electronic scalping

[ukxgerard]

Hi,

I am a former floor trader trying to make the transition onto the screen. I have opened an account with Transact futures in Chicago and am provided a nice front end (simple and fast) and a decent commission structure. My basic approach is to scalp for ticks and generally play the "transition" game...in other words try to get filled as the market transits from bid to offer or vice versa. This strategy as some may have guessed is typical of a floor scalper.

The major difference between these two environments is the implementation of some kind of FIFO/queuing system, depending on which exchange you trade electronically. My first impression so far is this: it isn't easy!!

This is my basic strategy:

1. Trade a product which is highly correlated to another product, then key off the more liquid one. In other words, a follower/leader strategy. An example would be trading Bobl and keying of the Bund, or Stoxx against the DAX.

2. Watch T+S like a hawk.

3. Trade the transition - as market goes from bid to offer or vice versa, try to get a fill. In anticipation of getting filled, I will put my buy order (in this case, I am short from a higher price) below market, so I can get a good position in the queue.

I reckon in many ways this is like a job. Everyday you gain practical experience and thru the process of observation you get to see "patterns" and notice the various "tricks of the trade." I have only been going at this for a couple of weeks (from home) and I am down small.

I was hoping for any feedback, advice or constructive criticism from other more experienced traders, particularly those working in the arcades 🙂

I certainly appreciate any insight you may have.

Thank you,

Gerard

P.S This thread seemed like the most appropriate place to post. My apologies if this is not...can the moderator contact me and I will do the necessary.

 

[BBB]

You may want to consider the fixed incomes. The matching engine for these tends to be pro-rata (similar to the pit) rather than FIFO. May increase your chances of getting your fill. Not an expert on this one so others may know better.

 

[masao]

I'm intrigued ukx by this if you found a way to do it. I know it can be done with no commissions and deep pockets and is probably the most consistent form of trading. I tried it out of curiosity for a couple months but just ended up churning which was what I suspected but had to see for myself. Here is an equity curve of the strategy I came up with which was basically an anti-trend approach where I treated a movavg/displaced lin reg cross as a pivot. They buy I sell kind of thing. The problem was I made money generally a certain number of days and would get hammered on trend days which from what I hear is pretty much the story on the trading floor as well for those that employ this type of trading. Anyway I thought I'd mention the anti-trend approach thinking maybe with your knowledge could come up with something workable. Good luck.

 

[ukxgerard]

I'm intrigued ukx by this if you found a way to do it. I know it can be done with no commissions and deep pockets and is probably the most consistent form of trading. I tried it out of curiosity for a couple months but just ended up churning which was what I suspected but had to see for myself. Here is an equity curve of the strategy I came up with which was basically an anti-trend approach where I treated a movavg/displaced lin reg cross as a pivot. They buy I sell kind of thing. The problem was I made money generally a certain number of days and would get hammered on trend days which from what I hear is pretty much the story on the trading floor as well for those that employ this type of trading. Anyway I thought I'd mention the anti-trend approach thinking maybe with your knowledge could come up with something workable. Good luck.

Hi Masao,

Just a few more rants:

1.This strategy has been used consistently by floor traders around the world. It is essentially dependent on low commission structure and being able to see the flow of "paper" or orders coming into the pit. The floor trader soon develops the experience of when the market is going to "turn" and acts accordingly by hitting bids or lifting offers. If he has anticipated correctly and the market indeed "turns", he is in a good position. Assuming he lifted the 8 offer and the market is now an 8 bid, he will offer a tick higher or "scratch" out, if it looks like paper/locals wants to sell it again. That's it!! - no charts and no opinions.

2. I assume many electronic scalpers in the major arcades are using some variation on this strategy. Again commission considerations play a significant role whilst connectivity and ISV functionality somewhat replace "tier position" or proximity to a broker.

3. My original post assumed liquid markets, with decent ranges everyday. I am further assuming STIR traders will trade a bit differently, as the name of the game is being able to prioritize their place in the queue. STIR's to have much greater size and thickness at every level compared to other contracts and so will be traded accordingly.

4. I am not surprised your counter-trend strategy every so often hands you a beating. Most of the time mean reversion strategies will work, but once in a while on big trend days, you can get really hurt. I did not mention it above, but a good scalper always takes a small loss. That is really the key to the strategy - high volume, low margins and keeping losses to a minimum. Your strategy should be workable as long as you don't let the market run against you and keep losses small.

I am really keen to hear from any arcade traders and how they do it on a daily basis 😀

Thank you,

Gerard

 

[masao]

Hi Gerard,

Yes my use of the word "hammered" was an exageration, lol. I have a tendency to talk abit colorful. Keep us posted as to your progress I enjoy these types of trading stories. Take care.


Regards,

masao

 

[jimmy1]

hi
how are you going on the scalping over there?