verleiht. Ein letzter wichtiger Faktor, der sich im Iran unruhig eindringt8217s internationale Orientierung ist der Pragmatismus. Der Iran kann sich von den Großmächten als eindeutig beunruhigt fühlen, und er kann Sehnsucht, als der regionale Führer auftauchen zu können. Allerdings haben die Beschränkungen ihrer Ressourcen und die Realität ihrer tatsächlichen Macht sporadisch zur Neubewertung und Einsparung geführt. Der faszinierende Aspekt der Iran8217s Politik ist, dass es sowohl dogmatisch als auch flexibel sein kann. Die islamische Republik kann eine ideologisch kompromisslose Position gegenüber Israel einnehmen, doch pragmatisch mit ihrer historischen russischen Nemesis umgehen. Die Spannungen zwischen Iran8217s Idealen und Interessen, zwischen ihren Bestrebungen und Grenzen, werden weiterhin eine Außenpolitik hervorbringen, die oft widersprüchlich und widersprüchlich ist. Freies proprietäres Trading Training Das Free Proprietary Trainingsprogramm besteht aus zwei Segmenten: Theorie und Praxis. Wichtige Theorie-Themen werden im Vortragsformat präsentiert, das Gruppenübungen, Quiz und Klassengespräche beinhaltet. Die praktische Unterweisung wird sich auf die täglichen Strategien und Disziplin konzentrieren und wird eng beaufsichtigt. Vom ersten Tag an erwarten wir, dass Sie Geld verdienen. Haben Sie, was es braucht, um ein Prop Trader Es erfordert sowohl Vertrauen und die Bereitschaft, Fehler zu akzeptieren. Fragen Sie sich: Muss ich immer richtig sein Wenn ja, müssen Sie das aufgeben. Kann ich meine Fehler akzeptieren, von ihnen lernen und immer wieder kommen für mehr Wenn nicht, müssen Sie lernen, wie. Der Prop-Handel beinhaltet risikoreiche Spekulationen. Es ist spekulativ und riskant und es wird dir bescheiden, dass es das Vertrauen schütteln wird, das du in deinen Fähigkeiten hast. Prop Trading kann sich als eines der härtesten Dinge, die Sie jemals unternommen haben. Sie müssen verstehen, dass jeder durch eine Lernkurve geht und beginnt mit der Haltung, dass Sie nicht brauchen Ausbildung oder dass Sie wissen, über den Handel bereits kann bedeuten, Sie werden nicht lange genug, um durch diese Lernkurve zu bekommen. Diese Kurve ist steil und variiert von Person zu Person. Es gibt typische Gründe, warum Menschen Geld verlieren und bei Straftat scheitern und Sie sollten sich dessen bewusst sein. Am Anfang verlieren die Leute vor allem wegen der Keystroke-Fehler Geld, sie werden einen Buy-Key verwenden, wenn sie wirklich einen Sail-Key verwenden möchten, oder sie werden ihre Verluste nicht schneiden, weil sie nicht die richtigen Tasten auf der rechten Seite treffen Zeit. Letztendlich scheitern die Menschen bei der Börse, weil sie keine Disziplin haben. Der Free Proprietary Trading Training Kurs wird das Wissen, die Psychologie und die Strategien entwickeln, die notwendig sind, um auf elektronischen Wertpapiermärkten erfolgreich zu handeln und die Möglichkeit zu bieten, dass Auszubildende Teil unseres Eliteteams von Händlern werden. Inhaltsverzeichnis Inhaltsverzeichnis. 3 Markt und Börsen 10 1.1 Börsen 10 1.3 Primär - und Sekundärmarkt 10 1.4 Die NASDAQ. 11 Aufträge, Transaktionen und Positionen 14 2.2 Transaktionen 14 2.3 Limit Orders 15 2.4 Market Orders 15 2.5 Long Positionen 15 2.6 Short Positionen 16 2.7 Inventar. 16 2.8 Unrealisierte ProfitLoss 17 2.9 Realisierte ProfitLoss 17 Auktionsmarkt Der Spezialist 18 3.1 Auktionsmarkt 18 3.2 Merkmale der Auktionsmärkte 18 3.3 Das Fachbuch. 18 3.4 Die Fachverantwortung 19 3.4.1. Spezialist als Auktionator 19 3.4.2. Spezialist als Agent 19 3.4.3. Spezialist als Katalysator 19 3.4.4. Spezialist als Principal 19 Dealer Market Market Maker 20 4.1 Dealer Market 20 4.2 Market Maker 20 4.3 Market Maker VS Prop Traders 20 4.4 Market Maker Restriktionen 21 4.5 Market Maker Verantwortlichkeiten 21 4.6 Market Markers Einkommensquellen. 21 Elektronische Kommunikationsnetze und Dunkel-Pools 22 5.1 Elektronische Kommunikationsnetze 22 5.2 ECNs Merkmale und Merkmale 22 5.3 Dunkle Pools 23 Grundlegende Software-Tools und Handelskonzepte 24 6.1 Level 2 ein Niveau jenseits. 24 6.2 Bandlesung. 23 6.3 Handelsmonitor und Positionsübersicht. 24 6.4 Erstes erstes (FIFO) 25 6.6 Liquidität. 25 6.7 Rip, Tank, Swipe. 25 6.8 Volatilität 26 6.10 Ausführungssystem. 27 6.12 Einzelhändler und Prop Trader 27 6.13 Arbitrage. 28 6.14 Lots, Round Lots, Ungerade Lose 28 6.15 Cross Lock. 28 Marktindikatoren Informationskonzepte 30 7.1 Indizes und Durchschnittswerte 30 7.2 Dow Jones 30 7.3 SampP 500. 31 7.5 SampP 500 Futures 32 7.6 Squawk Box. 32 7.7 Allgemeine Marktinformationskonzepte 34 7.7.2. Korrelation. 35 7.7.3. Erwartungen 35 7.7.4. Fed-Treffen 36 7.7.5. Stock Screeners 36 Risikomanagement 37 8.2 Risikomanagement 37 8.3 Verlängerte Stunden Trading Risk Disclosure. 38 8.3.1. Risiko niedrigerer Liquidität: 38 8.3.2. Risiko höherer Volatilität: 38 8.3.3. Gefahr der Preisänderung: 38 8.3.4. Gefahr der nicht verknüpften Märkte: 39 8.3.5. Gefahr von Nachrichten Ankündigungen: 39 8.3.6. Gefahr der größeren Spreads: 39 8.4 Max Loss, Max. Aktien und Kaufkraft 39 8.4.1. Max Loss 39 8.4.2. Kaufleistung 40 8.4.3. Max-Aktien 40 Regeln und Compliance. 41 9.1 Verordnungen 41 9.3 Die FINRA. 41 9.4 Verordnungen zu proprietären Handelsfirmen 42 9.5 Die wichtigsten Regeln, die Händler tragen müssen, sind: 42 9.6 Broken Trades 42 Trading Psychology. 43 10.3 Disziplin 43 10.4 Verhaltensweisen, die zu erfolglosem Handel führen 44 10.5 zu erwerbende Fähigkeiten 44 10.7 Gefühle beim Trading erfahren 45 10.7.2. Frustration. 46 10.7.3. Erwartung. 46 10.7.4. IncredulityAmazement 46 10.7.5. Begeisterung. 46 10.8 Erste Schritte. 46 10.8.1. Dos und Donts 46 10.8.2. Tägliche Vorbereitung. 47 10.8.3. Geldmanagement 47 10.9 Psychologische Hürden 48 10.10 Der 3PPHHHHH-Ansatz. 48 10.10.1. Persistenz 48 10.10.2. Erhaltung. 49 10.10.3. Die Geduld. 49 10.11 Schlachtpläne 49 10.12 Allgemeine Handels-Axiome 51 10.13 Sonstige Handelspsychologie-Konzepte 51 10.13.1. Transparenz: 51 10.13.2. Wünsche und Glauben. 52 10.13.3. Intuition, Erleben, Fühlen des Marktes 52 10.13.4. Instinktive und Analysten 52 10.13.5. Open Minded Traders sind die besten 53 10.13.6. Nachahmung. 53 10.13.7. Erfahrung, Lernkurven und ständiges Lernen: 54 10.13.8. Crowd-Effekt, Contrarian. 54 10.13.9. Persönliches Leben und Selbstbewertung. 55 Trading Strategies Concepts 56 11.1 So viele Strategien wie Händler 56 11.2 Aktiver Handel und Passivhandel. 56 11.3 Bid-Ask-Größe: 56 11.5 Bestandsführung 57 11.6 Partial Fills amp Odd Lots 57 11.7 Trades 57 11.8 Bandlesung und Block Trades: 58 11.9 Round Numbers 58 11.10 Die Level 1 Strecke. 58 11.11 Mehrfachaufträge, Mehrfachfüllungen 58 11.12 Kurzer Squeeze. 59 11.13 Die Axt. 59 11.14 Fortgeschrittene Auftragsarten: 59 11.14.1. Hidden Orders 59 11.14.2. Reserve Bestellungen 60 11.14.3. Liquidität nur hinzufügen. 60 11.14.4. Testaufträge 60 11.14.5. Folgende Aufträge oder Pegging Orders 60 11.14.6. Schaltaufträge 61 11.14.7. Gebündelte Aufträge 61 11.15 Relative Stärke. 61 Dein erster Kampf. 63 12.1 Simulation. 63 12.2 Live Trading 63 Angewandte Handelsstrategien 64 13.1 Scalping: Das Bonusspiel Market Maker Spiel. 64 13.1.2. Strategie. 64 13.1.3. Durchschnittlich einmalig oder zweimal maximal. 64 13.1.4. Wann raus auf den Nachteil. 65 13.1.5. Warnung: 65 13.2 Momentum Trading. 65 13.2.2. Wann du rauskommst. 66 13.3 Eröffnungsstrategien 66 13.3.1. Was ist die Eröffnung 66 13.3.2. Begriff des beizulegenden Zeitwertes am offenen. 66 13.3.3. Umschlagstrategie. 67 13.3.4. Zurück Prüfung der Hüllstrategie. 67 13.3.5. Positives Handelsszenario. 67 13.3.6. Negative Handelsszenario. 68 13.3.7. Risiko dieser Strategie. 68 13.4 Dark Pools Strategien 68 13.4.1. Was sind dunkle Schwimmbäder, wie sie arbeiten 68 13.4.2. Dunkle Pools Features 68 13.4.3. Pegging Orders 69 13.4.4. Ausführungsgrößenmerkmale 69 13.4.5. Verknüpfung und Scanner 69 13.4.6. Anti-räuberische Handelsalgorithmen 69 13.4.7. Positives Handelsszenario. 69 13.4.8. Negative Handelsszenario. 70 13.4.9. Wie sich die Institutionen verteidigen 70 13.4.10. Gute Regeln diese Strategie. 70 13.4.11. Risiko dieser Strategie. 71 Intraday-Handelsperioden 72 Office-Regeln 73 Vorgeschlagene Leseliste 74 Markt und Börsen 1.1 Börsen Eine Börse ist eine Organisation, die es ermöglicht, dass Transaktionen von Finanzprodukten ordnungsgemäß und zentral stattfinden (physisch oder virtuell). Börsen sind das bekannteste Beispiel. Die New Yorker Börse (NYSE) und die National Association of Securities Dealer Automated Quotation (NASDAQ) sind die beiden wichtigsten Börsen in den Vereinigten Staaten. Für zukünftige Börsen ist die Chicago Mercantile Exchange (CME) die führende. Eigene Handelsgesellschaften haben Zugang zu allen oben erwähnten Börsen, haben aber auch Zugang zu der Londoner Börse, die die wichtigste Börse in Europa ist. Andere Märkte, die in Kürze bei Proprietary Trading Firms erhältlich sind, sind Euronext und die Toronto Stock Exchange. 1.2 Märkte Ein Markt ist die Konsolidierung von Börsen oder Transaktionen in einem bestimmten Finanzprodukt. Zum Beispiel ist der US-Aktienmarkt die Konsolidierung aller Transaktionen, die in den Aktienaustausch in den USA stattfinden. Andere populäre Märkte sind der Futures-Markt und der Optionsmarkt, der zusammen den Derivatmarkt genannt werden kann. 1.3 Primär - und Sekundärmarkt Der Primärmarkt ist für neue Emissionen von Wertpapieren, die sich vom Sekundärmarkt unterscheiden, wo zuvor ausgegebene Wertpapiere gekauft und verkauft wurden. Ein Markt ist primär, wenn der Erlös der Verkäufe an den Emittenten der verkauften Wertpapiere geht. Es gibt keinen physischen oder virtuell definierten Standort für den Primärmarkt. Die Transaktionen liegen vielmehr zwischen Investmentbankern und institutionellen Anlegern vor. Sobald alle Transaktionen für eine Emission auf dem Primärmarkt abgeschlossen sind, gibt es das, was wir als Initial Public Offering (IPO) bezeichnen und die Aktien beginnen, auf dem Sekundärmarkt zu handeln. Bei proprietären Handelsfirmen konzentrieren wir uns auf den Sekundärmarkt. 1.4 Die NASDAQ Gegründet 1971, ist die National Association of Securities Dealers Automated Quotations System (NASDAQ) ein Händler-Markt und ist die erste und weltweit größte elektronische Börse mit fast 4000 Unternehmen. Es wird von der NASDAQ Stock Market, Inc. betrieben. Mehr als 500 Market Maker nutzen ihr eigenes Kapital, um NASDAQ-Wertpapiere zu kaufen und zu verkaufen und dann den Bestand nach Bedarf neu zu verteilen. Das NASDAQ-Netzwerk verbindet auch alternative Handelssysteme wie elektronische Kommunikationsnetze (ECNs), die es Investoren ermöglichen, miteinander zu handeln. Die NASDAQ Stock Market besteht aus zwei getrennten Märkten: dem nationalen Markt und dem Small Cap Market. Die NASDAQ wurde vor kurzem ein öffentlicher Handel auf der NASDAQ unter dem Symbol NDAQ. Weitere Informationen finden Sie auf der Website unter nasdaq. 1.5 Die NYSE Die 1792 gegründete New Yorker Börse ist der größte Auktionsmarkt der Welt. Es liegt an der 11 Wall Street in New York City. Die NYSE wird oft als Big Board oder The Exchange bezeichnet. Es ist ein physischer Markt, der einen Spezialisten benutzt, um Aufträge anzupassen. Allerdings wird die Börse mit der Akquisition der Archipel Exchange (ARCA Exchange) und mehr Volumen auf dem Intra-Market Trading System und verschiedenen ECNs, die den dritten Markt bilden, immer mehr elektronisch. Etwa 3000 Unternehmen im Wert von fast 18 Billionen Dollar in der globalen Marktkapitalisierung sind an der Börse notiert. Durchschnittliches Aktienvolumen ist mehr als 5 Milliarden Aktien. Listing Anforderungen an den Austausch sind sehr streng. Daher sind die meisten Aktien gehandelt ältere Unternehmen und blaue Schiffe. Viele ausländische Unternehmen sind auch an der NYSE als American Depository Receipts oder andere Form von Entitäten (450 Nicht-US-Unternehmen im Wert von fast 5 Billionen Dollar) gelistet. Der Austausch handelt viele andere Produkte wie Anleihen, Optionsscheine, Rechte und ETFs. Weitere Informationen finden Sie auf der Website von nyse. 1.6 Die AMEX Die AMEX, die für die amerikanische Börse steht, ist ein kleinerer Markt für Aktien, aber sie ist der zweitgrößte Optionsaustausch in der Welt. The AMEX was bought by the NYSE in January of 2008. About 800 different stocks were trading on the exchange and a lot of different ETFs, since the AMEX is a pioneer in that field. A lot of AMEX stocks are now traded electronically on the NYSE through Archipelago (ARCA Exchange) Exchange. The AMEX was also an auction market using a specialist. The Spiders (SPY) and Diamonds (DIA) which are ETFs respectively based on the SampP500 and Dow Jones Indexes were two of the major ETS trading on the exchange. More information can be found on the website at amex. 1.7 The CME The Chicago Mercantile Exchange, which recently acquired the CBOT and the NYMEX, is the largest US derivatives exchange in the world. It was founded in 1898 as the Chicago Butter and Egg Board, evolving into the CME by 1919. The exchange is a major marketplace for trading futures and options on agriculture products, currencies, indices, and interest rates. The exchange went public in December of 2002 and is currently traded on the NASDAQ under the symbol CME The most popular contract traded on the CME and also the most active future contract in the world is the SampP 500 big futures (SP) contract. It represents 250 times the index. Proprietary Trading Firms accesses the CME through its electronic exchange called GLOBEX which is the first electronic trading network for futures and options. GLOBEX trades many futures contract with a smaller value often called the minis. The ES traded on GLOBEX is a very active contract and represents 50 times the SampP 500. It is also used at Proprietary Trading Firms as a global market indicator. More information can be found on the websites at cme. 1.8 The LSE The London Stock Exchange formed in 1760 as a club at Jonathans Coffee House by 150 brokers thrown out of the Royal Exchange for rowdiness. The Stock Exchange name was adopted in 1773 and it became a regulated exchange in 1801. Following deregulation in 1986, The LSE, also called the Big Bang, introduced computerized trading via the Stock Exchange Automatic Quotation (SEAQ) and SEAQ International Systems that display share price information in brokers offices throughout the United Kingdom. The LSE became a public limited company in 2000, with its shares listed the following year. In 1997, the exchange introduced the Stock Exchange Electronic Trading Service (SETS). The LSE was recently added to Proprietary Trading Firms Arsenal. More information can be found on the website at londonstockexchange. Orders, Transactions and Positions 2.1 Orders An order is a request or advertisement with the intention to buy or sell a specific financial product. An order identifies the terms relative to price, quantity and conditions in which it needs to be matched. An order is said to be open or pending until it is matched with an opposite order. An open order can normally be cancelled by the sender. For example, if you sent a request to buy 1000 shares of MSFT at 24.50 this is considered to be a buy order on MSFT. A buy order is called a bid and a sell order is called an offer. The best bid and offer on a stock from all participants is called the NBBO (highest bid and lowest offer). There are five conditions a trade needs to think about when sending an order and they are: side (is it a buy or a sell), size (the amount of shares), route (is is a NYSE or NASDAQ stock), ticker (the stocks symbol) and condition (is it a fill or cancel order) 2.2 Transactions An order becomes a transaction when it matches with another order that can fulfill its conditions (a sell order matching a buy order). In this case we say that the order has been filled or executed. Therefore a transaction, which is also called a trade, always has a buy side and a sell side. From the previous example if somebody else sends an order to sell 1000 MSFT at 24.50 then a transaction is recorded and both orders are filled. If the sell order would only be for 500 shares then the buy order of 1000 shares would be partially filled and 500 shares would still be open (standing as a pending order). By convention we say that a trader is buying when he buys from the offer (also referred as taking the offer) and biding when he place a buy order below the best offer. In the same manner, we say that he is selling if he places a sell order at the bid price (also referred as hitting the bid) and offering if he is offering above the best bid. 2.3 Limit Orders A limit order is an order to buysell at a specific price or lowerhigher. Execution can happen at the price specified or at a better price (rarely). Price improvements happen more on the NYSE at the open or the close because the specialist is going to find a price that can match the most orders Limit orders are standing in the market if they are not executed. They will be only filled if a match with another order can be made. Limit orders are the most popular order at Proprietary Trading Firms because they limit the risk of errors. 2.4 Market Orders A market order is an order to buy or sell a security at the best price available. Market buy orders are filled against available limit order in the market. Market orders can be very dangerous for many reasons. One big concern is that you have no control over what price you get. In some case dishonest Market Makers and dealers could cancel and move their limit orders if they see a big order coming in. Also there is a big difference between buyingselling 1000 shares and 10000 shares but sometimes it is easy to mistakenly enter an extra 0. Those are called keystroke errors and they happen all the time in the market. Recently, in December 2005, a Japanese Trader lost hundreds of millions of dollars because of a keystroke error. Traders using market orders are impatient and normally it does not pay to be impatient with the market. We strongly discourage the use of market orders at Proprietary Trading Firms since there are less risky ways to get quick executions with special limit orders. 2.5 Long Positions When you are buying stocks we say in the trading jargon that you are getting long. If you own stocks, you are said to be long that stock. For example if you send a buy order on 1000 Shares of MSFT and get filled, you are now long 1000 share (assuming you had no previous tradestransaction in MSFT). 2.6 Short Positions It is possible when you trade to sell stocks that you dont own. We call that shorting. You are borrowing the stock with the intention to sell it on the market and buy it later at a lower price (obviously if the stock goes up you will be paying a higher price to buy it back and therefore lose money on the operation). When you sell stocks that you dont own you have a negative position in that stock and you are said to be short. For example if you send a short order of 1000 Shares of MSFT and get filled, you are now short 1000 share (assuming you had no previous tradestransaction in MSFT). You now have -1000 shares in your possession. Short selling in an important tool, which allow traders to take advantage of a declining stockfuture price (sell high, buy low). Without this position, traders would not be able to make money 50 of the time. Since stock prices fluctuate every day, if a trader can only go long, he or she will miss out on at least half of the opportunities to make money each day. Most of the investing public does not know about short selling. This results in a long bias towards investments. Trading firms have more knowledge than the general public in this area. Finally, there are specific rules that apply to short selling securities that we will discuss later in the course. 2.7 Inventory Throughout the day your inventoryposition will constantly change. It varies from a positive amount of shares that you own to a negative amount of shares that you are short of. When you have no inventory or no position we say in the trading jargon that you are flat. Therefore if you had no execution on a stock you are said to be flat. The concept of LongShort and Flat is fundamental to trading. A great deal of the training course will be based on this concept which will be covered in details as the training progresses. 2.8 Unrealized ProfitLoss Every time the NBBO of a stock is moving and you have a position in it, you are incurring an unrealized profit or loss. We call it unrealized because you havent closed your position yet. However the unrealized profit is a realistic view of how much you would make if you would be close your positions and go flat. 2.9 Realized ProfitLoss Every time that a transaction is made in the opposite side of your current position (selling when you are long or buying when you are short) you are realizing a profit or a loss. For example if you are long 100 shares at 11.23 and you sell 100 shares at 11.24 you are incurring a 1 dollar profit. This is called realized profit. Realized profits and losses are accumulating all day. Auction Market The Specialist 3.1 Auction Market An auction market is run by a specialist who is god of hisher particular stock(s). The NYSE and AMEX are examples of auction markets. The specialist knows everything there is to know about the stock(s) he or she trades. A specialists primary job is to match up buy and sell orders. 3.2 Characteristics of Auction Markets A specialist has the authority to halt trading on his stock should conditions warrant such action Orders are matched up in what is known as the specialist book If there are no matching orders in the book, the specialist may buy or sell stocks at hisher discretion however, if an order comes in at the market price, the specialist must fill the order from the inventory of the financial institution that employs him The market will award a stock to a financial institution the financial institution will hire a person to be the specialist for that stock There is only one specialist per stock but a specialist can have more than one stock now it is computerized (Electronic Order Processing) 3.3 The Specialist Book This book which refreshes every second displays all the limit orders (bids and offers) market orders and stop orders are not displayed. This allows you to see all bids and offers placed by all participants. Order filling is not necessarily first come, first served, but with new regulations and electronic order processing, favoritism happens much less frequently than it did years ago. 3.4 The Specialist Responsibilities 3.4.1. Specialist as Auctioneer The specialist continually shows the best bids and offers throughout the trading day. These quotes are displayed electronically and anyone can access them. The specialist maintains order in the crowd and interacts with agents representing customers. 3.4.2. Specialist as Agent A specialist is the agent for all SuperDOT (electronically routed) orders. A floor broker may also choose to leave an order with a specialist to represent it until it can be executed at a specified price. This frees brokers up to concentrate on other orders that require their immediate attention. As agent, a specialist assumes the same responsibilities as a broker. 