I love trading as a Shaver. It provides a tranquil sense of routine, even though the action is super-fast paced! Sometimes I like to follow a set schedule, a foundation of stability without any surprises. The funny thing is, the more trades you make per day, the less surprises actually happen. It sounds crazy, but believe me it is true. If you are having trouble trading as an Investor or Swing trader, you should try shaving. Investors hold on through huge up and down swings. These ups-and-downs translate into large open profits or large open losses.
The volatility is enormous. The same goes for Swing traders. They can be holding a long position and wake up the next morning with the stock gapped down $20 or worse yet, $40. My biggest risk as a Shaver is 2 cents. You heard me right, a measly 2 cents. That’s how I stay sane trading hundreds of times every day. The risk is small, but the action is so fast, you feel as if you are playing video games. That’s what makes my life as a Scalper so much fun.
I awake every morning at 8:00 a.m. I get the coffee brewing, the kids’ lunches packed, and make sure they make it off to school on time. My partner, whom I love so dearly, sits down with me for breakfast before leaving for work. I am a man of the New Millennium, and I love holding down the fort. I wouldn’t pass up the time with my children for a nine-to-five job. I love being able to be there for my kids when they need me. The house is empty by 9:15 a.m., and it gives me 15 minutes to putter around before booting up the computer.
I don’t read anything about the stock market in the newspaper; I don’t turn on the television to watch CNBC. I try my best to avoid any media. I trade best when my mind focuses on the Level 2 screen and my ears tune into the squawk box. Oh, the squawk box, my bread and butter. I remember having problems with the sound card in my computer, which left me without my squawk box. I found it very difficult to trade without it. Not just from the lack of leading information, but mostly because the squawk box puts you into a great trance.
This trance is hard to put into words. After all, the squawk box simply sounds like a bingo caller with a monotone voice. But without this voice in the background, my game is off. It is similar to doing yoga while trading. You can feel and see things that you normally wouldn’t feel or see without being in a certain state of mind. I refuse to trade as a Shaver without my squawk box. Even when the full-time commentator is sick two or three times a year, and a less experienced floor-trading commentator replaces him, I refuse to trade.
The fill-in broadcaster just doesn’t have the experience to put you into the proper state of mind, thus profits suffer. This may just apply to me; your mileage may vary. Maybe you will trade just fine without the regular broadcaster. You may just need the information to trade in your groove, no matter who is saying it or in what tone. I like to lose reality when trading. I think that is what gives me my advantage over other traders and the ability to see and feel what others cannot. I call my job intuitive shaving! I also want to point out the necessity of speed.
In order to be a successful trader, you will need to be familiar, very familiar with order routing and hot keys. If you are not, you will have trouble. The only way to become familiar with these is to use them. This means you will have to make hundreds of trades a day for about two weeks to pick up the skills. If you are worried about losing money while learning these skills, don’t be. Chances are you will be making more wining trades than losing trades during your two weeks of hot key and order routing practice. Second, you don’t need to use thousands of shares to learn and practice. One hundred share lots will serve this purpose just fine.
Once you feel more confident and after one week of trading, you can increase to 150 shares. This will be a great opportunity to practice getting partial fills and getting rid of odd share sizes. As you progress through your second week, you can increase to 20-share lots. Then on your last day, you can use 300 shares if you’re feeling confident. Once you are used to 300-share lots, you will be making profits, and you will want to increase their size to 1,000. Next, you will need to get used to having your orders filled from multiple sources.
Sometimes you will send your buy order for 1,000 shares, and one market participant will fill 600 while another will fill the remaining 400. When you are using a 100-share size, one Market Maker will always fill all your shares. Taking the step up, trading larger shares in the upper hundreds or thousands, multiple market participants will have fill your shares. This isn’t always the case, but when you are making hundreds of trades per day, it will happen perhaps a dozen times each day. Just as it will be different getting into your position from multiple market participants, you will need to learn how to get out of your position from multiple sources as well.
The need for this will be more obvious when you are getting out of a losing trade. This is when you will realize just how important your speed on the hot keys and your knowledge of order routing comes into play. Unfortunately, day trading simulators are useless for teaching you how to use the hot keys. The way simulators work is that if you place an order to buy 2,000 shares using Island and 100 shares are sold real-time on the simulator from someone else’s SOES order, all of your 2,000 shares will automatically be filled.
You cannot gain any real experience from simulators, so leave them alone. Actually, run as far away from them as you can. Scalping with any success requires a high level of visual skill. Scalpers must be able to process data quickly by thinking, feeling with intuition, and taking precise and immediate action based on what they see on the Level 2 screen. Depending on which particular stock you are watching, liquidity or illiquidity will decide how quickly the Level 2 screen cascades. When there is lots of volume and the action is fast, the Level 2 tiers will cascade like a waterfall, leaving you mesmerized into paralysis.
If you want to be able to break through all this information properly and skilfully, you will need a good understanding of what is really happening behind the scenes. In order to know what is going on behind the scenes, you have to know who is pulling most of the strings. This person has a special name, “The Axe.” This Market Maker has deep pockets. He can go against the flow, using his capital to manipulate the stock to his advantage. In order to manipulate stocks, he has to play games on the Level 2 screen. Let’s see what he can do. Fake the trend Front running – The Market Maker will raise his ask and raise his bid, gobbling up all the shares he can, cleaning out all tiers on the offer. He is never a seller.
Each time the stock’s price approaches his quote on the offer he cancels his offer price and sets it to a high level outside the market so that he is never hit. Once he has purchased a large position and created a short panic, everyone else who was short is now in deep trouble and they must buy back their shares because it broke their stop-loss limit. Once this buying occurs, the savvy Market Maker sells his recent accumulation into the feverish buying panic. Axing the stock – This happens when the futures are running up quickly but the Market Maker just sits on the ask, selling large quantities of stocks and keeping the stock’s price flat or lower. The entire market will be climbing higher, but the stock being axed will not.
Many times, the Axe will sit there refreshing his 100-share quote on the ask so it doesn’t appear that he is a big seller. If he posted his real order size of 50,000 on the offer, we would more readily be able to see his true intentions. But when he refreshes a sell order of 100 shares each time, we don’t know if he will be refreshing his quote 5 times, 10 times, or even the 500 times he will need to refresh to dump all 50,000 shares.