An NYSE Scalper's Tale - A Trader's Diary

Monday, September 11, 2006

Scrambling For The Exits

Gross: +$873.96
Net: +$704.24
Loss From Top: $64.70
Trades: 152
Shares Traded: 141454

Stocks Traded Today (net profit/loss):
Exxon Mobile (XOM): +$531.11
Walmart (WMT): +$375.03
Home Depot (HD): +$183.26
Corning (GLW): -$14.61
Advanced Micro Devices (AMD): -$15.50
AT&T (T): -$23.56
Motorola (MOT): -$39.12
Micron Tech (MU): -$40.04
Hewlett Packard (HPQ): -$252.31

Do you know those scenes in movies where there is a group of people that are in a mall or a bank and then fire is detected or gunfire is heard? And you know the thing those people in the movies always seem to do?

They start throwing their hands up in the air screaming, tossing their shopping bags all over the place and they all start running towards the exits. They begin pushing and shoving others and they don't care who they trample or who gets hurt - as long as they can get to their ultimate goal: to get out of there!

Well that's what happened to me today. Not literally, but in a trade I was in. And believe me, I always hate having to scramble for the exits because it means that the position I am in has gone seriously wrong and that I'm about to lose a ton of money.

There are some traders who exit a trade calmly and with ease, even if the trade is about to become a serious loser. But for me, I hate losers with a passion and I'll do anything to get out of a really bad trade...no matter what the price and no matter what the cost.

However, during my scramble to the exits, I often times hurt myself more than I should. How? Because whenever I desperately want to get out of a trade, I'll usually place my order a good 10 or 20 cents worse than the current best price (because I know the specialist will fill me at the best price possible and that since my order is at a price that is way worse than anyone else's, I'll have more priority than others). Unfortunately, when others see my order hit the Level II, others begin selling off too by placing orders at prices that would be ahead of mine and as a result, I end up helping push prices in awkward directions.

This morning on a trade on Hewlett Packard (HPQ), I went long 4000 shares at the $36.00 level and when it was clear the level wouldn't break, prices began falling fast. Before I knew it, I was looking at a big loser and so I started scrambling for the exits. I started throwing sell orders left right and center and I placed orders that were 5 to 10-cents worse than the best bid.

But whenever I put a sell order that was maybe 5 to 10 cents worse than the best bid, it would show up on the Level II, then suddenly I'd see other orders appear that are at a price lower than mine! When the specialist finally prints, he would have printed the other orders, but not me! Then I'd put in another order, then others would try to put their orders ahead of mine again!

I was like one of those people in the movies trying to get to the exits and the other orders were probably from other people who were trying to do the same. We were pushing each other, and we were trampling over each other and we didn't care who got hurt, as long as we got out.

I finally got the last of my shares out for a 19-cent loser! Check out an intraday chart of HPQ. Look at the prices at around 9:51AM to about 9:53AM. See that sudden drop? That was me trying to scramble for the exits and I got out right at the bottom of that sharp drop (at $35.81).

I could have done without that bad trade (which cost me over $300) and perhaps I panicked a little too quickly, but I find that my behaviour has saved me more times than it has screwed me. Unfortunately today it kind of screwed me a bit because after I got out (at the bottom!) it bounced right back up.

But the day ended up being a relatively good day. I put on a great short on Exxon Mobile (XOM) this morning, which I could have taken for a lot more profit (could have gotten more shares, could have held it longer).

Walmart (WMT) was also fairly strong today and I had a good time scalping it all day.

Today it seemed like I was taking more risks than usual and I think I should continue to trade the way I did today and I could have made it a $1000+ day if it hadn't been for that big losing trade on HPQ. If I intend on taking more risks in the next little while, it will probably mean I'll have greater swings in terms of profit, but I think it's about time for me to do this....afterall, I can't keep playing it safe.

Good Trades
9:40AM - Exxon Mobile (XOM) was puking down while the Futures were relatively flat. On the Level II, I saw lots of sellers and lots of big size coming down on the offer so I tried going short. I managed to get short 1000 shares at $66.06 and I got short another 200 shares at $66.05. At that point, XOM just went straight down and I couldn't get any more shares. This stock just went for a freefall and when there was a little bit of a pause, I got out as follows: 34-cent winner (200 shares), 35-cent winner (1000 shares) ($418 profit before fees ; In: 9:40:05AM ; Short 1000 shares @ $66.06, short 200 shares @ $66.05 ; Out: 9:43:04AM)