3.4.3. Specialist as Catalyst Unique to the agency-auction is the specialist as a conduit of order flow. The specialist knows who has been interested in a stock, and keeps track of all known interest. As all buyers and sellers aren8217t always represented in the crowd at the same time, the specialist can call in all interested parties to let them know what has become available in the market. By giving updates to a previously interested party, a specialist helps trades occur where they otherwise might not happen. 3.4.4. Specialist as Principal Specialists, in order to fulfil their role, agree to several obligations. The first is to place and execute all customer orders ahead of their own. At the NYSE, three out of four transactions take place between customers, without the capital participation of the specialist. In the balance of transactions, a specialist participates as principal by providing capital and, thereby, adding liquidity to the market. While they do not supply all the liquidity for the market, or determine the ultimate price of a stock, they use their capital to bridge temporary gaps in supply and demand and help reduce price volatility by cushioning price movement. Dealer Market Market Maker 4.1 Dealer Market A dealer market is one where many participants are competing against each other by posting different bids and offer. The NASDAQ is the most important dealer market in the world where orders are filled through market makers and ECNs. Any Over The Counter market or fully electronic market is also a dealer market. Unlike an auction market, where there is only one specialist per stock, there are many market makers per stock in a dealer market. 4.2 Market Makers A market maker is an individual trader employed by a financial institution to manage the companys inventory of a particular security. They maintain their inventory and use it to make money for the company by buying and selling on the market. A market makers primary responsibility is to provide liquidity to the market to literally make the market they are there to provide a flowing market while following the rules as set out by the FINRA and SEC. 4.3 Market Makers VS Prop Traders The difference between MMs and traders at Proprietary Trading Firms is that market makers have more money and more experience. The MMs that are the most powerful on a particular security are common referred to as the AXEs. They have the same goal as prop traders to make money trading full time. However Market Makers restrictions and responsibilities that prop traders dont have. 4.4 Market Makers Restrictions 1. They must fill orders (bids, offers, buys, and sells) on a first come, first serve basis. 2. They cannot fill orders pre or post market hours. 3. They cannot back away from a level 1 price. (requires more detail) 4. They cannot buy through an advertised price 5. They must appear on both sides of the level 2 between 930am and 4pm. 4.5 Market Makers Responsibilities 1. Buy and sell what the public wants (This refers to retail clients average investing customer) 2. Fill institutional orders (Mutual funds, pension funds, etc) 3. Trade the house account when they are not doing 1 or 2 4.6 Market Markers Sources of Income 1. They earn the least from retail clients the commissions are small and so are the orders 2. The company earns the most in commissions from the institutions they pay a premium for a top trader to execute their orders 3. The market maker the person makes the most from earning money on the house account Without prioritization of responsibilities, retail clients would be ignored and institutional orders would be executed when convenient. Electronic Communication Networks and Dark Pools 5.1 Electronic communication Networks Electronic Communication Networks are electronic systems that display and matches securities buy and sell orders placed on exchanges and over-the-counter by market makers and traders. The highest bid and lowest offer is published on the NASDAQ (National Association of Securities Dealers Automated Quotation) workstation and distributed through information vendors around the world. There has been a lot of consolidation recently in the sectors. NASDAQ which operated Supermontage recently bought Instinet and Brut. The NYSE bought Archipelago. Another example is when NITE, a very active market maker, bought Direct Edge. ECNs are making the market more liquid and competitive. At Proprietary Trading Firms, traders have direct access to all major ECN quotes and they can also post bids and offers on all those ECNs. They are NASDAQ, ARCA, BATS, EDGA, EDGX and TRAC. 5.2 ECNs Features and Characteristics Quotes and Execution (when there is a match) are instantaneous They allow to post bids and offers to advertise on Level II Posting takes milliseconds to appear on the level 2 There is no charge for a trader to post a bid or offer, actually, the trader will get a credit if the order is filled Partial fills are a common occurrence with the more popular ECNs Most ECNs have IOC (Immediate or Cancel) order types 5.3 Dark Pools Dark pools are Alternative Trading Systems that are not publishing their order book publicly. Dark pools are generally used by institutions to try reducing market impact when placing large orders. Dark liquidity pools offer institutional investors many of the efficiencies associated with trading on the exchanges public limit order books but without showing their hands to others. Dark liquidity pools avoid this risk because neither the price nor the identity of the trading company is displayed. Most dark pools also offer advanced algorithm trading to improve chances of executions of big orders. Since there is no book the execution range is based on the NBBO to avoid prints outside of the market See the manual on ECNs and Dark Pools Routing Strategies Basic Software tools and trading concepts 6.1 Level 2 a level beyond With the high number of Market Participants and all the different Exchanges and ECNs, Orders must be organized in a way that allows easy access to information. Level 2 windows are used by all active and serious market participants to access information about limit orders on specific stocks no matter what exchange or ECNs they are trading on. On the Level 2, all the market markers and ECNs limit orders, with the same price and the same side (buy or sell), are called the players of the level, the players being market makers or ECNs and the level being the specific price. On a stock the highestlowest level bidask provided by one or more ECN called the Level 1 BidAsk. The total number of shares on a specific level is called the Size of that level. The Level 2 is screen showing the Bid Levels on the left side and the Offer Levels on the right side. Here is a picture of a Level 2 Screen: Starting from the top left, here is what you see on the above Stock Window: Company name (Microsoft Corp). Stock symbol . An up arrow meaning the stock is on an uptick The change in price compared to the previous closing price L . the current intraday lowest trade price. H . the current intraday high bid price. Volume . the number of shares traded since the beginning of the day Number of shares Market of Execution Each new trade in the market is appearing on top Traders link it to their Level 2 window. We can put more than one symbol We can filter by size, by market, etc The Time and Sales window (to the right) is very important when you combine it with the level 2 screen. It gives you information about the last trades that have been made in the stock. The size and the market are very important because they give you information about where you should place your order to get a better execution. The color gives you information about which side the trades are made: green being the offer and red being the bid. A white print is a trade between the bid and the offer, which is also called the mid-point. All the information in the TampS window is often called the tape. 6.2 Tape Reading Tape Reading refers to getting crucial information and reading between the lines of the TampS window. Traders must adjust their orders in real time according to all the trades in the time and sales. The rhythm at which trades are executed on a specific ECNexchange or where they are executed is also referred to as the order flow. For example, a trader could say that there is a lot of order flow on ARCA or a lot of order flow on the bid. 6.3 Trading Monitor and Position Summary The trading monitor is a window that shows orders and executions. You can select all orders, open orders only, executions or previous days executions. Each line details a different order. Sorting and Filtering can be done when there are many of them. The position summary window shows current positions in stocks. By default long positions are blue and short positions are red and in between parentheses. There is an option to display only stocks with active positions. Sorting and Filtering can also be done here. 6.4 First in First out (FIFO) The concept of FIFO means that in a list, the first one to come is the first one to be served. ECNs work on the FIFO principle. For example, if on NASDAQ there are 3 pending bids of 1000 shares at 25.10, NSDQ will show 30 on the Level 2. If somebody sells 500 shares to NSDQ then the first order of 1000 that was submitted will be partially filled and 500 shares will remain on top of the list. At that time the Level 2 will show 25 on NSDQ. A specific ECN is based on FIFO. However the whole Level 2 does not work like FIFO. For example if you send an offer on NSDQ for 1000 shares of MSFT at 25.11, somebody else could send another offer at 25.11 after you on ARCA and if the next trade happens on ARCA he will sell before you That concept is very important when you come to decide which ECN to use based on how trades are made on a specific stock. 6.5 Volume The volume is the total number of shares executed on one stock since the beginning of the day. It is a good indication of the level of activity when you compare it to previous day average volume on the same stock or other stocks average volume. If you traded 50k volume on a stock that has 500k volume during the days you did not trade 10 of the volume but only about 5 since one trade always has two sides. 6.6 Liquidity Liquidity refers to the ability to buy or sell an asset quickly and in large volume without substantially affecting the assets price. Shares in large blue-chip stocks like Citigroup or General Electric are liquid because they are actively traded and there are always substantial buyers and sellers on the bid and offer. The notion of adding liquidity therefore refers to adding pending orders to the market. Removing liquidity refers to take it away from the market by removing limit orders. Market orders are always removing liquidity. Limit orders are removing liquidity if the bidoffer price is equal or higherlower than the current offerbid on the ECN they are submitted to. While volume can be a good indication of liquidity, two stocks with the same volume can have a liquidity that is completely different. 6.7 Rip, Tank, Swipe A Swipe is the action of taking all the liquidity available on the bid or the offer in a single transaction. For example if a stock has a bid of 25.10 and an offer of 25.11 and there are a total of 14200 shares for all participants on the offer, A market maker could decide, the price being too low, to buy everything at 25.11 with a single order. Normally he will then place a buy order at 25.11 and the bid-ask will now be 25.11 to 25.12. A Rip is a sudden increase in price on a particular stock. When that happens, all the trades are happening on the offer (active buying on the stock) and market makers and ECNs are showing higher bid and offer for the stock. More than one Swipe can happen on a rip. Rips usually happen when there is a unexpected good news on the stock. A tank is the opposite of a rip and it happens when the stock is going lower because almost every trade happens at the bid and Market Makers and ECNs are lowering their bid and offer. More than one Swipe can happen on a tank. Tanks usually happen when there is an unexpected bad news on the stock. The main aspect of Rips and Tanks is that they happen so quickly that most traders have no time to react. Losing 5 cents on a tank when you are long is different than losing slowly cent by cent when the stock is going down. 6.8 Volatility Volatility refers to how much movement there is in a stock. The more volatile the stock the more it is going up and down. More volatile stocks are this riskier it can be for traders but they can also be good opportunities for profit. The volatility of the market is also important. On slow moving days where the market is not volatile, traders should not try to go for the long shot. The VIX is the volatility index measuring the implied volatility from all the options traded in Chicago. The level of the VIX will tell you how much the market is volatile. Normally when the market is going down and there is fear among participants the VIX is going up. VIX is going down when the market is stable or going up slowly. 6.9 Gateways A gateway is a trading route. Each individual ECN is a Gateway. NSDQ is a gateway and BATS is also a gateway. When a connection to a specific gateway fails, no order can be sent or cancelled. Therefore the risk controllers need to handle all the orders by phone. The gateway itself can also fail. In that case no trader in the world can send or cancel orders. 6.10 Execution System The execution system sends confirmation of pending, filled and cancelled orders to the market participants for a specific ECN. The Proprietary Trading Firms Execution System is sending back confirmations concerning all the consolidated gateways to all the traders at Proprietary Trading Firms and then, modifies each account properly. 6.11 Books A book is the name used for the window containing orders information on a specific gateway. When you have this information available, you say that you have the book. At Proprietary Trading Firms we have access to the NASDAQ book, the Arca Book, The Bats book, the EdgX Book, the EdgA Book and the New York Book. An ECN book is like a level 2 but shows the information for only one ECN. Therefore individual orders on the same price level can be shown in detail instead of being combined. Such a feature is available for the NASDAQ book if you subscribe to it online. 6.12 Retail Traders and Prop Trader Nowadays most traders have the ability to access all ECNs and to send order to each one of them. However, most traders are retail trader. Retail traders are like the traders at Proprietary Trading Firms except that they trade from home with their own capital and a broker. They normally pay high commission relative to the prop trading world. Also, they normally dont receive rebates from ECNs (more on that later). They therefore need a lot of capital and a lot of experience. Proprietary traders use capital from a trading firm and they share the profits they make trading the market. The Job of proprietary trader is to watch what is happening on different Level 2 and Time amp Sales windows for specific stocks and send orders that allow being long or short at a good price. It might seem like a simple definition but recognizing opportunities and good prices are very complex. It will take some time to develop that instinct to find those price points. You need to buy low and sell high. However, before you can do that you need to know what is high and what is low In some market conditions you might want to buy high and sell higher. Experience will teach proprietary traders when to send their order, at what price and on what gateway based on the information available. There are many buyers and sellers on the market and they dont always see each other. Proprietary traders buy from active sellers who dont have enough information and market access tools to know that there are also active buyers in the market. Proprietary traders are making money because they facilitate trading between uninformed traders. The profit they make is basically the average difference between the bid and the offer. 6.13 Arbitrage Arbitrage refers to instantaneous and risk free profit. It is basically like picking up money that you find on the sidewalk. There are many types of arbitrage. Interexchange arbitrage happens when a stock is trading on more than one exchange. There is a chance that a participant on one exchange bid higher than the ask price on the other exchange. In this situation all you have to do is take the offer price on one exchange and sell at the bid price on the other. This is called pure arbitrage. However unless you are able to send 2 orders at the same time you always have the risk for the bid to be cancelled before you have time to get it. Semi-arbitrage is more common and we take advantage of it almost every day at Proprietary Trading Firms. This happens when there are people selling on an exchange (not offering but selling at the bid) and other people are buying on another exchange (taking the offer) while bid and offer are the same on both exchange. If there are not too many orders on the level 1 bid and ask this is normally a quick way to make money by buying from the sellers on exchange A and selling to the buyers on exchange B. There are many other types of arbitrage like risk arbitrage, statistical arbitrage, index arbitrage, etc. More information can be found on the internet and in Microstructure of the Financial Market by Larry Harris. 6.14 Lots, Round Lots, Odd Lots Lots refer to a specific standardized number of shares. 100 shares is usually the smallest regular lot traded on the different stock exchange. Round lots orders or trades refer to a quantity of shares in multiple of 100, for example 1200 shares. Odd lots are the opposite, for example 1238 shares. The expression can also be used in other circumstances, like buying in 1k 5k or 10k lots. It is illegal as a prop trader to enter a position with an odd lot. However if you have been partially filled and have an odd lot position you can exit it legally. 6.15 Cross Lock We say that the market is locked when the bid on one exchange or ECN is equal to the ask on another ECN or exchange. That is to say that there is a limit order at the bid on a specific ECN or Market Maker that has an equal price to a limit order on the offer. Only some ECN allow locking the market. Locking the market is a common practice on small stocks on the NASDAQ. It sometimes also happens on the NYSE. It used to be that when the market was locked you could see it on the level 2. Nowadays the ECN that is creating the locked market is not allowed to display the quote on the level 2. The only way to know that a market is locked is to send a small order in the opposite side to the ECN we expect to be locking and get a fill. Crossed markets happen when the bid price on one exchange or ECN is superior to the ask price on another ECN or exchange. This is pure arbitrage and does not happen too often. It is also good to note that it is rarely on big orders. Most ECN and dark pools prevent executions outside of the NBBO. 6.16 Rebates Now that you know about ECNs, Level 2 and all the related concepts, the subject of rebates can be discussed. Rebates are part of some type of profit sharing program with the ECNs. They are an incentive to add liquidity to the market. To encourage people to add liquidity, ECNs pay rebates to the market participants that are adding liquidity. They pay around 2 for each 1000 shares that add liquidity (rebates are different for every ECN). Conversely, they are charging around 3 to remove liquidity from the market. Therefore when a trade happens, they get 3 from the liquidity remover, pay 2 to the liquidity adder, and keep 1 for themselves. Rebates are more popular on the NASDAQ and they are a lot lower on the NYSE. Without rebates, the market would be a lot less liquid. Rebates are constantly changing and the managers can provide a sheet to you with all the details. This is called the rebates Schedule. Now you probably know why people are locking the market. This is because you can make money by buying and selling at the same price if you add liquidity on both sides. The more shares you trade and the more you will realize that this can add up pretty fast. For a good trader it is not hard to make over 500 dollars in rebates every day. However, since you are playing with more shares with a smaller profit margin your loss can be considerable when you are on the wrong side. Rebate trading with slow moving stocks is a good way to learn how to trade when you first start. It lets you make a lot of trades on different ECNs while you dont necessarily have to know all the time which way the market is going. As you are gaining experience, after watching the level 2 for weeks you will start to get a feel for the right side to play the stock. You will start to see patterns that you were not able to notice before. A lot of trading strategies rely on rebates and we will elaborate on them later in the course. Market Indicators Information Concepts 7.1 Indexes and Averages For day trading purposes we will refer to an average or an index as meaning the same thing. There are slight technical differences between the two however, they are not relevant to day trading. So, what is an average It is a group of stocks averaged out to help us get a general indication of market sentiment. There are many different indexesaverages: The most widely known ones are: DJIA Dow Jones Industrial Average SampP 500 Standard and Poors 500 NASDAQ Composite All the NASDAQ stocks NASDAQ 100 NASDAQ top 100 Russell 2000 Small cap stocks 7.2 Dow Jones It is an old established private company, which provides many services to traders and the financial community. They do market research come up with averages and other market indicators. The reason the DJIA is so widely known and powerful is because of the reputation and credentials of the company. They are known for strong and reliable analysis. Anyone can come up with an index. However, the reason we all look at the Dow is because they are well known and established. The Dow Jones is not just NYSE stocks. MSFT and INTC are also in the average. Many traders make the mistake that DJIA is the NYSE. It is not. There are 30 stocks in the Dow Jones Industrial Average. They pick leaders in each of the different sectors. Example: who is the leader in soft drinks Coca-Cola. And yes, they are in the Dow 30. Who is the leader in fast food McDonalds is also in the Dow. How about building and home renovations Home Depot is also in the Dow. Who is the leader in retail Wal-Mart, which is also in the Dow. 7.3 SampP 500 SampP is another private company like Dow Jones, which does financial research and creates indexes. SampP stands for Standard and Poors. The SampP 500 is the most widely watched index in the world. The 500 stocks that SampP have selected to be in this index are also leaders in their fields. Once a stock is in the SampP 500 they will stay there until they are no longer a leader in the field (decided by the SampP). Standard amp Poors is widely recognized as a leading provider of indices. SampP indices are used by investors around the globe for investment performance measurement and as the basis for a wide range of financial instruments. The SampP 500 Index is strongly representative of the sentiment of the broad, or general, stock market. Widely regarded as the standard for measuring large-cap US stock market performance, this popular index includes a representative sample of leading companies in leading industries. Important points about the SampP 500: Most liquid instrument in the world after the US dollar All fund managers are compared to the SampP 500 If you add a stock to the SampP 500 that stock goes through the roof. (Go and find out which stocks have recently been added to the SampP 500, and how much the stock went up the day they announced that they were going to be added to the index.) This is because many index fund managers will have to buy the stock Why are stocks dropped from the SampP 500 Usually because they were merged or bought out by another company already in the index. 