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

Monday, November 20, 2006

Figuring It All Out

Gross: +$573.04
Net: +$315.94
Loss From Top: 146.40
Trades: 112
Shares Traded: 249992

Stocks Traded Today (net profit/loss):

Walmart (WMT): +$360.79
Home Depot (HD): +$310.47
Motorola (MOT): +$111.65
Corning (GLW): +$0.74
Advanced Micro Devices (AMD): -$21.10
AT&T (T): -$88.76
General Electric (GE): -$158.90
Hewlett Packard (HPQ): -$198.93

Near the end of the trading day today, our branch manager announced that we had a new Master Trader (a trader who nets $120,000+ within a 12-month period).

The new Master Trader became full-time just two months before I did and when the branch manager first announced it, I felt myself slouch a little, feeling a little jealous.

At the end of the day, I packed up and caught up to this new Master Trader. I congratulated him and we got to talking on our way out.

I asked him what kind of things he was doing with his trading and what stocks he traded. He went on to describe how he traded and it sounded eerily similar to what I do and he basically trades the same stock I trade (Home Depot, Walmart, AMD, etc).

I then asked him if he was a big position trader, thinking that he was probably putting on 20,000 or 30,000 share positions on these same stocks I trade. He said he simply traded around 2500 shares and at first I thought he misspoke and really meant 25,000 shares at a time.

As we continued our discussion, he said it again - he usually went in with 2000 shares! On those same stocks, I usually put on 4000 or 5000 shares at a time!

Upon hearing this, I got really excited! Here I was, thinking that most of the money makers were putting on huge sized positions (40,000+ shares) and that it would be next to impossible for a trader like myself to get way up there.

But here was this Master Trader who traded the same way I do - BUT WITH SMALLER SHARE SIZE!

I then went on to talk to this Master Trader about my trading difficulties - about how the last few months I've seen my profits continue to slide south and about how my confidence level was sky high just before the summer, but now seems to be at a low.

This Master Trader then stopped me there and told me that that situation was exactly the same situation he was in a few months ago. He said that for about 6 months he was slowly seeing his profits go down and it got to a point where he had to start considering taking in a part-time job.

I then stopped him and told him that this was exactly in the same spot I'm in right now!

He then went on to tell me that during the rough spell, he did a lot of serious thinking and he made some tweaks here and there and then...well...he just figured it all out!

He told me that there were two things that turned his trading around:
1) He had to learn to hold on to a temporary loser IF there is a strong possibility the trade will continue going in your favor (in the past, he'd usually just punch out)
2) Holding onto your winning trades EVEN when big size suddenly appears and gets in the way

I couldn't believe it!

These two things he mentioned are the things I have been working on over the last 2 or 3 trading days!

The last couple of days I've been holding onto temporary losers if I have a strong belief that the move will continue (whereas before I simply punch out no matter what) AND I've been holding my positions and staring big size in the face and telling it "I'm not afraid of you!"

After our conversation, we parted ways and I found myself with a new found confidence. It no longer seemed impossible to make good money (i.e. I don't have to use 40,000+ shares) and that the things I've been working on are definitely steps in the right direction.

Anyways, today was another day in which I found it difficult to trade. I caught some good moves on Walmart (WMT) and Home Depot (HD) in the morning, but I found myself fighting all afternoon.

Today I also practiced those two main points that the Master Trader talked about, though I still put on some trades that were questionable and foolish given the way the markets moved this afternoon (that I'll have to work on).

On most of my trades today I felt there was definitely more patience...patience when the trade initially went against me and patience when the stock seemed to stall. I also didn't really feel as anxious with my trades.

At roughly 10:45AM, Walmart (WMT) had a nice move upwards and I managed to take almost $500 from that move on several scalps.

Then at around 11:30AM Home Depot (HD) also had a nice move upwards and from this move I was able to take a little more than $450 on several scalps.

However, I gave back some of those gains throughout the day and it really felt like two steps forward, one step back all day today. I know I overtraded today and I would have been better off not trading as much in the afternoon.

Two good trades and one bad trade today.

With the similarities between my trading style and the new Master Trader's trading style, I feel I'm close to figuring it all out. After all, the Master Trader was able to figure it out, and so will I. I can feel it...I'm on the brink and I hope that everything I had hoped for is just around the corner...

Good Trades
10:58:42AM - Walmart (WMT) started moving up while the Futures were also moving upwards. I went long 3000 shares when I had a chance to and got everything out for a 7-cent winner ($210 profit before fees ; Long 3000 shares @ $47.89 ; Out: 10:59:55AM)

11:33:14AM - Home Depot (HD) was moving up and the Futures were moving up slightly. HD reached resistance at $38.50 and when it broke, I went long 4000 shares. I got out as follows: 3-cent winner (2300 shares), 5-cent winner (1700 shares) ($154 profit before fees ; Long 4000 shares @ $38.50 ; Out: 11:35:34AM)

Bad Trades
1:33:48PM - Hewlett Packard (HPQ) was moving up while the Futures were flat. HPQ reached some significant resistance at the $40 level. At the time, I was thinking that since everything was flat, the $40 should hold and probably wouldn't break, so I went short 4000 shares @ $39.99. Just then some big orders suddenly cleared out the $40 and I started scrambling out of my position. I got out as follows: 2-cent loser (500 shares), 4-cent loser (3500 shares) ($150 loser before fees ; Short 4000 shares @ $39.99 ; Out: 1:35:03PM)

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  • No Fear.

    Trade the chart not the money.

    By Anonymous StockRoach, at November 20, 2006 7:42 p.m.  

  • Stockroach,

    Right on! No fear my friend! No fear! I'll continue working on holding my positions and we'll see how much further that can take me!