Bad Trades
9:51AM - Hewlett Packard (HPQ) was moving up, but in a choppy fashion while the Futures were starting to downtrend. There was huge size at the $36.00 level on the offer and when it looked like it was going to break, I went long 4000 shares at $36.00. When it didn't break initially, prices hung around for a bit, but then the bottom fell out on it. It dropped 3 cents and that's when I started scrambling for the exits. Prices got pushed and I tried to get out where ever I could. I got out as follows: 1-cent loser (300 shares), 2-cent loser (200 shares), 3-cent loser (1000 shares), 7-cent loser (1000 shares), 11-cent loser (1000 shares), 19-cent loser (500 shares) ($312 loser before fees ; In: 9:51:02AM ; Long 4000 shares @ $36.00 ; Out: 9:52:27AM)
  • Ummm...ok. Tried to go long on a major level break WITHOUT the Futures' help...not a good idea, especially when the level had huge size on it (which means if it doesn't break, they'll be a lot of longs that will want to get out)
  • It was also one of those "One Print Breaks" (see one of my earlier posts from February)...I should know by now that "One Print Breaks" don't have a good probability of working out.
  • I guess I could have been a little more patient with this (as prices did eventually come back), but hey, I just hate hanging on to losers!

4 Comments:

  • Question: don't market orders get priority over limit orders? Wouldn't that mean they are always better than a sell limit 10 cents below the bid? After all, if it moved 10 cents against you, you'd still really want to be filled, right?

    By Anonymous Richard, at September 11, 2006 7:41 PM  

  • Richard,

    Thanks for your comments.

    This question kind of gets a little tricky (maybe some others out there reading can offer some input).

    But from what I understand, "marketable" limit orders (the kind I do that are 10 cents out of the money) are processed and accepted faster. However, from what I understand, market orders sent to the specialist are sometimes held, bundled up and may end up taking a long time to execute. By the time the specialist gets around to filling the market orders, it may be at a very undesirable price.

    As an example (I've seen this occur often), when prices are moving down very quickly, and everyone is sending in sell orders and the Level II gets all crossed up, there will be a slight delay (while the specialist figures things out), then I'll see a print by the specialist that is way down, maybe 10 or 15 cents down from current prices (specialist bundled up all market orders and filled them all in one print), but the bid looks like it moved only 5 cents down (instead of 10 or 15 cents - this is because more buy orders have come in while the specialist was busy dealing with the market orders) and those with "marketable" limit orders (my type of orders) are filled, but at prices that are not as bad. I see this often on stocks like Exxon and AMD.

    Another way I could exit is by using an Arca market order, but I feel very weary about using this. The reason is because by using Arca market, it'll send a market order to all available ECNs. The problem is if things are moving fast and you've got a lot of shares to get rid of and there are hardly any shares on the ECNs, you never know what price you are going to get them at...you might get filled 20 cents worse than if you sent your order to the specialist (I've heard that one guy got filled more than 50 cents out of the money!).

    Of course, there is the odd time when prices just simply move too far, too fast away from you. In my case, HPQ really moved and I ended up sending multiple "marketable" limit orders because my orders were at prices that were just not far enough down. Ideally, if I really wanted to get out, I should have sent my orders maybe 20, 30, or 50 cents out of the money...then I'd be filled for sure!

    So in short, yes...market orders get priority over limit orders (and my orders), but I never use market orders myself.

    Keep in mind that the NYSE and it's hybrid market is probably going to change everything and as a result, I may have to change a few things about the way I trade.

    I hope others reading out there can provide more input about market orders and limit orders and if they can let me know if my understanding of the way the specialist handles these orders is correct!

    JC

    By Blogger J.C., at September 11, 2006 9:01 PM  

  • I think I've seen the kinds of cases you are talking about... so the limit order is protecting you when bid/ask confusion causes some market order prints that are overly bad. I dunno... for my trading, I'm not convinced I wouldn't rather have the speed, in the long run. The cases when the price just keeps running down sound potentially very bad. I am probably not as fast as you are, juggling orders around!

    By Anonymous Richard, at September 12, 2006 12:31 AM  

  • Richard,

    Thanks for your comments.

    Exactly - that's the trade-off. So it's either execution vs. price protection and it really depends on which you prefer. Most times the "marketable" limit orders work just as good, but in cases when prices just really run away from you, then market orders are probably better.

    I'd estimate that probably 95% of the time, "marketable" limit orders work simply because prices most often don't move so fast on the NYSE, but yesterday's HPQ trade was that odd 5% of the time.

    Happy trading!
    JC

    By Blogger J.C., at September 12, 2006 7:27 AM  

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