7.4 Futures A futures contract is a trade made in the present, for an item that will be delivered at a later date. In other words, two traders agree on a price, one of them agrees to buy, and one of them agrees to sell. The actual item being traded does not change hands. It is agreed that the seller will provide the item, and the buyer will take delivery of the item at a pre-set date in the future, for a price, which is agreed upon at the present time. In simplest terms, futures are traded by agreeing on a price in the present, for an item that will not actually be ready for delivery until a specified date in the future. At the Chicago Mercantile Exchange, futures contracts are traded on the SampP 500 Index. This is all students need to know, and arguably more than they need to know in order to use the SampP 500 Futures as a leading indicator. 7.5 SampP 500 Futures SampP 500 futures can be a powerful leading indicator for stock traders. After the US Dollar, they are the most liquid trading vehicles in the world and as such, they represent the sentiment of the broadest array of market participants at any one given time. By observing the price action of the SampP 500 futures, traders will notice that more often than not, stock sectors and individual stocks will tend to follow the movement of the futures. Perceptive traders will learn to recognize this correlation, and use it to successfully anticipate price movements. The symbol for the SampP 500 futures is SP XX (the first x being the letter representing the quarter in which the futures expire and the second x being the last digit of the year in which the futures expire) The letters H, M,U, Z represent the last month of the four quarters (March, June, September, and December) respectively The electronically traded SampP futures follow the same formula, ES XX The electronically trade NASDAQ 100 futures use the symbol NQ XX Futures expire on the third Friday of the last month of each quarter the third Friday of every third month 7.6 Squawk Box Many trading offices around the world will use something called a squawk box to acquire more knowledge about where buying and selling pressures are coming from. The name refers back to classic boxes which offices use to use attached to a telephone which had microphones on the trading floor. An announcer would call out all the major players on the floor and their actions. This was to remove some of the edge that the floor traders had in reaction quickly to order flow when the back offices had to wait for quotes. This system was extremely costly and not the most reliable. The squawk box went through many evolutions until it has reached todays standard: Ben the Squawk. So what is Ben the Squawk The better question to ask is who is Ben Ben Lichtenstein is a Pit announcer who announces from the SampP500 futures pit on the Chicago Mercantile Exchange. He calls out all the major transaction and what he sees happening on the floor. Lets go through his calls and what they mean. The first thing to understand is there are two types of pit traders. Locals : Locals are either self-funded or have money from some unknown resource or investor somewhere that funds them. They may represent someone else but it is not advertised. Paper : Paper represents institutional traders such as those who are funded by big banks, pension funds or other large financial institutions. Now it is important to understand that locals and paper are working with each other most of the time. If one major paper player buys, you can expect others to push with him. Locals also have no choice to gang up against paper in the pits since they are financially limited. There is however, one exception to the rule. When Ben says Ive got one of my top Teners stepping into the pit be very attentive. A top Teners is one of the top 10 SampP500 futures traders in the world. These traders are experienced, extremely aggressive and most importantly, extremely well funded. No matter what their strategy is, expect the market to move in a direction. Certain traders place only one trade a day or none at all waiting for a top Teners. So now that we know the players in the pit, we have to learn the calls and what exactly Ben is saying. You will consistently hear Ben say things like paper comes in and buys the halfs 200 times. This means an institutional buyer came in and bought 200 contracts of the .50 price. Lets go through the list of pricing calls. Ben calls out the ticks of the SampP futures. 4 ticks make a point. We are interested in hearing at which tick the market is. Twenties and thirties: 950. 25 Seventies or eighties: 950. 75 Generally Ben will always be calling out the bid and offers. He will say something like 6 even bid at a half . This could indicate a 956.00 bid and an offer at 956.50. Lets continue with the calls. Paper comes in and sells 500 evens, paper take them, more to sell, aggressive sellers This means an institutional trader comes in and sells 500 contract at the evens and locals are trying to push back against him. Problem is he is aggressive and wants to push the markets lower. Locals are stuck they need to buy This means the locals are stuck in a short position and have to buy the contracts to unravel their positions. Watch for a short squeeze. Im seeing those low prints coming in right now This means a paper or local got stopped out of their position and had to sell market. This can sometimes show a bounce coming in. Goldman is looking Goldman looking OR Goldmans on the phone, looks like an order Watch out for a large order to come in. Any time a large paper gets excited, it means a move. Anytime a trader gets on the phone, this means an order is coming in from the back office. Every trader uses the squawk in his or her own way. Certain traders find it clouds their judgment and others cannot trade without it. The squawk box is extremely daunting at first and can be hard to understand but with experience, Bens words become images and a clear and concise idea of what the traders in the pit are doing becomes possible. 7.7 General Market Information Concepts There is so much information when you trade the market that knowing which one to consider and how to work with it is essential. In this section we will concentrate on information outside your Trading Software. You can get information on Bloomberg, Yahoo Finance, The Squawk Box, and Trade the News. 7.7.1. News Generally there are two type of news: news affecting the market in general and news affecting you stock or its sector. The first thing you need to know is that it is almost impossible to be fast enough to make money by buying a stock immediately after a good news release. This can be largely explained by the concept of market efficiency. There are at all times hundreds of traders watching the same stocks and screening for news on it. As soon as there is a news event they all react and the stock moves instantly. Moreover the exact hour when news happens is most often known in advance because of SEC regulation on Earning releases and Press Releases. We could even say that it would be more advisable to sell on good news and buy on bad news since most people tend to overreact. Traders with experience will be able to judge if most of the buying or selling on a news release has been done. Therefore they will know if the move is over or if there will be more to come. Watching the order flow on a news event is essential since the action is big and fast. Because of all those reasons it is preferable not to trade stocks with news when you are still a trainee. 7.7.2. Correlation Correlation is a statistical concept to evaluate the relation between two data series. Correlation varies from -1 to 1. The more positive the correlation is the more the data is moving in tandem. For example if ABC and CDE stock have a correlation of 1, that means that if ABC goes up 1 CDE will also go up 1. There are no stocks like that in the market. However there are correlations of 60 or 70. Meaning 60 of the movement in one is explained by the movement in the other one. There is also negative correlation for example, Oil price can be negatively correlated with airlines stocks. The more you will watch the market and the more you will learn about different correlation relations. You will also learn which stocks react first on good news for the sector. These stocks are called the leaders of the sectors. The last ones to moves are called the lagers. On average all stocks are normally correlated 0.6 with the market. That explains why they all move in tandem. That 60 of all the stock movements is called the Systematic risk and cannot be reduced by diversification alone. The remaining 40 has one part explained by the sector and the other by the stock itself. That part is called non systematic risk. This notion is essential since it explains why some stocks are going down even if they have good news. If the market is tanking dont expect your stock to go up as much on good news as if the market was stable. 7.7.3. Expectations The stock market is not based on current data but on expectation about the future value. That is to say that most current data is already included in the price of the stock. In the trading jargon we say it is baked in the cake. If market participants assume that Microsoft will have good earning they will buy it in advance to profit from it and they will therefore make the price go up. On the news the stock is already at a high price and if the profit are very good but less than the people who bought it expected then the stock will go down. That is why there is a popular adage on Wall Street that says: Buy the Rumors, Sell on the Fact. If you dont understand the concept of expectation you will be surprised by stocks and markets movements when there is a news announcement 7.7.4. Fed Meeting When the Federal Open Market Committee (FOMC) meets to modify the interest rate in the US there is normally a lot of activity and movements on the news. Since traders know in advance at what time the news will be out they tend to be flat before. On the news, they buy or sell according to what they think the market will do. As a proprietary trader you should be very prudent and not carry big positions before the announcement. 7.7.5. Stock Screeners Stock screeners are software that allows you to find stocks based on different criteria. Yahoo Finance and moneycentral have good Stock Screeners. When you are looking for stocks today trade you should at first require the stock to have volume. 1 million is normally the minimal. Then you should choose a range. You can also search stocks per sector. The good traders will always find new stocks to trade. You would be surprised how stocks can changed in a year as much in price, patterns and volume. The stocks you are trading today might not be tradable in two weeks. Moreover when there is a lot of money on a stock traders tend to all jump on it and therefore it becomes efficient and less money can be made if you are slower. Another good way to find stocks is to look at the most active list on the Yahoo Finance. While those stocks are often stocks with news they are good to keep in mind as the interest and volume might still be there for a week or two. Risk Management Risk is a measurable possibility or probability of losing or not gaining value. Risk is differentiated from uncertainty, which is not measurable. In trading there are many types of risk. Here is a list: Risk of a movement of the market against your position Risk of a news affecting your stock in the wrong direction Risk of liquidity going away when you have many shares to trade to close your position Risk of power loss Risk of software failure Risk of gateway failure Risk of Network failure Risk of hot keys errors 8.2 Risk Management The goal of a proprietary trader is to reduce risk. This is called risk management. Here is a list essential to good risk management: Limit averaging down if the market is going against you. Never average down more than once and do it on sharp moves and not on slow moves. Try to trade more slowly when you are close to the Max Loss point since Max Loss will keep you from trading and making money for the rest of the trading session. Cut your loss at the market when you reach your Max Loss Limit or your Use Time Stops for your trade. That is if you stock does not move and you are waiting for a long time you should try to get out and trade stock on which you will make more trades and money. Use mental trailing stops: do not allow a big winning position to come back and become a losing one. Do not accumulate more share than the stock can handle. Organized hotkeys properly and use only the num pad, the F keys, the Shift and the Ctrl. Pay attention to the size of your average winning trade and make sure it is bigger then your average losing trade. If your losers are too big that means you are using the wrong exit strategy. Look at your win loss ratio. Make sure you read all the news on the stocks you trade before the market opens. Watch the SampP 500 futures closely. Reduce your trading size when you are on a bad streak. Avoid trading too many stocks at the same time. Avoid leaving your computer when you have positions or pending orders. 8.3 Extended Hours Trading Risk Disclosure 8.3.1. Risk of Lower Liquidity: Liquidity refers to the ability of market participants to buy and sell securities. The more orders there are available in a market, the greater the liquidity. Liquidity is significant because with it, it is easier for traders to buy or sell securities, and as well, it is more likely for the trader in question to pay or receive a competitive price for securities bought or sold. There will be lower liquidity in extended hours trading as compared to regular market hours simply because the tremendous amount of buying and selling done by the market makers and specialists is no longer part of the equation. As a result, your order may only be partially executed, or not at all. 8.3.2. Risk of Higher Volatility: Volatility refers to the changes in price that securities undergo during trading. In most cases the higher the volatility of a security, the greater the price swings, the greater the potential for large profits and large loss. There may be increased volatility in extended hours trading than after the regular trading session has closed and as a result trader orders may only be partially executed, or not at all. Furthermore, traders will often run the risk of receiving a price in extended hours trading inferior to one likely to be obtained during regular market hours. 8.3.3. Risk of Changing Prices: The price of securities traded in extended hours trading may not reflect the prices either at the end of regular market hours, or upon the opening of the market the next morning. As a result, traders receive an inferior (or admittedly a superior) price in extended hours trading than you would during regular market hours. 8.3.4. Risk of Unlinked Markets: Depending on the extended hours trading system or the time of day the prices displayed on an extended hours trading system may not accurately reflect prices available worldwide. There may be substantially different prices available on other concurrently operating extended hours trading systems dealing in the same securities. So once again, the price the trader may receive for a particular security may be inferior or, again superior, to a price available on another extended hours trading system. 8.3.5. Risk of News Announcements: Issuers normally make news announcements likely to affect the price of their security after regular market hours have concluded. Important financial information is similarly announced outside of regular market hours to foment stability of trading. In extended hours trading these announcements occur thus during lower-volume trading when this is combined with the naturally higher volatility it will likely cause an exaggerated and unsustainable effect on the price of that security. 8.3.6. Risk of Wider Spreads: The spread refers to the difference in price between what you can buy a security for and what you can sell it for. Lower liquidity and higher volatility in extended hours trading may result in wider than normal spreads for a particular security. 8.4 Max Loss, Max Shares and Buying Power 8.4.1. Max Loss Proprietary Trading Firms is using a statistical system to come up with a maximum day trading loss for each trader. Depending on your previous performance as a trader, you Max Loss will vary. The Max Loss is the maximum amount you will be allowed to lose in a day before you have to stop trading. If your Max Loss is 50 Head Office will cover your positions if you are losing 45 (90 of your 50 Max Loss). When you are in a situation where you are close to reach your Max Loss you will always be advised before your positions are closed. 8.4.2. Buying Power As you start as a trainee you will be provided with a minimal Buying Power (BP). Buying Power is the maximal dollar amount you can have for all the positions. You will not be able to buy more than what your BP will allow you. This buying power will increase as your trading profit increases. Buying Power Improvement is done by the manager on a case by case analysis of your situation. If you feel your Buying Power is too low, you should discuss about it with him. You have to understand that traders have a bigger BP because they are making more money on the market and not the opposite. Giving a high BP to somebody with not enough experience could be very dangerous. 8.4.3. Max Shares Max Shares is the maximum number of shares you can send an order for. For example is your Max shares is 300 you will never be able to send an order for 400 shares or more. You can post more than one order for 300 shares and get filled on all of them if there is a swipe. However you will have to get out of this position by more than one order. Traders that are using multiple orders to intentionally get double and triple fills will be disciplined. Max share are there to protect you before you get experimented enough to manage more shares. Max Shares is also modified on a case by case basis. Rules and Compliance 9.1 Regulations There are many regulations in the financial market to make it fair for public investors. With no regulation the public would quickly lose confidence in the fairness of the market. In the U. S. there are two main organizations that are responsible for regulating the stock market, The Securities and Exchange Commission (SEC) and the The Financial Industry Regulatory Authority (FINRA). 9.2 The SEC The SEC is a federal agency created by the Securities Exchange Act of 1934 to administer that act and the Securities Act of 1933, formerly carried out by the Federal Trade Commission. The statutes administered by the SEC are designed to promote full public disclosure and protect the investing public against malpractice in the securities markets. Their mission is therefore to protect investors and maintain the integrity of the securities markets. More information on the SEC can be found on their website at sec. gov . 9.3 The FINRA The Financial Industry Regulatory Authority (FINRA) is a self-regulatory organisation (SRO) under the Securities Exchange Act of 1934, successor to the National Association of Securities Dealers, Inc. (NASD) FINRA is responsible for regulatory oversight of all securities firms that do business with the public professional training, testing and licensing of registered persons arbitration and mediation market regulation by contract for The NASDAQ Stock Market, Inc. the American Stock Exchange LLC, and the International Securities Exchange, LLC and industry utilities, FINRA was formed by a consolidation of the enforcement arm of the New York Stock Exchange, NYSE Regulation, Inc. and the NASD. The merger was approved by the United States Securities and Exchange Commission (SEC) on July 26, 2007. With respect to the regulatory agency merger, SEC Chairman Chris Cox said, 8220The consolidation of NASD8217s and NYSE8217s member firm regulatory functions is an important step toward making our self-regulatory system not only more efficient, but more effective in protecting investors. The Commission will work closely with FINRA to eliminate unnecessarily duplicative regulation, including consolidating and strengthening what until now have been two different member rulebooks and two different enforcement systems 9.4 Regulations at Proprietary Trading Firms As a trader at Proprietary Trading Firms you have to comply with all the Rules and Regulation of the SEC and FINRA. Any trader refusing to trade according to the rules and regulations will be terminated immediately. Proprietary Trading Firms has terminated traders before. Compliance is a serious issue as it jeopardizes the reputation and existence of the whole company Traders with bad intention will always try to find ways not to follow the rules and make money illegally. However there are many tools that the managers of Proprietary Trading Firms are using to find out about those traders. Head office will also look at the list of trades for any suspicious profit. The SEC and FINRA are also constantly monitoring all the communications in all trading firms including Proprietary Trading Firms. 