(i think ) i have a gap trading strategy but...(frontrunning?)

[Chartsy]

well basically i have been figuring out some setups and have (almost) figured one out, i think.
i don't care if you say ' secret setups dont exist' if you are here to say that don't bother posting.

I'm certain that large traders use this particular strategy/formula/setup and it causes quite significant price moves in stocks.

My worry is whether or not to continue with this; as im sure that those large traders would be using dark pools, surely that is non public information, and trading such a setup would just be like front running?

is it illegal to trade this setup ? if so, is it illegal to wait until after the block trade has occurred, and then trade with it, even if it has a tendency to reverse market direction?

 

[Shakone]

You're making a trade based on something you see in a chart, and are wondering if it is illegal?

 

[Chartsy]

well, i am certain that large traders use it.

certain.
thats surely advance knowlegde a block trade will occur..ie front running?

 

[Chartsy]

''Front running
Entering into an equity trade, options or futures contracts with advance knowledge of a block transaction that will influence the price of the underlying security to capitalize on the trade. This practice is expressly forbidden by the SEC. Traders are not allowed to act on nonpublic information to trade ahead of customers lacking that knowledge.
'' from a website, which sounds like my strat here
as an example im lookign at the setup on a particular stock, and price hits it and pings off with 2x the average volume and continues for an upday, a 'ping' of 220 cents/pips to be precise

 

[MrGecko]

frontrunning is where you execute a trade for yourself before you execute a trade for your client.

Example: I tell you I want 100,000 XYZ, you buy 20,000 for yourself and then buy my 100,000.

 

[Chartsy]

i've asked this on other forums, some said it was fine, others say it was illegal so a little confused

 

[Chartsy]

im actually worried to spreadbet this because if the SB sees me buying a stock and it immediately pinging up like that then things could get frisky

 

[MrGecko]

why would it be illegal? Do you have someone telling you about large orders before they go through?

 

[Chartsy]

no

 

[MrGecko]

are you executing trades on behalf of ther people?

 

[Chartsy]

but i do know that lots of other traders will probably enter at that level as well, i do not have any contact with these others

 

[MrGecko]

you'll be fine.

G/L

 

[Chartsy]

nope

 

[Chartsy]

i've spoke to various brokers, they got compliance officers etc and i spoke with them, they kept tight lipped as they didn't want their advice to be held responsible, i emailed the SEC and they said the same....and said to get a legal adviser

 

[MrGecko]

I applaud your due diligence but the SEC et al probably have the wrong end of the stick.

In your quote from the SEC, "trader" refers to someone executing trades for someone else. Example, I am a pension fund manager and I want to buy some M&S shares, I call the trading desk of a bank to get the trade done. In this case, the trader at the bank is forbidden from buying M&S for himself before he buys me a shedload. He is trying to profit from buying shares right before a big order is about to go through and raise the price, selling them afterwards. That is frontrunning.

In your (most at T2W's) case, all you are doing is looking for patterns and trading accordingly. If nobody is giving you inside information about orders they are executing for a third party, you'll be fine.

 

[Chartsy]

and what if someone kind of hinted/egged me on to the setup? ie ive been given clues and have been told that large traders trade this setup
but i do not know the traders who trade it

 

[MrGecko]

no problemo.

 

[Chartsy]

isn't it then a case of market manipulation?

 

[MrGecko]

nope, nothing of the sort.

It isn't illegal for you to buy something and then for it to go up.

 

[Chartsy]

but when you and many others know each other will do it (not directly)....