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OK. Uncle. Still think there is no problem?

16

November, 2009

We have been warning about the rampant expansion of High Frequency Trading for over a year now. Well, the real money has been made, by the real players. The quiet ones. The ones who never bragged about it. Steadily the practice has been moving downstream the smart-money line. Naked access. Seminars. How-to books. You get the idea.

The end must be nearing, as we now have reached the point of ridiculousness. FTAlphaville today notes Cyborg Trading:

http://ftalphaville.ft.com/blog/2009/11/16/83476/where-fantasy-finance-meets-the-real-world/

You can download a brochure that looks like this:

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I don’t know what to say. Except I long for the days of emails notifying me of OTCBB stocks ready to take off. I miss the old-time market top signs. The ones we see today just make me want to pack up the pickup truck with food, water, Bic lighters, and rations, and head for the hills. Can you say “Danger Will Robinson?”

One Response to “OK. Uncle. Still think there is no problem?”

  1. ECDINOVO
    avatar

    Trade 10x more frequently, pay 10x more commissions. What is there not to love for the brokerage firms?

    Yet, I really do like conditional orders. They help enforce your discipline. Sometimes I trust them more than stop orders because they don’t sit on the ‘books’ for all to see. From Sy Harding’s website (http://www.streetsmartreport.com/faq#Protective%20stops):

    “Some years ago when we did give protective stops, there were a number of times when a stock would suspiciously reverse and move opposite to the direction we expected just enough to reach the stop and pick off our position, and then return to the direction we expected. About the same time that we were becoming concerned, Martin Zweig, a well-known newsletter publisher at the time, announced he would no longer be providing protective stops. His reason was that the specialists and market-makers couldn’t help but notice the several hundred or several thousand protective stops all set at the same time, at the same price, for the same stock, in their ‘books’. He suspected it was often too big a temptation for them, for instance on a protective stop on a buy position, to simply move the stock down in the direction of the stop enough to trigger the stop and automatically bring in all that selling so they could pick up the buy positions for themselves at an even lower price. (The reverse on short-sales, an opportunity to bring in a substantial amount of artificially induced buying as the stop is hit, to drive the price even higher where they could take the short-sale positions for themselves at an even higher price). In any event, when Zweig stopped providing stops, his subscribers’ problem of being mechanically stopped out of positions that later turned out to be good, ended. And when we also stopped providing stops our subscribers’ occasional problem ended.

    As many of you will remember, in 2000 we succumbed to subscriber pressure to provide stops, and decided enough years had gone by that maybe we should give it a test. So when we sold Dell short at something like 50, we provided a downside target of 25 and a protective stop at 56. The stock, which had started to decline, almost immediately reversed direction when all those subscriber stops poured in at 56 in the market-maker’s ‘books’. Dell climbed back up, reached 57 for a day or two, and then immediately returned to the downside, and within a few months exceeded our downside target of 25, getting as low as 15. It was an expensive test. By providing the stop we lost out on a profit of more than 100% on the short-sale. We decided we would go back to doing it the way we think best, no stops.”


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