9.5 The main rules that traders will have to follow are: Do not engage in Wash Trading Do not trade with other traders inside the firm intentionally Do not short IPO in the first 30 days of trading Do not manipulate the closing price Do not trade personal account with another broker during working hours Do not contact people to make trading recommendations 9.6 Broken Trades Trades can be broken or cancelled if they were caused by a software mistake and if they are too much away from the market. The FINRA makes decisions on NASDAQ and Market makers, and ECNs have jurisdiction over trade breaks on trades made through their execution system. You will sometimes see on the ticker trades that are obviously out of the market. Most of them are cancelled. However Illegal trades cannot be broken because in general, one participant in the trade entered into the trade in good faith and will not want it broken as such, it would be unfair for the SEC or the FINRA to break the trade. There are four main types of illegal trades: Trading on insider information. Not declaring a short sell. If a trader goes from a long position to a short position (accidentally or on purpose) without being flat in between, the trader has not declared the short sell because Proprietary Trading Firms Trader placed the offers as normal offers and not short offers. There is now a mechanism in Proprietary Trading Firms Trader to avoid that to happen Short selling an IPO within the first 30 days Wash trading: Intentionally buying and selling within Proprietary Trading Firms is not permitted it may happen from time to time however, intentional wash trading is illegal. In general, wash trading benefits one trader at the expense of another Chapter 10 Trading Psychology 10.1 Mindset It is difficult for beginning traders to accept, but the tools that are essential to successful Day trading do not necessarily come in the form of strategies but from having the right mind set. Experience offers substantial evidence of the importance of both focus and discipline but many new traders still find it hard to accept. Without focus and discipline, there is no point in learning strategies. Traders must be aware that day trading involves short-term, split-second decision making within a context that is often filled with contradictory information. So, the two main psychological skills that a trader must have are: the ability to remain focused the ability to remain disciplined. 10.2 Focus Opportunities can present themselves at any time and a successful trader will be able to remain focused throughout the trading day so they will be ready to take advantage of them. A focused trader can analyze opportunities based on strategy amp probability and then be able to execute the trade automatically due to well practiced keystroke skills and focus. 10.3 Discipline There is no secret or miracle method that works all the time. No matter how smart you are or how much you know about the market, DISCIPLINE is the key to your SUCCESS. What do we mean by DISCIPLINE Cutting losses every time a trade goes against you. Admitting that your entry point was wrong and exiting the trade immediately Scaling down when things are not going your way (Example: trading 1000 shares and scaling down to 500 share lots). Stop trading when you reach your Max Loss on the day Cutting losses is basic discipline and the key to become a successful trader. 10.4 Behaviors that leads to unsuccessful trading Refusing to define a loss. Not liquidating a losing trade, even after you have acknowledged the trades potential is greatly diminished. Getting locked into a specific opinion or belief about market direction. From a psychological perspective this is equivalent to trying to control the market with your expectation of what it will do: Im right, the market is wrong. Revenge-trading as if you were trying to get back at the market for what it took from you. Not reversing your position even when you clearly sense a change in market direction. Not following the rules of the trading system. Planning for a move or feeling one building, but then finding yourself immobilized to hit the bid or offer. Not acting on your instincts or intuition. Establishing a consistent pattern of trading success over a period of time, and then giving your winnings back to the market in one or two trades and starting the cycle over again. 10.5 Skills to be acquired Learning the dynamics of goal achievement so you can stay positively focused on what you want not what you fear. Learning how to recognize the skills you need to progress as a trader and then stay focused on the development of those skills, instead of the money, which is merely a by-product of your skills. Learning how to adapt to respond to fundamental changes in market conditions more readily. Identifying the amount of risk you are comfortable with 8211 your risk comfort level 8211 and then learn how to expand it in a way that is consistent with your ability to maintain an objective perspective of market activity. Learning how to execute your trades immediately upon your perception of an opportunity. Learning how to let the market tell you how much is enough, instead of assessing the potential from your personal value system of how much is enough. Learning how to structure your beliefs to control your perception of market movement. Learning how to achieve and maintain a state of objectivity. Learning how to recognize true intuitive information and then learning how to act on it consistently. 10.6 Goals Traders who set goals will be more successful than those who do not and, traders who record their goals and refer to them will be more successful than those who simply state goals. Start a Day Trading journal to keep track of your goals, your mistakes, your rules and your lessons. Characteristics goals should have: Goals need to be Specific so that they can be easy to describe and easy to Visualize Goals need to be Set at a High Level but on also need to be Realistic so that they can be Attainable It is easier to make a Commitment when a goal is Written than when its only a thought. There needs to be a Time Horizon for the goal to be reached and different Time Steps with objectives A Plan is required to know how we will reach each objective. 10.7 Emotions experienced when starting trading 10.7.1. Anger the stock moves against you as soon as you buy itshort sell it cant get into a position cant get out of a position hit a key and nothing happens execution system (NSDQ, ARCA, etc.) goes down 10.7.2. Frustration not getting hotkeys hitting the wrong key execution system goes down buying or selling when you dont intend to 10.7.3. Anticipation cant wait for a new trading day dreaming about the Level 2 windows waiting for a stock to reverse making profit and wanting to make more 10.7.4. IncredulityAmazement when you make a mistake and make money going from long to short and you make money Watching a stock go updown 1, 2, 5 or more points in a few secondsminutes. 10.7.5. Elation when you make your first real trade when you make your first real winning trade when you accurately predict a move in a stock and profit from it when you see your balance at the end of a profitable dayweekmonth when you see that you are doing much better in your second or third month 10.8 Getting Started 10.8.1. Dos and Donts Do stay positive Do stay inquisitive Do learn from every trade Do write a new rule in your journal every time you make an error Do stop any pattern that hinders your trading Dont beat yourself up theres always a great trade waiting 10.8.2. Daily Prep Read your rules daily Review your trading journal daily Leave your emotional challenges at home Let all your trades be either earning trades or learning trades (or both) Stay disciplined Stay focused 10.8.3. Money Management know what you are willing to risk and stick to it never double up on losers never take your loses home at the end of the day Develop your own style: keep a journal print your blotter every day to analyze it every night read everything do pre and post trading day preparation take responsibility for your own actions accept failure accept success Follow the Market: Focus on Level 2 pattern and order flow in the time and sales window the trend is your friend know the intraday trading cycles and your own trading cycle Use indicators, indices, relative strength, squawk, etc. 10.9 Psychological Hurdles not defining a loss before executing trades not taking a loss or a profit when the market has reached your exit point (on either the upside or the downside), you must take your profit or loss getting locked into a belief going into hope mode trading on inside information or taking a tip kamikaze trading euphoric trading regret trading revenge trading being more concerned about being right than making money trying to be perfect losing confidence not consistently applying your trading system not being in the right state of mind know that you can control some things and that you cannot control other thing, but stay positive 10.10 The 3PEPIPHANY Approach The 3Ps in the 3Pepiphany approach stands for: persistence, preservation and patience it represents both the advantages and disadvantages of rigidity in proprietary trading. 10.10.1. Persistence Persistence is being able to continue trading despite obstacles like frustration and low morale. Students will often forget that trading involves each minute of each trading day if there is to be any profit taking at all at the beginning and they will begin missing days or parts of trading days. Some students will come in late each morning or leave at lunch. Some will leave before the market close. Many traders forget that this process is a long one and that they should be prepared to remain without profits for several months. Often traders have not seriously considered the average period of time it takes to become profitable and they will decide to quit. On the other hand many times students will not know when to quit and will continue to throw good money after bad and dig themselves into a deeper intraday hole. Experienced and successful traders have often said that while it is important to be persistent, it is equally important not to be obstinate and to learn how to sit on ones hands or simply walk away. 10.10.2. Preservation Preservation is the most basic defensive mindset and must be adhered to from the beginning if there is to be any retention of experience and discovery of a trading style. No matter the amount of wealth a trader has, it will be difficult for him to justify spending thousands of dollars a week on trading. Traders who are serious about trading will have to adopt capital preservation as their primary short-term goal. Again, though, a balance must be struck as over-preservation can lead to a limiting of opportunities. Preservation is almost totally useless if it does not have a predetermined acceptable, maximum loss. 10.10.3. Patience Patience is essential for anyone hoping to become a successful proprietary trader. New students often trade aggressively for the first day or two as they familiarize themselves with the trading process. This is okay as it allows them to become acquainted with the different execution systems and allows them to practice their keystroke speed. However, traders must develop patience eventually and not jump into positions without reasons. Once patience is adopted the number of trades may drop but the traders net profit will increase. As well, when traders become profitable regularly their losses, while fewer, are often larger in size. 10.11 Battle Plans Battle plans are tremendously useful to new traders who have not yet found a trading style. They can adapt 3Pepiphany approach and quantify it to meet their individual needs. A battle plan will provide a self-imposed guideline on a trader who is too inexperienced to be able to read the concealed intricacy of sudden market manipulation and movement. When traders first start live trading in the practical class they should have some idea of what they are interested in trading. At that point, however it is too early to implement a restrictive battle plan as that would prevent them from exploring the market and finding securities that present learning opportunities. Volatile stocks should be eliminated. The initial battle plan should then include: Stocks not to play Sector(s) to explore Search Criteria for an ideal stock(s) to watch and trade for the course Once appropriate stocks have been found, and classes usually tend to gravitate to one or two stocks, the next step is to formulate an active battle plan to follow. Formulating the battle plan is only the first and easiest, phase. The battle plan should include maximum losses per trade, maximum daily losses, trailing-stop losses, objectives for the day and any other relevant, quantifiable goals. To be a successful trader one must accept that the majority of trades executed will be losing trades. By accepting this fact the trader will be better prepared to limit the negative impact of these trades will have on both equity and ego. A trader should always try to maintain a sense of control and following their battle plan will help them to achieve success. The battle plan also helps on the micro level. A trader should get into a trade with a reasonable expectation of a certain result. If they go long, it is in the assumption that the stock will be going up in price. They should immediately offer it out at the level (a reasonable level) they think it will go to. They should also have a maximum acceptable loss while they wait to see if the plan will come to profitable fruition, no more than 0.02share. Students should also understand where buying and selling occurs in certain market conditions. Assume for a moment that a trader has bought at the ask price and now intends to offer out the stock to sell also at the ask. The minute that the stock begins to tank, the trader should recognize that the trade has gone against him and he should attempt to sell at the bid in order to flatten out. The tendency for the inexperienced trader is to chase the stock down by posting offers at each price level during the process. NO ONE WILL BUY A STOCK AT THE ASK IF IT IS FALLING QUICKLY IN PRICE. The novice trader must remember that in order to minimize losses he must cover bad trades immediately by forcing a sell (if he is long) or forcing a buy (if he is short). The tendency to chase stocks up at the bid and down at the ask is referred to as the spend a quarter to save a nickel mindset. Novice traders, eager to save the spread by buying a stock at the bid, chase a stock up by placing a bid, then canceling as the price moves up to the next level and finally by placing another one. This process is repeated several times until, finally, the trader is filled. Why was this trader filled The stock quit moving and the more experienced traders, anxious to take their profits, sold to those unfortunate enough to be at the bid. NO ONE WILL SELL A STOCK AT THE BID IF IT IS RISING QUICKLY IN PRICE. Experienced traders will often say that the first step in becoming constantly profitable that they ceased to be shaken out of position by jiggles or sudden manipulation of price movements. When traders become more experienced their plan will become less rigid and may only include the name of the stock, the relevant research on it and a profit goal along with a maximum loss. The battle plan must be tailored to the individual and it must have a point to it. It must come from the trader. Traders who are forced to use a battle plan will most likely not be comfortable because they do not believe it is necessary. One of Proprietary Trading Firmss most successful traders once pointed out that people trade their personalities, which is the only reason a students trading plan should be theirs, not somebody elses. 10.12 General Trading Axioms Trade stocks that have good volume and are liquid you can get in and out quite easily. We suggest 1 million or more shares traded per day on average. Take consistent small profits instead of waiting for that one big trade. No overnight positions period. Limit losses (trade with discipline). Buy into strength and sell into strength by paying the ask price and offering at the ask. Have more than one reason for getting into a position. Do not trade stocks you are completely unfamiliar with. Focus on entry and exit points. Do not focus on profit or loss. Dont trade IPOs. Dont trade in the first 10-20 minutes if you are inexperienced seek direction first. Dont hope a stock will do something. Make decisions based on what the market is actually doing. Be very careful when averaging down. Have rules and stick to them. Discipline, discipline, discipline. 10.13 Other Trading Psychology Concepts 10.13.1. Transparency: Good traders are transparent people. They dont care about the opinions of other people if they know they are doing the right thing. They are not ashamed of their results even if they are bad. Hiding your mistakes is one way to say that you dont accept the full responsibility of them. It has been observed that good traders are people who accept the blame when something happens. That helps them to build a feeling of control. Trading is a field where everybody knows exactly how you perform. Proprietary Trading Firms encourages this situation because we know that real winners are the one who like open competition and who dont mind the results. People who like challenges and reach their goal are transparent. Moreover this attitude helps cooperation with managers. 10.13.2. Desires and Faith The desire to succeed is essential but it is not enough in itself. Only when you have the faith in yourself you will become successful. Even If you have strong desires, if you dont firmly belief that they will happen, they wont. If you have doubts in times of adversity you will abandon your goals too early and your fear of failure will become a reality without faith. You may have been really close to the goal. Nothing is impossible to the one who has faith. However faith is not easy to acquire. We can give you the desire but we cannot give you faith. This part must come from you. The trading level you will reach is proportional to the level of faith that you have. Faith is perhaps one of the highest forms of belief a person can possess it is a conviction. The reality is that it is hard to find people with faith because they are already successful somewhere else. The personality that makes good traders is the same personality that makes athletes, pop stars and successful business man. 10.13.3. Intuition, Experience, Feeling the Market Intuition is sometimes conceived by people like it is coming from nowhere. In fact intuition builds with experience. As a new trader, you wont have a lot of intuition when you start trading. As you watch the market everyday some patterns will creep into your subconscious. When the signs of those patterns are repeated, your subconscious will send a message to you conscious to warn you that something is about to happen. At the beginning you will feel strange and wont be able to act on this message. As you receive more of them you will start to act on it and make money. Eventually the goal is to extend that process until you feel the market like you feel your heartbeat when you just finished exercising. That is what we call feeling the market. Then you can say you have the market in your veins. You become one with the market 10.13.4. Instinctive people and Analysts People who rely more on their instinct and intuition and less on their conscious analysis make the best traders. The reason is because the market is normally very fast and you dont have time for conscious analysis. By the time your analysis is done the opportunity disappeared. That does not mean that there are no opportunities that can be analyzed, but most of the time the market is too fast for analysis. Moreover, people who analyze too much like to be more than 55 sure of their decision. In reality that is all that you need to be successful. Analysts will look for the 75 to 80 sure trade that happen only 2 or 3 times a day and they will miss all the other opportunities (55, 60 and 65). 10.13.5. Open Minded Traders are the best People who are open-minded make the best trader for many reasons. First they tend to consider more options and if the best decisions are uncommon they have a better chance to discover it. Second they will not be obstinate if one solution does not work. Finally they will tend to be more creative and will find opportunities that nobody would have thought about. There is one big problem. Rare are the people who will admit that they are not open minded. That character is most of the time recognized by people around you. Moreover, when you tell somebody that he is not open minded he becomes normally very susceptible. 10.13.6. Imitation Imitation is one of the secrets of successful people. To be successful you simply need to imitate successful people. However, most people like to do things their own way because they get all the merit for it. They think success is more rewarding if they rely only on themselves. You probably see the relation with transparency here. Transparent people would not mind imitating others to get successful. There is also a relation with jealousy and admiration. Jealousy is bad. Jealous people dont imitate success. They deny it. People with admiration are the one who progress by imitating a model. The reality is that if you rely only on yourself for success you may still get successful but it will take you much more time. And in the end you might be frustrated to realize that you are using the same recipe that you would have used if you would have been imitating somebody else. There are many examples of successful traders at Proprietary Trading Firms. There are also many books that have been written about successful trader. Find a role model in trading and imitate his success 10.13.7. Experience, Learning Curves and constant learning: Experience comes with time and you have to respect this fact of life. There is little doubt that you will get better at trading as time goes. You will learn from your mistakes and you will see patterns that you did not see before. Dont fall in the trap of thinking yourself as an experienced trader when you are not one. Also keep in mind that you will keep learning. If you are overconfident about your experience you will considerably slowdown you learning process. You will refuse some ideas because you think you already know about it. Always be like a child who is curious and wants to learn about everything there is to know 10.13.8. Crowd effect, Contrarian People normally like to be comforted by the opinion of others. In life if most people agree with you, you think you are heading the right way. The problem with that philosophy on the market is that most of the time when everybody is bullish the market is about to take a dive and when everybody is bearish the market is due for a rebound. Traders will have to learn to have their own opinions to be successful. They may even need to be contrarian. Most of the time the majority is wrong but the order flow cannot be wrong. This is because if 9 people are wrong and sell a stock the 1 guy who is buying is right. However this guy is big because his volume is 9 times bigger than the average. This concept explains why it is bullishbearish when many active traders are sellingbuying and the stock is not moving. The concept of activepassive will be explained later in the course. It may be hard to believe but two traders one long and one short at the same time can both make money. The solution is in the time frame of your trade and in selection of the right gateway. 