    I wish you the best of luck in your trading this week!

    By Blogger J.C., at November 20, 2006 9:20 p.m.  

  • I want to see some $1k days, now get down and give me 20 stock-scans! You see how much profit you left off the table on the WMT Trade?? It didn't even reverse!

    By Blogger Cal, at November 21, 2006 12:27 a.m.  

  • Hi JC,

    I too was guilty of tick watching, now I only use L2 for my entry and then minimise it or don't look at. I just relax and watch the charts forming. One candle against my position and I'm out. Simple exit strategy! My profitability has quadrupled doing this.

    Have faith, I know you are at a turning point. Stick to it man, you've got what it takes

    By Anonymous Anonymous, at November 21, 2006 3:31 a.m.  

  • Cal,
    Thanks for your comments. :) It's true! I haven't seen a $1K+ day in a long while...I too was upset I left a lot of profits on the table with both WMT and HD...I'll keep working on that!

    Thanks for your comments. You're absolutely right! Once in a position, I should rely on the charts and not the L2...the WMT trade would have worked out great if I had followed your plan! Just a few more tweaks here and there and I hope I'll get there!

    Happy trading all!

    By Blogger J.C., at November 21, 2006 7:43 a.m.  

  • Hi JC,

    I think you're on the right path, good luck. I just have a question about your # of shares traded. Is that round trip or one way?

    By Anonymous JJ, at November 21, 2006 9:26 a.m.  

  • why dont u peel 1/2 off instead of all out at once

    By Anonymous Anonymous, at November 21, 2006 11:45 a.m.  

  • JJ,
    Thanks for your comments. The number of shares I show is the round trip numbers (and so are the number of trades). Hope it helps!

    Thanks for your comments. Yea, I'm not too sure why I got everything in and out on that WMT trade. I think my thinking was that I'd get in and out several times on the move. In the case of WMT, I made almost $500 on that particular move in WMT and on the move made by HD I took in almost $450. On most of my normal trades, I will usually try to peel off 1/3 or 1/4 of my position and scale out of it.

    Happy trading and happy Thankgiving all!

    By Blogger J.C., at November 21, 2006 9:22 p.m.  

  • JC

    Sorry you're not feeling well. Take it easy mate!

    I'm a Nasdaq scalper and was wondering about the fills you get on NYSE, as when I try NYSE stocks I get awful fills.
    Do you route to ECN's for faster fills? Can you explain a bit about your routing methods.

    Many thanks
    Keep up the good work.

    By Anonymous Anonymous, at November 22, 2006 5:28 a.m.  

  • JC,

    I'm no scalper, but I find your site helpful nonetheless. One "deja vu" that hit me on this post - Dave Landry, aka "Master Swing Trader," when approached by folks who seem to "have it together" yet are having difficulty turning consistent profits, says his common advice is "cut your position size," after which many of them turn profitable almost instantly, but have difficulty because of the lack of adrenaline generated by the smaller "boring" positions.

    Your discussion w/ the Master Trader sounded quite similar. I think that advice must apply across all time frames! Thanks for the work you put into your site, and the great info.

    By Anonymous Will, at November 23, 2006 1:24 a.m.  

  • Nice blog. I trade prop in the US. I'm not a scalper but a momo trader although I wish I had the kind of volume-handling training that you had at your prop shop (Canada?), even with the % that you have to pay on your earnings it's money well invested in a fundamental skill... Toughest thing I had to learn on my own, and still struggling with it.

    I trade from a roster of stocks which currently is about 50/50 NAZ and NYSE. I have found myself more and more trading NY, if only because the stock universe is a lot broader there (I need liquid high-volume stocks) but I wonder how the move to hybrid is going to affect us. Any thoughts?

    Also my office manager-I think expressing traders consensus--recommend routing listed orders to NYSE rather than ECN's. Rebates and ECN fees aside, what's the view from scalpers?

    Thanks in advance for insight.


    By Anonymous Anonymous, at November 28, 2006 1:45 p.m.  

  • Tony,

    Thanks for your comments. It's interesting to hear that you're more into NYSE stocks than NAZ. As far as Hybrid goes, I think if you're a longer term trader (with hold times longer than, let's say, 30 minutes), I'm not sure if Hybridization will have as much impact. However, if you're hold time is much smaller, like a few minutes, one of the things I've found is that you've got to be a little more patient with your positions simply because the price action appears to wiggle a lot more.

    As for ECNs - I mainly route to the NYSE (I use INET RASH, which will first go through the Island book and any shares unmatched will go to the NYSE).

    The only time I'll use an ECN is if a level has broken and there are still shares available or if I simply want to pick up some rebates (mainly by adding liquidity with Arca). Another reason I'd use an ECN is if there are already too many shares available on the New York book and I want to get rid of shares.

    In the past (before INET RASH came about), I was sending almost all my orders directly to the NYSE.

    Also keep in mind that if we use INET RASH, all traders will get re-imbursed for the cost of using it at month end as long as our shop fulfills a quota (which we usually do). This means that if I use INET RASH, I'm basically using this ECN for free.

    Hope it helps!

    By Blogger J.C., at November 28, 2006 9:22 p.m.  

  • Thanks JC for the reply and info. I'm holding from a few minutes and up to an hour or so. A few of the listed stocks I trade are already hybrid but I haven't seen much difference so far (except TOL where it has made a difference).

    My shop doesn't offer RASH. I often exit at market and I have been experimenting a bit with ARCA to do that instead of NYSE. The jury is still out on this one :-)



    By Anonymous Anonymous, at December 02, 2006 3:30 p.m.  

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