10.13.9. Personal Life and Self Evaluation Life is life and trading is trading. Dont mix them together. If you are really tired or are dealing personal problems and cannot forget about your problems, your trading will be deeply affected. Try to have your mind empty before you start your trading day. Meditation is a very good way to do that. Self evaluating your condition is always very helpful. Before you start a new trading day you should rate how you feel about your life and how fit you are mentally to trade. In the event that you cannot forget about your concerns in your personal life, that you are sick or tired, it may be a good idea to reduce your trading size and event stop trading if it does not go well. Trading can also affect your life. Dont let a bad streak of trading days interfere with your social life or else your friends and family will have to suffer from your up and down like the up and downs of the market. Chapter 11 Trading Strategies Concepts 11.1 As many strategies as traders There is not just one way to make money in the market. You will find one strategy you like. However, the best style is a mix of many trading styles. It also needs to be a strategy that works in both an up and down market. Observe other traders and you will notice that even if good traders are always have the same profitable positions, they have different way to get filled on their order and they manage them differently. 11.2 Active Trading and Passive Trading Passive Traders add liquidity and Active Traders take it away from the market. There are times to be active and time to be passives. If a stock is trending and moving fast you might not be able to get it as a passive trader. If a stock is trading in a tight range with a lot of levels on both sides it probably does not make sense to try to trade this stock actively. You should instead place limit orders on the right gateway and try to make the spread. Choosing between Active Trading and Passive Trading is easier when you know the stock and when you have experience. However there is one rule of thumb. As a proprietary trader at Proprietary Trading Firms at least 70 of your trades should add liquidity. The vast majority of the volume at Proprietary Trading Firms is Passive. The best Passive traders are trading 8 stocks and more at the same time and have buy and sell orders on each one of them. This improves their chance of getting filled. Once they are getting shares they are doing what we call working the order. Passive trading requires more patience while active trading requires more reflexes. 11.3 Bid-Ask Size: You should always look at the Bid-Ask size before considering sending an order. You should also ask yourself all the size is real or if there is hidden size (more on that latter). You should normally be trying to get long if the biggest side is the bid and short if the biggest side is the offer. However if you are the last in line and do not use proper order routing you might be the last one to get fill and by then the size is not big anymore. 11.4 Hotkeys Traders are using keyboard shortcuts to trade more effectively. At Proprietary Trading Firms we use mostly F1 to F12 keys with combinations of SHIFT and CTRL. It is very important to configure them in an efficient manner. Also Traders should always use the numeric keyboard for numbers because it is a lot faster than using the numbers on the regular keys. The fastest trader with the best setup of keys will have a definite edge. 11.5 Inventory Management Trading a stock is all a lot about managing your positions. Even if a stock is a good buy you dont have infinite buying power and you need to buy an amount that both you and the market can handle. A rule of thumb is that you should never have more longshort shares than the level 1 bidoffer can take. This way, if there is an abrupt shift in the market you can get out flat at the market. Another concept is to try to take advantage of both sides of the market. That is to say your inventory needs to be fluctuating from long to short. To reduce your risk you should have both long and short stocks in your overall day trading inventory. With experience you will be able to handle a bigger inventory and you will therefore make more money. 11.6 Partial Fills amp Odd Lots If your order is filled partially and slowly this is normally a sign that you are on the right side of the market since small orders are normally coming from small uninformed traders. However if this happens in a cycle you should be concerned and evaluate if you are getting filled buy on bunched order (more on that later). The same thing is true if your orders are filled with odd lots since they are mainly from small pockets of traders that are most of the time on the wrong side of the market. 11.7 Making Trades You are getting information about the market every time you make a trade. The more trades you make, the more you know about the stock. It should not be hard to make more than 200 trades per day after a couple of weeks. After a month or two you should already reach 300 trades per day. The best traders at Proprietary Trading Firms are making over 600 trades per day 11.8 Tape reading and block trades: Watch the tape and try to look for block trades (more than 5k share). Bigger lots normally represent bigger players who are normally better traders. Are big trades happening on the offer or on the bid Are they happening with market makers, ECNs, specialists or dark pools Try to notice what happens on the stock you trade after those block trades. You will notice patterns and will be able to profit from it in the future. 11.9 Round Numbers Stocks tend to have difficulty to go through round numbers. A good strategy to use is to avoid going long at 7 8 and 9 digits and short at 1 2 and 3. The worst digit to be long at is 99 while 01 is where a good trader does not want to be short. This is especially true when there is a large amount of orders at the round number. 11.10 The level 1 spread Look for level 1 spread greater than 1 cent on active stocks. They normally offer the opportunity of getting a fill in the middle. If the stock is liquid and that there is a midpoint pegging order that is buying or selling you could make an easy profit. 11.11 Multiple Orders, Multiple Fills Traders can post their orders on more than one ECN in a duplicate format. This is useful when all ECNs are getting filled as you get a piece off all the action. However you need to be very prudent as if there is a Swipe of the level you are on, you will be ending up with more shares than you originally wanted. We call that multiple fills, Double Fills for two orders, Triple fill for 3 orders, etc. The trading software of Proprietary Trading Firms allow you to set OCO (one cancel the other) orders. This allows traders to have many orders canceling when another one is getting filled. Smart traders are able to judge how many orders to put to get a good fill. Normally you would not want to put 3 orders to buy when you would not want to be long in case of a swipe. 11.12 Short Squeeze Normally short positions are taken for a short period of time as the tendency is for stocks to go up in the long term. Therefore traders with a short position are potential buyers of the stock. When there are too many people short in a stock the pressure to the upside when they cover will make them loose on their short position and will also force other traders that are short to cover. This is called a short squeeze. The more people are short, the more potential buyers and the more this risk to happen. 11.13 The Axe Try to find the market maker that is the most active on the stock you trade. If that market maker is buying go long, if he is selling go short. The axe is nowadays harder to spot since market makers are now using ECNs. However you can still figure it out if you observe carefully the level 2. Never pick a fight with the axe: YOU WILL LOSE . These are extremely powerful and experienced traders, taking opposing sides to them will rarely work so instead, push with them. Many Axes trade such large blocks they must move share prices substantially to make a profit. By playing the midpoint of the axe, many traders can make good profits. 11.14 Advanced order types: You want to know what other traders are doing but you dont want them to know what you are doing. Advance orders are useful to hide your real intentions. When you will start trading on a bigger scale you will start using those orders more often. 11.14.1. Hidden Orders They are invisible orders. For example you can use hidden island orders. If somebody sends an order on the opposite side you will be executed and you will also get the rebates. However if somebody send a visible order on the same side and price than you he will get in front of you in execution priority. Hidden NSDQ are also useful when you are shaving on stocks lower than 1. You can keep the priority even if you are invisible if your price is 0.1 cent higher than the visible order. This trading style used to be very popular but there are now trading robots that are automatically shaving and it is really hard to get ahead. Also dont forget that stocks under 1 dollar have a different rebate schedule. If you want to start using hidden order talk to the manager about your strategy to make sure that it is reliable. 11.14.2. Reserve Orders They are orders that are showing fewer shares that they really are. For example ARCA could be showing 100 shares on the LEVEL 2 while if you send a sell order for 500 shares at the market on ARCA it will be fully executed and ARCA will still be showing 100 shares. Reserve orders are also called Iceberg orders by many exchanges for an obvious reason. You should use reserve orders if you want to get fill on a large number of shares without showing your real interest. If you are long on a stock that has a reserve order on the offer you should try to get out by offering. In fact since traders using reserve orders are sophisticated you should be trading on the same side than them. 11.14.3. Adding Liquidity only They are orders that will not be executed if they have to remove liquidity. They are useful to avoid paying the charges by mistake on BATS. Do not use post order by default cause you wont be able to get out if you have to be fast. 11.14.4. Test Orders They are orders sent to know how the market is taking them. For example you can send a small locking order on MLNM to see if there is a BuyerSeller on the dark pool. You can also send them on NSDQ or ARCA to see if other ECNs to see if there are other traders that are following you (Pegging Orders). Test orders are also very useful on the NYSE to see what side the specialist is filling faster. Normally orders a getting filled faster if they are on the wrong side of the market. 11.14.5. Following orders or Pegging Orders They are robot orders that are automatically following the best bidoffer on a stock to be first in line. Those orders are easy to get advantage of if you are experimented. On average try to be long if orders are following on the bid and short if orders are following on the offer. 11.14.6. Switching Orders They are orders switching from the bid to the offer and vice versa. If you see 1000 P printing on the Time amp Sales and you see an extra 1000 shares on ARCA immediately after you should notice that there are some scalpers on the stock. When there are too many scalpers, Market Makers will try to shake them by swiping the side they seem to prefer on 2 or 3 levels. 11.14.7. Bunched Orders They are trades that happen consecutively as a pattern on the ticker tape. For example 500 shares on ARCA at the offer every 30 seconds. This normally means somebody is trying to buy a big number of shares without the block trade being seen on the tape (50k share in 50 minutes). This is normally bullish and a big opportunity if there are prints on the bid at the same time. If you are able to get long at the bid you know this is only a question of time before you can get out on ARCA at the offer. 11.15 Relative Strength Relative strength is one of the most important principles a trader can use to trade successfully. By comparing stocks to others in its sectors, or its sector to the market as a whole, a trader will have a frame of reference from which to anticipate movements in the stocks price. By knowing the relationship between the stock and the market, a trader can predetermine what his reaction will be to each of the three potential market movements (up, down and no change). There are several indicators a trader can use to determine a stocks strength relative to its sector. A trader interested in trading XLNX for example, a semi-conductor company, he could watch INTC, a sector leader in the semi-conductor group. Typically, the larger companies of each sector will move before the tier two stocks within the same group. Traders, then, can use INTC as a leading indicator for XLNX. Sector indices also act as leading indicators for stocks within the sector. Using the same example, traders trading XLNX could watch the Philadelphia Semi-conductor Index (SOX. X) as a leading indicator. In this case it may be possible to have the index leading the sector leader, which could in turn be leading the stock in question. When comparing a stock or a sector to the market as a whole a trader will typically rely on the SampP Futures as a market indicator. There is a great deal of liquidity within the SampP Futures and this attracts traders and volume which allows the SampP Futures to, usually, reflects the mood of the market before other indicators including sector indexes. No matter what a trader is comparing, a stock to a sector leader, a sector leader to the market, it is the net change as a percentage that he will be interested in. This percentage change will allow the trader to establish the relative part of the relative strength equation. Once the trader has determined whether the market is strong, based on percentage change, he must determine how a specific sector is performing relative to the markets strength. After identifying a strong sector on a strong market day the trader must identify the strongest stocks within this sector. A trader who has taken the time to determine at stocks relative strength before playing it will be better off than the trader who simply jumped into the play without this information. It is recommended that traders not play stocks within the first ten to twenty minutes of the trading day. This is to avoid getting involved in a trade before the market has decided which way the stock is going to go. It is probable that stocks that gap up at the open will pull back. This occurs because market makers will attempt to pull back stocks that they were forced to assume a short position in while covering the demands of the public in order to cover them. If a trader jumps in prematurely he could find himself caught up in this movement. Relative strength as a trading mind set will see an astute trader identifying a stocks movement relative to the entire market. Ideally a trader will play a strong stock long on a strong day and weak stock short on a weak market day. If XYZA is ripping each time that the leading indicators begin moving upwards then the stock is obviously a candidate for the long play. If the same stock tanks each time that the leading indicator takes a bearish posture than it becomes an ideal short candidate on weak market days. Relative strength can be played a number of ways. Often traders can watch stocks that are down only a small percentage while the market is down a substantial amount. The patient trader will wait for a reversal in the markets direction and long the stock in question as soon as the leading indicators begin to rally. This is technically strategy, known as a reversal, and is covered in more detail elsewhere. Typically these stocks sit flat all day as the market declines and moves higher in short, rapid movements at each rally. Again, relative strength is a mindset that every successful trader employs whether he realizes it or not. Always know the strength of a stock relative to the market before trading it. Chapter 12 Your First Battle 12.1 Simulation The simulation trading part lasts 3-5 days from 9:00 4:30 p. m. E. T. During this segment you will get hands on experience with CTG Trader Pro, the execution software. You will be able to customize the Level II windows, time of sales, Trading Monitor and Position Summary windows. You will also customize your charts with the futures and appropriate stocks. Once your first day passes, you will be allowed to tailor your screen setup to your exact requirements and a multitude of other settings to your own personal cocktail. The data is in real time and the executions actually go to a simulator. The goal of training on simulation mode is not to make thousands of dollars, but rather to learn all the keys and to execute as many orders as possible with every execution system. The traders that can execute faster than others will definitely have an edge. Being able to get in front of orders quickly will ensure you a faster and better fills. During this segment, you will identify 2 8211 3 stocks that you will follow and trade on a daily basis. Money made or lost is not an issue . The main goal is to get you comfortable with the system. Be attentive and ask questions . Others experience will help you greatly. Keep keystroke mistakes to a minimum . With real money these mistakes can be extremely costly. 12.2 Live Trading Once you have mastered the keys and have identified 1 or 2 stocks to trade, you will then begin live trading at the 100 shares level. When you are profitable and confident, your Max Shares will be increased to 300. You may be at that level after 1 week (depending on your progression) and then move to 500 1000 shares level. We expect you to meet strict criteria before you increase your share level. Your buying power (BP) will also be increased accordingly. You will also print your daily blotters (trades) on a daily basis, and before the beginning of the next trading day we will meet and analyze the trades. You will highlight your best and worst trades and fill a small summary card for your trading day and explain why and what happened. Chapter 13 Applied Trading Strategies 13.1 Scalping: The Rebate Game Market Maker Game Trading this style requires a patient, focused and versatile trader. The goal of this style is to make profitable trades and to receive rebates from the different ECNs such as NASDAQ, ARCA, BATS, EDGX and EDA 13.1.1. Action Look and observe 5 to 10 slow moving stocks stocks with prices ranging from 1 to 10. The intra-day ranges of these stocks will vary from .10 to .30 depending on the stock, news and market condition. Mergers can be good candidates also for this type of trading Traders will look for thick stocks e. g. stocks with lots of depth at every price level. You will place bids and offers at the 1 st or 2 nd price level. Traders will choose from the list of stocks given to them that meet certain criteria for ideal bid amp offer stocks: Depth at every price level, lots of M. M. amp ECNs. Small intra-day range (.10 to .30) At least 1 million shares traded daily. .01 between price levels. 13.1.2. Strategy The objective is to BIDOFFER on ECNs according to the execution happening in the stock. Use the ECN on which you have the best change to get executed. For the side use the one that has the biggest size but you still have to get a chance to get an execution. Make sure the other side is not too big and that there are some executions on it. Make sure that the stock is in a range and not tanking or ripping. As soon as you get filled, OFFERBID half or the entire amount IN ORDER NOT TO SHOW SELLING PRESSURE. 13.1.3. Averaging Down Once or Twice Maximum Example. You bought 1000 shares at 2.62 and stock drops to 2.60, bid another 1000 shares at 2.60 to get an average price of 2.61. Offer immediately 2000 shares at 2.61. You will not make a profit on the trade but you will get the rebates and if the stock moves up and you are the last in line, you might be able to cancel your offer and make a profit by reoffering at 2.62. 13.1.4. When to get out on the downside Use your experience and judgment to decide if you should wait 2, 3 cents down or flat trade the stock. Your biggest winners should be at least as big as your biggest loser. You should not take a lot of 3 cents loss when you are only taking 1 cent profits. As you become more experienced your winning trades should be twice as much as your losing trades. 13.1.5. Warning: This group of stocks doesnt move much during the day. Some stocks will stay at the same price level for a long time without any execution before moving 1 or 2 cents up or down quickly. When there is major news on the stock, especially on mergers they can easily rip or tank by 20 cents or more. 13.2 Momentum Trading Trading this style requires a focused, versatile and disciplined trader. The objective of this trading style is to make profitable trades and to take advantage of the credits. Mastering buy and sell hot keys is imperative to be successful as a momentum trader. 13.2.1. Action: You will trade only one stock all day long. The stock price should be above 5 dollars but less than 20. The stock should also have a daily volume of 3 million shares. You will trade mainly for profits. Because of the nature, volume and movements of these stocks, you will have to be an active trader, which means taking the bid or offer (SMFOK) more often than bidding and offering. As a momentum trader you should find stocks that move in tandem with the market Traders will choose a stock from the list of stocks given to them. They are in the NASDAQ 100 and move in the direction of the market most of the time. You will put up a Stock Watch window with the SP Futures NASDAQ Futures, the COMPX, the sector index and some stocks. Before trading you need to determine the relative strength of your stock versus the sector, the NASDAQ 100 and the futures. Is the stock you are trading stronger or weaker than the overall market and sector A successful momentum trader takes time to observe the movements, patterns and volatility of the stock they are trading. As guidance, you will look at the NASDAQ futures, a chart of the stock and listen to the squawk box. The intra-day ranges of these stocks can be 0.25 to 1.00 depending on market conditions. Try to get long when the overall trend of the marketsector is up and that the stock is slow to react. Use the strategies explained earlier about relative strength. 13.2.2. When to get out on downside Use your judgment and experience to decide whether you should wait .03 or flat trade the stock. In some cases 3 cents might not be enough to survive the whipsaws. That is the reason why this style is more risky. Look at offer side piling up, futures and time of sales to gage whether or not you should stay in the trade or exit. When the stock is going your way, try to let run your profit. 13.3 Opening Strategies 13.3.1. What is the Opening We know that the stock market opens at 9:30. But, how is the opening price determined Why is it sometimes so different than the previous closing price How can we buy or sell at the opening price Those are questions we will answer. First, the opening process is different depending on what exchange a stock is traded. Generally the opening price you will see in yahoo finance or in the newspaper is defined by the first trade at or after 9:30. This can create some distortions on the NYSE since the real opening price is considered to be the NYSE opening cross operated by the specialist which is sometimes a bit delayed, especially on the days when there is considerable news. On those days the opening price you see in yahoo finance might well be the first print on an ECN or ATS which you cannot participate in with a NYSE opening order. There are opening orders for 3 destinations: NYSE, NASDAQ and ARCA. In all cases there is only one matching price for all orders that are matched: the price where the maximum number of shares can be matched. Therefore, the opening is a great opportunity for price improvement on small orders. For example, even if you bid an OPG order at 13.00 you can get executed at a much better price which could be at 12.65 if there is a very big selling imbalance at the open. The Website of ARCA, NASDAQ and NYSE are a good resource to learn the different characteristics of each respective opening process 13.3.2. Notion of fair value at the open Fair value is the expected value of a stock assuming there is no considerable news or change in supply and demand. Normally, if the stock market is opening at the same price where it closed the previous day a given stock, without specific news or news on its sectors, should also open around the same price where it closed. Now where should a stock price open when there is a premarket move of the whole market This depends mostly of the volatility of the stock. Stocks that have the same volatility than the market should open up or down by about the same in percentage. If a stock is twice as volatile as the market the percentage change from open to previous close should be twice the change on the market. Beta is often used as a good evaluator of the volatility of a stock. But how do we know what will be the percentage change of the index at the open Well the futures are giving us a big hint on that. One of the best ways to do that is also to look at the change on the SPY and DIA directly since the futures are not carrying dividend and there might be a change caused only by many ex-dividend stocks. 13.3.3. Envelope Strategy To take advantage of a few inefficiencies at the open when the opening price is far away from fair value astute traders are sending a basket of opening order bidding below and offering above fair value. They will normally do this using a fix percentage difference from the fair value. There are some strict rules to this strategy. Traders will not have stocks that have news in their baskets. They will normally quickly get out of the stock they got executed after the open. If not they will hedge their positions to avoid the impact of market movements. Envelope can be made on NYSE stocks, NASDAQ stocks and Arca stocks. All NYSE stocks will use NYSE opening orders and NASDAQ stocks will use NASDAQ or ARCA opening orders. One problem with the envelope strategy is that you have to manually calculate and adjust the price every day. This can be done in excel and then copied in a basket in CTG Trader PRO 13.3.4. Back Testing of envelope strategy It is possible to determine if an envelope strategy for a stock is successful by looking at the history of opening price compared to fair value. It is easier to do that on NASDAQ stocks than on NYSE stocks for the reasons we discussed before. The best way to get data to back test is to export it from yahoo finance and put it in excel. 13.3.5. Positive Trading Scenario Lets assume the SPY closed at 90.00. The next day before the open the SPY is trading at around 91.25. ABC stock closed at 20.00. We also assume that the stock has the same volatility than the market or a beta of 1. The stock also has no news and no news on its sector. The fair value of the stock should be around 20.28. With a 1 envelope, a trader should put a bid at 20.08 and an offer at 20.48. If the opening price is lower than 20.08 or higher than 20.48 the trader will participate at this price. Lets assume the trader put those bids and offer in place. At the open the stock prints 19.97. One minute following the open the stock is at fair value and the trader makes a profit of 31 cents per share. 13.3.6. Negative Trading Scenario In the same example the trader could have received a fill a 19.97. However, he realized a news announcement was released at the open and the stock plummet immediately to 19.50 after the open. 13.3.7. Risk of this strategy The main risk of this strategy resides in the overexposure in the event where there is a big market move in the first minutes of trading and the traders does not have time to offset his positions. This is more likely to happen on a day with a big gap on the overall market. Another risk is the risk of making a mistake in the calculation of the price. Since, traders are sending many orders the risk of making a small mistake that would propagate to the whole basket is very important. Another risk is linked to the illiquidity of the most performing stocks for this strategy. 13.4 Dark Pools Strategies 13.4.1. What are dark pools, how they work Dark pools are Alternative Trading Systems do not publish their order book in the Level 2 window. Dark pools are generally used by institutions to try reducing market impact when placing large orders. Dark liquidity pools offer institutional investors many of the efficiencies associated with trading on the exchanges public limit order books but without showing their hands to others. Dark liquidity pools avoid this risk because neither the price nor the identity of the trading company is displayed. Most dark pools also offer advanced algorithm trading to improve chances of executions of big orders. Since there is no book the execution range is based on the NBBO to avoid prints outside of the market 13.4.2. Dark pools features From pegging orders to VWAP adjusted orders Dark pools are offering very sophisticated ways for institutions to send their orders. Lets review the main features: 13.4.3. Pegging Orders Pegging orders are orders that are following the NBBO when its moving. For example an order to buy could be linked to the NBBO bid price. Orders can be pegged to the bid or the offer but they can also add an increment to it. For example, there could be pegged orders at bid 1 cent or ask -1 cent. Orders can also be pegged to the midpoint of the NBBO or to the last price. Generally, pegged orders have a pegging range or a pegging limit, they stop pegging once the price reaches a certain level. 13.4.4. Execution size features Institutions can set their orders to different setting for the size of their executions. There can be a minimum or a maximum per tick, a percentage of the displayed size or a minimum first execution. For example, there is an order for 50 thousand shares but if it is crossed with a small order it wont execute. 13.4.5. Linking and Scanners Many dark pools offer the possibility of linking orders to other dark pools. After scanning their own pool, if they dont find liquidity for an order, they will scan the book of other dark pools by sending one order on one dark pool after another. 13.4.6. Anti predatory trading algorithms Predatory trading is a style of trading that tries to take advantage of big institutions orders on illiquid stocks by forcing them to get in or out at a bad price. A predatory trader will send a test order to the dark pool to see if there is a big institutional order standing in the dark pool. Dark pools designed features to prevent the predatory traders to discover hidden liquidity too easily. Some of those features includes: the possibility of orders to flash in the book at random cycle time the possibility of splitting the orders in parts over a specific period of time and the possibility to not execute orders against an IOC. 13.4.7. Positive Trading Scenario Stock ABC is trading at 23.19 and looking at the time and sales window you see a lot of D prints hitting the bid. You get out of your 100 shares position at 19, and then you resend a bid on the dark pool at 19. Once again you get a fill instantly. At this point you have to see how many shares are on the bid and if the stock is shortable. If the stock is shortable and there is an amount that is not too high on the bid (its a question of judgment and experience here) you can hit the whole level and lower the offer to 19. Then you need to test if the dark pool is still crossing the market and selling at 18. Lets assume there were 1000 shares at 19. Now you are short at 19 and send a bid for 100 shares at 18. If you get filled you also take the 18 level. Assuming there is 500 shares at 18 you are now short 1300 shares. Once again you test the lower level and you get a fill. You hit 17 for 800 shares and test positively 16 for 100. You take 16 for 600 shares and test 15 positively. You are now short 2500 shares at an average price of 17.68. you decide that this is enough and bid the whole lot at 15 and get filled. You made a profit of about 67 without the fees. 13.4.8. Negative Trading Scenario Stock EFG is trading at 34.22 and you see a lot of D prints hitting the bid in the time and sales window. You send an order on the dark pool and get filled immediately. You get out of your 100 shares at 22 and retest the dark pool for 100 shares on the bid and get a fill. You hit the bid for 1200 shares, retest the bid at 21 and once again you get a fill. You take 900 shares at 21 and test 20 for 100. But now you order is not filled. You are now short 1900 shares and there are no more sellers on the dark pool. You look at the levels on the offer and its awful. There are only 800 shares total displayed shares until 30. You get out at an average of 31 for a loss of 200 dollars. 13.4.9. How institutions defend themselves Institutions know that predatory traders are taking advantage of them. But the price is still lower than it would be if they would have to display their big orders to the public market. They try to use advanced order types like minimal first execution size to avoid being fooled by basic predatory trading. Once in a while they will even post a bid when in fact they want to sell to trap the predatory traders. Once they know the trader as a considerable opposite position they will cancel their dark pool order and post on the other side. 13.4.10. Good rules this strategy Avoid illiquid Stocks and high priced stocks Avoid trying to go through a reserve order Avoid accumulating too many shares until the order on the dark pool as proven its size Avoid trying to push a stock in the same direction it just made with a big move in the last minute you are probably late to the party Avoid buying or selling too many shares at round numbers to push the stock Avoid taking too many shares if you cant push the stock, its better to get out at a small loss when the institution is still there Always evaluate the size of the opposite level before getting in a considerable position 13.4.11. Risk of this strategy The main risk of this strategy comes from the fact that you only rely on the belief that there is a big order in the dark pool. You are therefore exposed to considerable liquidity risk if you find out the liquidity in the dark pool is much smaller then what you expected. The biggest profits, but also the biggest lost, are made on very illiquid stock with this strategy. Another risk of this strategy is the inability for you to evaluate the reward to risk ratio before hand in most cases. This comes from the fact that most illiquid stocks have reserve or hidden orders in their books. Theory course 8211 Direct Access Electronic Trading Dealer Markets: NASDAQ Auction Markets: NYSE Market Makers Industry Terms ECNs (Electronic Communication Networks) 8211 Examples of ECN amp Trading Fees 7. Short Selling 8. Keystrokes and routing of orders 9. Market Knowledge: Relative Strength 10. Market Indicators: Futures and Indices 11. Squawk Box 12. Strategies: Bid amp Offer Vs. Momentum Trading 8211 Averaging updown 8211 Skills to be acquired 8211 Getting Started Goal Setting amp Plan of Attack (setting goals) During these 2 days, you will get familiar with the trading platform and you will customize your setups. You will also program the keystrokes and do as many executions as possible so that you will be prepared to execute properly in real mode. Once the initial training period of 5 days has been completed, its now time to trade with real money and start establishing your goals amp objectives. Its important to keep in mind that Youre here to trade and not watch the screen. If youre not in the market, youre not making money Evolution of a Prop Trader You will now be trading real money (Capital Traders Groups Capital), please respect the funds as if it was your own. We encourage you to experiment during this time various stocks while using all ECNs. This is the only way that you will only better understand the advantages amp disadvantages of all ECNs. While experimenting, 100 shares lots are recommended. 8211 Also, focus on 1 Identifying stock levels. 2 Shorting stocks 4 Reading stock levels from charts 5 Time of Sales Rules for LEVEL I 8211 You will be allowed to trade 100 share lots of stocks that are priced below 10.00. 8211 You are allowed to average updown 1 time of an additional 100 shares. 8211 You will not accumulate more than 200 shares at any given time 8211 We dont want to see losses of more than 0.0 3- 0.05share. 8211 Maximum loss of 50 perday. We will not be concerned with your profitability during Level I. (a) Making a minimum of 80 8211 150 tradesdays per day (1 buy and 1 sell is 2 trades). It is not guaranteed that if you make more trades, you will make more money. However, the main purpose here is to get you into the habit of trading. Obviously, the quality of the trade is much more important. About 200 trades per day is the norm. (b) During your 1 ST week. we will not be concerned about your profitability, just your ability to get comfortable with the software and your new position as a trader. (c) Experiment now while trading 100 and 200 share lots. You will learn a lot from your mistakes and better with 100 shares than 1000 shares (d) NO losses of more that .03sharedisciplinedisciplineetc Please complete following table for week I yahoofinance 8211 Information, news cbsmarketwatch 8211 Great for news tradearca 8211 view arca book mytrack 8211 See where your order is in the queue For the first 3 days, we would like to see you get familiar with the trading software, use of all ECNs, increase your speed of execution, understand concept of add liquidity vs removing liquidity, credit vs paying for shares. 8211 Important ideas, strategies amp types of trades (aside from buying low and selling high) to consider during your training and beyond 1 FIFO gt Being first in and first out on NSDQ, ARCA, BATS and EDGX is very important 2 Discipline yourself to avoid the big hit. You will only find out (the hard way) that one bad trade can wipe out 9 good ones. Dont look for Home Runs 3 Coming to office early, looking at MSNBC ticker tape and financial website to see stocks in play and get a good feeling for market sentiment for the day. 4 Check to see if theres news on the stocks that you play. If theres positive news on your stock, does that mean the stock will go higher. 5 Reversing a trade 6 Averaging updown 7 Writing down in a note book why your trades went good or bad, create your own rules of trading 8 Identifying BUYSELL opportunities through futures charts and squawk box. 9 Make sure that the stocks you trade have at least an average daily trading of 1 million shares 10 If you get frustrated or angry, walk away for a few minutes 11 Risk Management: Set your own rules and follow them. 12 Follow the trend gtgt DO NOT FIGHT THE TREND ltlt Start building levels of discipline and confidence Have a reason for getting inout of the stock 1 Futures moving 2 Good profit or stop loss limit of .03- 0.05 3 Stock breaking levels supportresistance Notes The higher the stock price, the more volatile the stock will be. The stock will also have a greater price range (high and low of day) during the day. Stocks under 5.00 are also good for credit trading with a small level of momentum built in. Squawk box starts to become a greater asset here After 3 -5 days of trading some traders will move on to Level II Rules for LEVEL II 8211 You will be allowed to trade up to 300500 shares priced below 10.00 8211 You are allowed to average updown 1 time of an additional 500 shares. 8211 You will not accumulate more than 1000 shares at any time 8211 We dont want to see losses of more than .03 -0.05share. Notes The stocks that usually trade in this price range are good for credit trading with a good levesl of momentum built in. Watch for levels of the stocks that you trade in this range, charts will help as well as the squawk box. Check news on your stocks or stocks in the related fields. Ex 8211 If Im, playing JDSU, I will also check for news on other companies in fiber optics. Companies tend to sympathize with other when it comes to news. GOALS The Goals in LEVEL II is A) To be profitable for 3 consecutive days with at least 50.00day. B) Make 80 trades day for 3 consecutive days. D) Your stop loss will be 100 daily 8211 If this is accomplished, you advance to LEVEL III. 8211 If you lose more than 100, you will be shut down for the day but you can still continue trading on practice mode. GOALS The Goals during week 2 (a) Focusing on being profitable . In order to increase to 500 share lots, you must be profitable (net profit) for 3 consecutive days or 3 our 4 days. (b) Making 100 tradesday with (c) Volume of approximately 20,000 sharesday. 8211 Experimenting with ECNs 8211 Flatting stocks and making full spreads 8211 Learning stock levels (support amp resistance) 8211 Read proprietary trading notes amp ideas at home 8211 Get out of losing positions by either reversing the trade, removing liquidity or smart sell (before it breaks the level) 8211 Do not fight the trend, know at all times if NASDAQ, E-MINIS amp SOX are positive or negative 8211 Watch your risk management 8211 With 300 share lots, your PL will start moving that much faster so please do not hold too many positions at one time (like at 100 share lots). Please complete following table for week II Rules for LEVEL III 8211 Congratulations on reaching LEVEL III, youre now able to trade up to 1500 shares of stocks that are priced below 10.00 and youre buying power will also increase. 8211 You are allowed to average updown 1 time of an additional 500 shares. 8211 You will not accumulate more than 2000 shares at any time 8211 No losses of more than 0.03-0.05trade. Notes Stocks that trade above 5.00 will have a little more momentum therefore, follow the futures more closely and listen more carefully to the squawk box which can have a greater effect on the price. With more volatile stocks, please do not jump in with a 1000 shares on your first trade, slowly build to that level. If you feel comfortable with stock still trading below 5.00 and want to continue with them, it is your choice. Were only suggesting alternative ways to trade. Your display should still have both momentum and flatting stocks to view. Usually . the first and last hour of the day is great for momentum plays and between these times, Concentrate on both profit and flatting stocks until you build your niche. (a) To make a minimum of 75-100 perday consecutive 3days If this is accomplished, you advance to LEVEL IV. If you lose more than 100 (and we know this will not happen), you will be shut down. It will then be managements decision to allow you to continue or not. 1 Getting to the next level In order to increase to 1000 share lots, you must be profitable (net profit) for 3 consecutive days or 3 our 4 days. Once you reach this new level, it does not mean that you should immediately start trading 1000 share lots, 8211 Make sure that your very comfortable with 500 shares 8211 Gradually increase to 1000 shares, 6008230700 Remember, 8211 Get out of losing positions by either reversing the trade, removing liquidity or smart sell (before it breaks the level) 8211 Do not fight the trend, know at all times if NASDAQ, E-MINIS amp SOX are positive or negative 8211 Be aware of your risk management, trade what you can handle 8211 Money management, cut losses 8211 Be aware of MMs or ECNs refreshing 8211 With 500 share lots, your PL will start moving that much faster so please do not hold too many positions at one time (like at 100 share lots). If you want to try momentum stocks (more volatile stocks, stocks usually above 20), remember that these stocks will have a much higher range during the day and that you should be looking for gains of at least .05 to .10 per trade. These stocks should follow the squawk and E-minis quite closely so pay attention to them. Removing liquidity is the way to get shares when trading momentum stocks. For momentum traders, your GP will be higher than your NP because of market orders (removing liquidity). Please advise Management in advance if you want to try this method of trading as losses of more than .03trade will be the norm . Initially, please start off with small lots (100-200 share lots) to get accustomed to momentum stocks. Please do not jump in with a 1000 shares on your first trade, slowly build to that level. Please complete following table for week III 8211 Now, you will be permitted to trade up to 5000 shares of any stock. 8211 Averaging updown is at your discretion as well as stock selection. 8211 You can continue with the Credit game or focus on momentum stocks. 8211 When trading momentum or more volatile stocks (stocks usually above 20), remember that these stocks will fluctuate more during the day and that youre looking for gains of at least .05 to .10 per trade. These stocks should follow the squawk and E-minis quite closely so pay attention to them. Also, removing liquidity is the way to get shares and then offering them out. For momentum traders, your GP will be higher than your NP due to removing liquidity. Please advise us in advance if you want to try this method of trading as losses of more than .03trade are the norm. Initially, please start off with small lots (200-300 share lots) to get accustomed to momentum stocks. (a) To make a minimum of 100 perday for 3 consecutive days. (b) Making 100 tradesday for 3 consecutive days. (c) Trading volume of 100,000 shares perday for 3 consecutive days. If this is accomplished, you advance to LEVEL V. If you lose more than 150, your shut down for the day but you can still continue trading on practice mode. If you have reached this level, youre well on your way to becoming a Prop trader. However, there is still work to do in order to reach a net profit of 3000. 8211 Youre now permitted to trade up to 5000 shares of any stock. 8211 Averaging updown is at your discretion as well as stock selection (a) To make a minimum of 150 perday. At this level, you will reach 3000 by months end (150 x 20 trading daysmonth) If you lose more than 200, you will be shut down for the day. It will be managements decision to allow you to continue trading or not. Month by Month Objectives 8211 You will be starting to trade in the middle of a given month and this gives you the opportunity to do lots of practicing, experimenting and making mistakes so that you can start fresh the following month. Get familiar with the software, ECNs and trading environment. 8211 We are looking for consistency and discipline from you. 1 st Full Month 8211 Youre still new but excuses should be limited. 8211 Things to keep in mind 1 Focus on the stocks trading levels, ranges amp Time of Sales 2 Getting a few cents per trade and flatting trades. 3 Asking questions to other traders about trading. 4 Taking notes, writing down questions or scenarios to ask other traders about. 5 Coming to office early (8 am) to get a head start or a good feeling for the day. 6 Discipline amp Confidence. 7 Experimenting with all the ECNs and various stocks. 8 More positive days than negative days 9 Avoid the big hit and dont look for home runs 2 nd Month - Its time to focus on setting make serious money 1 Trades should be 150 200 per day 2 Volume should be at least 100,000 shares per day 3 Net Profit should be a minimum of 2000 (thats only 100 per day) 3 RD andor 4 th Month Focus is on 5000 plus in these months 1 Trades should be at least 100day with a volume of 150,000day 2 Average net profit is 225day Appendix A Intraday Trading Periods Appendix B Office Rules Appendix C Suggested Reading ListJam packed with tools and studies to help you confirm historic seasonal price patterns and cycles, the Advanced Seasonal Cycles library comes with 7 functions, 2 studies, 4 templates and 1 custom chart page. Analysis of seasonal price patterns and tendencies helps you to confirm where buying and selling opportunities are likely to occur. Review past cycle trends or identify a current market cycle with easy to use tools. Display past cycles as a chart overlay while reviewing a current cycle trend or review past cycles in terms of percent change, ratio, bar number, composite and more. Filter trades, search for leverage, and find single or complex pattern cycles for any market you desire. Put probabilities in your favor with over 40 years of historical data charted with multiple seasonal methods. Be on the correct side of the trend. Know in advance exactly when a market trends higher, lower or sideways. Take control of your trading plan now, and get more consistent winning results. Verify the effect of seasonal trends on any market. Use the seasonal library as a filter and then apply your favorite technical indicators and trading methods. Before committing precious capital, know the bias of the market. Increase your trading efficiency and accuracy. Advanced Traders Library I Plugin Increased insight, proven techniques. The Advanced Traders Library I is a powerful compilation of 10 mechanical trading strategies that will give you more than just a starting point for strategy development. These strategies are designed to give increased insight into proven techniques - all formatted to fit seamlessly within your Trade Navigator. 10 strategies have been developed to maximize market efficiency and minimize risk. Gain efficiency using dependable techniques and reliable strategies that will perform time after time, with organized performance with minimal effort on your part. Weve done all of the programming for you Witness trading concepts in action by applying strategies to your chart. Uncover new ways to augment an existing trading strategy to increase profits and limit loss. Run reports on any or all of the included strategies to review performance. Learn new ways to combine indicators and concepts to enhance strategy creation and trading skills. Advanced Traders Library II Plugin New insights, new techniques. Super charge your strategy writing and development with 10 additional mechanical trading strategies. Add new concepts to your arsenal of strategy creation, pushing your trading skills to new levels. Each strategy is ready to perform, right out of the box, with the ability modify each to meet your individual needs. Isolate areas of interest with performance reports. Complement your current trading strategies with elements of any of the Advanced Traders II mechanical strategies. Review equity curves by day, month, year or even by profits returned per trade. Easy entry techniques are pre-programmed and ready to use right out of the box. Accelerate your knowledge of TradeSense with strategies that Alexander Elder Plugin Reveal true market conditions with powerful market tracking tools. By popular request, 9 templates, 8 highlight bars and 17 indicators combine to give you an exceptional set of trading tools based on the trading concepts of Alexander Elder. This library provides practical application of teachings from Elders world renknown Come into My Trading Room and Trading for a Living books. Easy to use templates can be applied to your chart with a click of your mouse. Hone your skills with new tools that plug right into your Trade Navigator software. Identify turning points in any market by tying together three essential pieces of information the direction of price movement, its extent and volume. Differentiate between sleepy, quiet periods and hot episodes when market crowds become excited. Quickly adapt your trading to the current environment. Identify whether sellers or buyers are weaker. Track volatility, along with price. Delve into the work of Dr. Alexander Elder, as interpreted by Trade Navigator and put his ideas to use in your trading Batter Up I Plugin Scan, Identify and Trade. This innovative library plug in gives you a start to finish set of trading tools that will take you from scanning for potential trades, to identifying opportunities to trade execution. Add new highlight bar patterns, criteria and used by some of the worlds most successful traders. Use criteria and filters to scan the markets for potential buy and sell setups. Identify trading opportunities based on volume, moving average, momentum and price movements. Review historical performance of 3 built in strategies. Dont get caught just randomly choosing a market without reason. Step up to the plate and look for Stock or Futures market trading opportunities that will give you the results you need. Batter Up II Plugin The Batter Up II library expands on the collection from the original Batter Up library, with 8 new Highlight patterns, 5 Criteria, 2 Filters and 3 new strategies. This library is designed to take the beginner trader to the next level of strategy development, with more advanced techniques Use criteria and filters to scan the markets for potential buy and sell setups. Identify trading opportunities based on volume, moving average, momentum and price movements. Get in with the current momentum, with range buy and sell signals. Review historical performance of 3 new built in strategies. Dont strike out when the market throws you a curve. Use these new tools out of the box or modify them to fit your existing strategy Bollinger Band Toolkit Plugin Unleash the power of Bollinger Bands. Designed in collaboration with John Bollinger for maximum flexibility, the potential of the Bollinger Bands Tool Kit is unlimited with tools that can be used on their own or in combination with other analytical tools. With so many different features, The Bollinger Bands Toolkit is one of the most extensive libraries available. A note from John Bollinger The Bollinger Band Tool Kit for Genesis was created for investors and traders wishing to unleash the powerl of Bollinger Bands. Included are in the tool kit are: 9 Studies 53 Indicators 22 Highlight Bars 10 Criteria 10 Filters 4 Strategies 18 Rules 4 Shared Rules 7 Templates For in-depth explanations of the tools included in this kit we strongly recommend that you read Bollinger on Bollinger Bands. The key concepts are explained there and the various approaches fully delineated. If you do not already have a copy, you can order an autographed copy at bollingerbandsproductsbook. phpreferrergenesis . There is one strategy included in the tool kit that is not discussed in the book, Method IV. This method requires that volatility be relatively low--in the lowest quartile of the immediately prior six-month range. Then we look for the following breakout sequence: Day one, a close inside the bands. Day two, a close outside the bands. Day three, price action that exceeds the close of day two for an upside breakout or undercuts the close of day two for a downside breakout. Method IV conditions may be tightened by requiring that the high of day two be exceeded, or the low undercut, rather than the close. Method IV may be of special interest to shorter-term and swing traders. The potential of the tools in this kit is practically unlimited what you do with them is entirely up to you. These tools have been designed to offer the maximum flexibility and therefore the greatest potential. Some of the tools are free standing and can be used on their own, while others are of greater worth when combined with other tool kit elements or other analytical tools. While there are four example strategies included in this tool kit, this package is not and was not meant to be a trading system. Rather it is a tool kit that allows you to create your own trading systems and analysis. We have tried to imagine everything you might want to do with Bollinger Bands and prepare for any eventuality. However, the possibilities are literally limitless. So, if there is a tool youd like to see added to the kit, or something you feel should be changed, feel drop us a note with your suggestion at bbtkBollingerBands . Good trading, John Bollinger, CFA, CMT Secret Rules and Tools for Stock Market Success All through time, people have basically acted and reacted the same way in the market as a result of: greed, fear, ignorance, and hope. That is why the numerical formations and patterns recur on a constant basis. Jesse Livermore, How to Trade in Stocks Jesse Livermore first became famous after the Panic of 1907 when he sold the market short as it crashed. He noticed conditions where a lack of capital existed to buy stock. Accordingly, he predicted that there would be a sharp drop in prices when many speculators were simultaneously forced to sell by margin calls and a lack of credit. With the lack of capital, there would be no buyers in sight to absorb the sold stock, further driving down prices. After the crash and its aftermath, he was worth 3 million. This library is designed around Jesse Livermores book, How to Trade in Stocks, and his secret rules to stock market success. TM The Market Check the line of least resistance to establish the overall current market direction. Remember, Livermore never used the terms Bull or Bear because they forced a mind-set that he believed made the mind less flexible. He used the term line of least resistance. He checked to be sure the current line of least resistance was positive, negative or neutral sideways. Be sure to check the exact market the stock trades in for instance: Dow, NASDAQ, or Amex before executing the trade. It is essential to make sure the lines of least resistance are in the direction of your trade before entering the trade. TIG The Industry Group Check the specific industry group, if you are considering a trade in ATT check out the telecommunication Long Distance Group. If you are looking at a trade in Halliburton, check out the Oil Well Drilling Group. If you are looking at a trade in Harrah Entertainment check out the Gambling Group, make sure the group is moving in the correct direction, the line of least resistance to provide a profit for you on the trade you have selected. TT Tandem Trading Check the stock and the Sister Stock and compare them. If you are going to trade General Motors check a Sister Stock like Ford or Chrysler. If you are going to trade Best Buy then check out Circuit City a Sister Stock. Tandem Trading requires the trader to place two stocks of the same group next to each other. TDT Top Down Trading The final step in top Down Trading is to examine all four factors at the same time The Market, The Industry Group and the Tandem Stocks and the actual stock in one glance. The Jesse Livermore Library contains an unbeatable set of trading tools, including 8 functions, 3 chart pages and 4 indicators to help you easily apply Livermores trading concepts to your trading strategy. Joe Ross Library Plugin At Trading Educators they believe in simple concepts. They dont believe in extended periods of backtesting, because markets change over time. They believe in watching the markets, and in trading what they see. The reality of trading is in what is happening now, not what happened months and years ago. Personal message from Joe Ross: Dear Friend, my approach has enabled me to trade with very low risk, often much lower than you can imagine. As youll see, its an approach that raises avoidance of loss to the highest pinnacle of decision-making. Its an approach whose chief characteristic is avoidance of over-trading, and an almost fanatical avoidance of loss of capital. Perhaps most surprising of all, this approach, which has kept me very safe in the markets, has also been unusually profitable year in and year out. Trading the Law of Chartstrade, accompanied by the money management techniques I use, in conjunction with the right mental attitude, has let me experience mostly the things I love (e. g. profits), and very little of the things I hate (e. g. losses). It is a safety-first style of trading that allows me to sleep comfortably at night. You might be wondering, How can this be possible How can any style of trading give me what I love about trading and eliminate what I hate about it Joe Ross will share with you how he employs the true principle of wealth to do just what he has said. Laser Focus Filters Plugin Maximize your chance for a Successful Portfolio Taking advantage of a fundamental 3 point scoring system to build your list with stocks that are financially strong and ready for trading, these stocks are more bang for the buck providing higher value with a lower price. Picking the strongest stocks fundamentally proves to maximize returns and with the pre-built filters, you will pinpoint the hottest stocks which maximize returns. Choosing the same stocks everyone else is using would still do well. But by picking the best stocks, profits are far more likely. Focus in on market setups to lock in exceptional timing for optimal trades. Being able to identify the best timing for setups is integral for consistent trading success. Combining this with proper exits, allow firing off at the right time on the chosen market setup to keep rewards higher and risks lower. The Laser Focus library puts together the strengths of fundamental analysis and technical analysis on multiple time frames to better understand the markets you are trading. This allows you to easily focus on long and short term market directions. Moving Avgs Heat Mapping Plugin Heat up your trading performance. Gain a better understanding of the nature of trend activity on an end of day, or intraday basis with the Moving Averages Heat Mapping Library. Reveal vital information regarding trend strength, both short-term and long-term, as well as pullbacks within a trend and potential impending changes in trend. The Moving Averages Heat Mapping is a technical analysis indicator which is used to analyze trends and to identify trend changes. Short term moving averages show short term trends or trader sentiments, while long term moving averages which show long term trends or investor sentiments. While the periods and number of Moving Averages of both groups can vary according to your trading goals, generally a bullish trend is identified when short term moving averages are above long term moving averages and bearish trend is identified if the scenario is just opposite. The closing in and intersection of two groups of Moving Averages are considered an indication of trend weakening and trend changes. Similarly, convergence and divergence of Moving Averages within a group also can also indicate trend changes. Display Moving Average heat without any programming required. Reveal long or short term bands in your desired market with a single click. Identify a changing trend with heat mapping. Visually display trend strength and pullback. Use indicators to uncover buy and sell signals. MVWAP Bands with Pivots Plugin Know when an investment is favorable with a time tested benchmark of price. MVWAP is the acronym for the Moving Volume Weighted Average Price, widely used by traders throughout the years as a benchmark of price. Strengthen your trading and realize the most optimal plan of attack, knowing when an investment is favorable or unfavorable. Use MVWAP as a means to determine the markets average trading price during a given period by taking into account both the price and the volume or number of shares being traded during the same period. Confirm your trade is inline with price and volume Use MVWAP with tick, intraday or long term charts Confirm hidden support and resistance, when used in combination with standard deviation. Use MVWAP as a measure of efficiency of your trades. Discover points of liquidity With 5 templates, 1 chart page and 50 different indicators the MVWAP with Pivots Library is overflowing with valuable tools for the stock, ETF or futures trader. Perry Kaufman Plugin Close the gap between theoretical and actual trading results. Speed your progress from novice to experienced trader with the Perry Kaufman trading library. Based on Kauffmans methods, youll gain efficiency using dependable techniques and reliable strategies that will perform time after time. Whether you test and use the studies as they are, or you modify them to meet your needs, Perry Kaufmans Market Movement Library will enhance your market analysis capabilities. Perry J. Kaufman is a market strategist known for his knowledge and experience in computer-based trading systems applied to world futures and financial markets. His publication, Trading Systems and Methods has become the technicians required reference. For more than twenty five years, traders have turned to Kaufmans classic Trading Systems and Methods for complete information about the most successful indicators, programs, algorithms, and systems. The studies included in this library were designed around Perry Kaufmans market movement pattern recognition research. You are encouraged to read Chapter 15 of Perry Kaufmans book for a comprehensive description of these studies. Gain a valuable understanding of movement pattern recognition. Use templates for instant visual confirmation of market movement patterns. Apply one or more of the available studies to an existing chart for endless analysis possibilities. Identify possible entry and exit points with easily identifiable highlight markers. 4 templates, 25 studies and 14 functions combine to offer you a great starting point in understanding Kaufmans trading methods. Pip Prophet Forex Plugin Join the Popular Crowd. Interested in Forex trading, but dont know where to start Why not look into some of the most popular Forex trading ideas around the industry. These ideas are popular for a reason, and they are now available to the platform to enhance your trading toolbox. With 3 included strategies based on Momentum, Moving Average Crossovers and Contrarian trading you can join in with the crowd using some of the most popular Forex ideas around. The library comes with great ideas to improve your Forex learning or add to your own techniques and tools. Each of the strategies can be fully customized to fit your exact conditions and specifications. Momentum Trading is designed to assist with making trend trading easier for Forex trading. Using a combination of the MACD and Moving Averages, the strategy will help identify when a trend is starting or ending. Helping to get in our out of the market before its too late. OAS-Order Angle Separation uses moving average crossovers to help identify opportune points of entry. While borrowing from the same concept of trend trading, the moving averages assist in picking valuable trades. The strategy looks for the averages to turn over and separate instead of staying tangled together when looking to make trades. Contrarian Trading is a concept that is not exclusive to the Forex markets, but lends itself very well to the market. Why would we want to follow the trading public blindly when most of them lose So instead of going with the trend, go against it when the odds are in your favor to do so. Let all of the other traders take the losses and reap the rewards. Pivot Points Plugin Avoid unnecessary risk. Confirm your trades. Pivot points continue to rank among the top trading tools of the worlds greatest traders, because of their predictive capabilities. Originally used by floor traders, pivot points provide advanced signaling of potential new market highs or lows within a given timeframe. Using the previous day to calculate potential turning points for the current day, pivot points give you the ability to forecast market direction and sentiment. Use pivot points like support and resistance to repeatedly test price levels. Avoid unnecessary risk, while uncovering trading opportunities Combine pivot points with your current trading method to confirm your trades. Forecast market direction and sentiment. The Pivot Point Library offers daily, weekly and monthly strategies in combination with 3 templates and 5 functions, making the selection of entry and exit points a much easier task. Planetary I Plugin The stars have aligned for your trading success. Gain more consistent results in any market with the planetary library of astrological tools. Designed to help you define planet positions and lunar cycles, this collection of functions, indicators and highlight bars allows you to compare planetary motion and market moves. Based on the concept that the planets have cycles and formations that affect and change the markets direction, the Planetary Library is a collection of functions that are ready to use for planetary motion in comparison to market moves. The functions can be utilized in their current form or as building blocks for other functions. Among other features, the library allows the user to track planets longitude latitude and also plot the lunar and planet positions on their chart. The library includes the basics of the planetary ideas. Is there a Full Moon or a New Moon, what is the current Planet Position ratio currently Automatically locate phases and planetary positions. Check out the Planet Data window for a view of what each planetary entitys Longitude is from the Base point. Create Highlight Bars or boxes to view when the last full moon started or when a new moon began. Quickly bring up lunar or planetary cycles values in just a few clicks. Display planet position ratio. Trade Navigator reviews the data and does the calculations for you, saving you hours of time. Are you tired of hunting down lunar and planetary positions on internet sites and in library books, then trying to match them to market moves on your chart Trade Navigators Planetary Library has everything you need Planetary II Plugin The stars have aligned (again) for your trading success. Picking up where the Planetary Library left off, the Planetary 2 Library is a collection of preprogrammed functions and templates that are ready to use for planetary motion experiments. Gain more consistent results in any market with the planetary library of astrological tools. Designed to help you define planet positions and lunar cycles, this collection of functions, indicators and highlight bars allows you to compare planetary motion and market moves. Based on the concept that the planets have cycles and formations that affect and change the markets direction, the Planetary Library is a collection of functions that are ready to use for planetary motion in comparison to market moves. The functions can be utilized in their current form or as building blocks for other functions. Among other features, the library allows the user to track planets longitude latitude and also plot the lunar and planet positions on their chart. Automatically locate phases and planetary positions. Create your own planetary functions by using the Planet Combo indicator category. Discover cyclical patterns of increase or decrease when Winter or Summer begins. Check out the Planet Data window for a view of what each planetary entitys longitude is from the base point. Create Highlight Bars or boxes to view when the last full moon started or when a new moon began. Quickly bring up lunar or planetary cycles values in just a few clicks. Display planet position ratio. Trade Navigator reviews the data and does the calculations for you, saving you hours of time. Are you tired of hunting down lunar and planetary positions on internet sites and in library books, then trying to match them to market moves on your chart Trade Navigators Planetary II Library has everything you need Power Divergence Plugin Master the power of divergences. Being able to implement ones strategy correctly when it comes to the price action, means being able to properly identify moments of market Divergence. As price and the indicators that are based upon them start to draw apart or move in contrasting directions, this is considered Divergence and can drastically impact trading outcomes. Divergence is often the sign of an up coming price change. Combining Divergence with what you are doing is a wonderful way to get more out of your indicators when looking for indications of future price changes. Being consitently profitable means being able to pick the right strategy for the market price right now as opposed to picking based upon what is expected for the prices future direction. Enter the markets with higher reward to risk ratios. Recognize divergence and increase profitability by being aware and protect profits or look for a high reward trade with very low risk. Manage your trades with better timing. Evaluate price momentum and know before the trend changes to understand when to get out of long or short positions to maximize your profits. Add a powerful tool to your trading without having to master Divergence as it is clearly identified for you. Find divergence in any time frame and market on various indicators such as MACD, RSI, Momentum or simply choose your own indicator for which you wish to find Divergence. Power Plays I Plugin Understand the power of oscillators in any market at any time. Using indicators to help with trading decisions shouldnt mean searching for and then writing the code needed to create the indicators. The oscillator tools you need for analysis and strategy development are ready to use right out of the box. The Power Plays trading library is your complete trading package with 5 indicators, including 2 unique oscillators, 2 chart templates, 6 highlight bars and 2 strategies. You wont have to spend countless hours researching and writing code, allowing you to focus on finding trading opportunities. The strategies included in the Power Plays library have been designed to teach you how to use oscillators to make trading decisions and increase profitability. RMO Oscillator Developed by Rahul Mohindar of VIRATECH, the RMO Oscillator was designed to identify bull and bear trends in the markets. PGO Oscillator Featured in the October 2003 issue of Active Trader magazine, the Pretty Good Oscillator represents the distance of the current close from its X bar moving average. For example, if the PGO Oscillator has a value of 1.5, the current close is 1.5 average days range greater than the X bar moving average. Designed to work on any market, oscillators when combined with bullish or bearish trends can prove to be big trade makers. Both oscillator concepts have great benefits when used on their own or as a part of your current strategy. Test the readymade strategies found in this library and run them against your favorite market, or even a basket of market Power Plays II Plugin New strategies and oscillators give you more power to play with. With 2 complete trading strategies, 4 templates, 2 highlight bars and 10 indicators (including 3 oscillators), the Power Plays II library has everything you need to keep your head in the trading game. Using indicators to help with trading decisions shouldnt mean searching for and then writing the code needed to create the indicators. The oscillator tools you need for analysis and strategy development are ready to use right out of the box. The Power Plays II trading library insures that you wont have to spend countless hours researching and coding oscillator indicators, allowing you to focus on finding trading opportunities. Designed to work on any market, oscillators when combined with bullish or bearish trends can prove to be big trade makers. LSS Oscillator was developed by George Angell and is a great short term indicator when used correctly. With the LSS Oscillator you will look to break out above or below the Pivot lines as long as the oscillator confirms the movement. LSS also has a strength Index indicator which gives a rating to show strength of confirmation. Point of Balance Oscillator measures the strength of the current trend. Chandes Momentum Oscillator was developed by Tushar Chande to produce overbought and oversold signals like the RSI and Stochastics. Probability Band Surfer Plugin Probabilities put in your favor. Risk vs. reward is the defining element of a winning trading methodology. Use the probability band to define your likely reward in combination with high probability trading strategies for optimum results. Every trader is different -- each has his own risk tolerance, trading ability and analytical skills. Knowing who and what kind of trader you are, is key to determining what type of indicators or trading systems you will be comfortable using. For example, many people hate to lose. But because losing is an inevitable part of the game, this is one of the worst characteristics a trader can possess. Although you cannot completely escape losses in trading, the probability bands, used in conjunction with some high probability trading strategies can help minimize the number of losing trades you may make. Quick Sets Plugin A clear vision of possible future SP500 market performance with Quick Sets. Gain a significant trading edge in bull or bear markets with the Quick Sets SP 500 trading library. The percentage of price oscillator and the introduction of the NYSErSI Indicator combine to bring you a unique ability to identify bullish and bearish divergence in the markets. 2 ready to use strategies, which focus on the NYSErSI indicator and percentage of price oscillator give you a running start toward SP500 market analysis. Each strategy is fully customizable to meet your exact specifications and conditions. NYSErSI Indicator uses a smoothed RSI of the NYSE AdvanceDecline index in its calculation. When combined on the chart with a smoothed RSI of price, some pretty powerful signals between the two indicators emerge. Percentage of Change Oscillator or PPO is based on the difference between two moving averages. By default, the chart template available in the Quick Sets library uses the difference between the 20 bar and the 60 bar moving averages. Rate of Change Plugin Spot investment trends and turning points. Identify long term market trends and possible turning points with a collection of templates, strategy and indicators designed around the long term trading techniques found in Martin Prings book, The Successful Investors Guide to Spotting Investment Trends and Turning Points Technical Analysis Explained, which focuses on Ian S. Notleys method of trend analysis based on the comparison of various market cycles using the rate of change indicators. With practical application of the trend analysis techniques of Ian S. Notley already programmed, plug in the Rate of Change library and get started. Quickly identify cycles and directional change. Spot investment trends and turning points. Confirm trades with Rate of Change functions. Market structure analysis allows for long or short position setups. This is not a library for the short term trader, and the Rate of Change strategy does not take a lot of trades. If youre interested in entering a position and holding it until the trend reverses, this library is for you. Reversal Box Plugin Stay one step ahead. Be ready for market reversals. Maximize gain and minimize your losses with instant notification of possible reversals in the market. With 6 popular reversal patterns, this library is a great addition to any traders toolbox. Get instant notification of possible reversals. Easily apply using intraday, daily or weekly data Great for both day, swing and long term trading strategies Combine with your existing strategy or use reversals on their own Seasonal Sweet Spots Plugin Take control of your trading plan now with more consistent winning results. Eliminate the guesswork of futures and stock selection, with the ability to filter over 10,000 symbols to find the very best trading opportunities. Know seasonal statistics in advance with 8 different filters Put probabilities in your favor with 30 years of accurate historical data. Know consistent bias in the markets before committing precious capital. Break down every trade and review comparisons with multiple reports at one time. Be on the correct side of the trend, knowing the seasonal probabilities in advance. Seasonal patterns are some of the most powerful and least understood forces in financial markets. Some of the very best and most successful traders in the world use seasonal and cycles patterns to win trading championships by using simple seasonal models with over 900 returns in some cases. The markets are controlled by the collective human emotion which operates within its controlled environment. Outside forces that affect humans, therefore, has an affect on the markets. Weather and other seasonal changes can trigger market changes for better or worse. Experienced traders know that different market conditions call for different approaches to trading. Being aware of historical swings in market behavior from season to season can give you a distinct advantage. Street Smarts I Plugin The shrewd resourcefulness to succeed in any market Now thats what we call Street Smart Level the playing field with the trading tools you need to succeed in any market. The Street Smarts I library brings the techniques of Linda Raschke to the individual investor. A dozen highlight bars, 6 chart templates and 5 indicators combine to uncover buying and selling conditions in any market. Analyze the markets using swing trading techniques to determine support and resistance points, with tools to show trade setups and lock in profits. Gain confidence as you learn to identify when patterns are beginning to develop using the Street Smarts I library in a simulated trading environment, then put your knowledge and confidence to the test with live trading. Street Smarts II Plugin Get the strategies that will give you the Street Smarts to succeed. Level the playing field with the trading tools you need to succeed in any market. The Street Smarts II library brings the techniques of Linda Raschke and the tools from the Street Smarts I trading library together with 10 ready to use mechanical strategies. Whether youre testing strategies in a simulated trading environment or trading live, each of the 10 mechanical trading strategies has been designed to apply the lessons of Street Smarts and the tools from the Street Smarts I trading library to give you strategy solutions that are ready to use from entry to exit. The variety of available strategies gives you a well-stocked arsenal of techniques that can tackle the majority of market trading situations. The Seven Samurai Plugin Trade the E-Mini SP500 like a Samurai Warrior. The 7 Samurai trading library embodies the 7 virtues of the samurai warrior, as applied to trading language. This collection of 7 ready to use E-mini SP500 intraday trading strategies focuses on gap trading from the market open. This powerful library of strategies contains everything you need, whether you want backtest an out of the box solution or the ability to customize, create and auto trade your own trading strategy. With open code, you can view all of the parameters of each strategy in detail. Strategy rules may be copied or modified, which may lead you to discover a set of unique trading rules. 7 Samurai Virtues applied to trading: Gi (or Rectitude) - Stay centered and keep your emotional ground. Dont let market mood swings get to you. Yuki (or Courage) - Dont take foolish chances. Wait for your moment to strike. Jin (or Benevolence) - Dont try to force your will upon the market, or go against yourself. If you trust what you are using is a tested way to make money, stick with it. Rei (or Respect) - Multiple tools and techniques will often line up to show you the way. Basically respect the market and combine those tools and make sure most of them are all pointing in the same direction. Makoto (or Honesty) - Dont be afraid to admit defeat (or that you may have lost the trade). Be honest with yourself and choose when to bow out. Depending on hope is not a great investment. Meiyo (or Honor) - If it looks like a win, then proceed. Conduct your trading with honor and glory. If it looks too dangerous, theres no harm in staying out. Theres no reason for trading Bravado. Chugi (or Loyalty) - Remember to always practice in order to keep your skills sharp. Remember your loyalties, and dont forget what got you to where you are today. Thomas Stridsman Plugin Easily apply what youve learned about trading system measurement and design. Maximize your swing trade opportunities with the ability to confirm signals with volume breakouts and reversals. Readers of Thomas Stridsmans book, Trading Systems That Work, will have access to over 20 indicators, 5 templates and 3 Strategies based on the systems described in the book. A symbol group is also included for quick basket testing of multiple markets at one time. (It is recommended that you read or have read Trading Systems That Work before putting the library trading tools to work.) Indicators, templates and strategies are pre-programmed in a ready to use format for review and application as you progress through the Stridsmans book. Please note, the author uses the trading strategies outlined in the book as learning examples only. As a result, the strategies are not intended to be applied to real time trading. Trade Secrets of the Masters Plugin The ultimate foundation for trading strategy development. Trade Secrets of the Masters is your ultimate foundation for trading strategy development, with 10 strategies designed to showcase the features and functionality of Trade Navigator Platinum. Save valuable time, by learning to optimize and alter this diverse collection of prebuilt trading strategies based on a variety of successful traders and their most reliable, market tested techniques. 10 open source trading strategies give you the ultimate TradeSense foundation. Each rule is fully visible and can be adjusted and manipulated to your specifications. Gain efficiency using dependable techniques and reliable, organized performance. Benefit from the experience, knowledge and insight of some of the most successful traders in the world with Trade Secrets of the Masters. Own the tools the professionals use. Traders Advanced Techniques Plugin Get the tools you need to trade without fear of bulls or bears. Find more profitable trading opportunities when you apply Advanced Techniques to your daily trading. With 16 indicators, 1 study, 2 complete strategies and 4 chart templates, you will be able to enhance your trading and analysis in a variety of ways. Use indicators to quickly identify bull and bear pressure in any market. Apply the Congestion Indicator to any breakout strategy to verify periods of time when the market is not making any significant moves up or down, or use the Investors Trend Indicator to help you define support and resistance using a weighted 21 bar moving average of the average true range. The Pressure Measure Indicator is another valuable indicator, helpful in revealing accumulation and distribution pressures in the market. The Traders Advanced Techniques Library combines many of our best ideas and techniques to create strategies that work. Trend Outlook Plugin Get the right outlook on the market before placing a single trade. Get instant access to 10 unique studies designed to help you determine market trends with the Trend Outlook library. Studies can be used on their own or in combination as a part of criteria and strategy rules in system development, or simply to serve as an example of how to create your own code. Using the trends in this library will allow you to focus on perfecting your ideas without getting bogged down in the details of defining trends in a manner that a computer can understand. Designed with the sole purpose of showing you how to incorporate and identify many of the most commonly used and looked for market trends, the Trend Outlook library also includes open source code for a closer look at how the formulas associated with each of the studies and functions. In addition to the 10 studies and 22 functions included in the Trend Outlook library, youll also have access to a template containing a large collection of indicators and highlight barsboxes used to highlight trends, giving you all the tools you need to visually identify trends quickly. Volatility Breakout Plugin Find market breakouts and ride the trend to greater profits. Breakout trend trading is the most robust form of systematic trading that exists. For nearly a century, the most profitable traders have used a trading style focused on entering trades with minimal risk and riding out the trend for greater profits. The Volatility Breakout library includes 2 indicators and a strategy designed to find breakouts and ride the trend, while adhering to strict risk management principles. Trade the Volatility Breakout Strategy on any market (futures, forex, stocks) and any time frame. Capitalize on dramatic market moves by riding the trend. Minimize risk by entering the market at the right time. Define volatile markets to protect precious capital. Customize the strategy parameters, including range values and time period to meet your exact specifications. Clearly defined entry points make knowing when to get into the market easier. Take the guesswork out of when to buy and sell, by predicting volatility rather than price. Use with minute, daily and tick bar chart time frames. The Volatility Breakout trading library is ideal for a beginning trader who enjoys fast moving markets and is committed to protecting capital and trading with long term success in mind. Winning Strategies of the Masters II Plugin Open the door to the minds of the best technical minds in trading. Adding 10 new trading strategies, 4 highlight bars and a new moving average indicator, Winning Strategies of the Masters II is a perfect extension to the Winning Trading Strategies library. Developed by the minds of some of the most experienced technical analysis traders in the business, prebuilt strategies. Winning Trading Strategies Plugin Get the winning trading strategies of master traders. 9 proven trading strategies combine to bring you distinctive trading concepts with a wide range of techniques, as created by George Pruitt for Futures Truth Magazine. With easy to learn strategies, youll be able to customize each strategy to meet your exact specifications. Develop backtesting and analysis on a single strategy or backtest all 9 strategies simultaneously. Check out each Zone Traders Plugin Trade any market with greater success in the zone. Minimize risk and identify trends with the Zone Trader library. With 8 highlight bar patterns, 3 indicators, 3 chart templates and 2 strategies, you will have all of the tools you need to identify safer trading times. Discover safe trading zones for optimal order entry. Avoid trading during dangerous market periods. Customize Zone Trader strategies to meet your exact specifications. Open code allows you to view all of the parameters of each strategy in detail. Gain efficiency using dependable techniques and reliable strategies. The Zone Trader librarys emphasis on uncovering safe zone trading opportunities, as well as more dangerous trading zones, acts as an excellent complement to your existing strategy. The Trade Navigator Trading Software comes jam packed with chart pattern recognition plugins to make market patterns easily recognizeable, and actionable. Our array of over 40 advanced chart pattern recognition plugins have been developed to suit end-of-day stocks, options, and futures investors, as well as stocks, options, and futures day traders. Our chart pattern recognition plugins give you the edge you need in volitile markets to make your trades count.