OnLine… or A Blind Man’s MiracleNASDAQ Level II Trading Strategies With Mike McMahon To DAT and Back…….. • • • • • • • How we got here Synopsis of Trading History Online vs Direct Access Level II “nuts & bolts” Level II Reading Your Involvement and your Risks Summary Progress ……. • We stood Face-to-Face and Argued whether a Wheel was worth 2 Clubs Progress……….. • We stood Face-to-Face and Argued whether 2 Pigs equaled a Bushel of Grain Progress…….. Suddenly, it got formal We could no longer “see” each other Somebody had to exchange the pigs for the clubs, the clubs for the wheel and the wheel for the grain…. We wanted Bread! Progress…?? • Big Brokers Stepped in to Help US! • We Lost Sight . What’s a broker? A Middleman. What do Middlemen do? They cost you • Money • Time • Control You can no longer see what’s going on with your trade . So… We decided that: • We can do it ALONE! • We can do it better! • We don’t need to share OUR profits! • Just Give US the Info and a Computer! . A Vital Piece of Information…… • We got the Computer • We got Level I • We had the Info that the Broker had • Or Did WE ?!? . Welcome to bigbroker.com Trading……. • Faster Executions! • The Best Fills! • Real-Time Data! • Who are we Kidding! . Shortcomings or Short-Sighted • How can you climb up out of the Online rut? • How can you trade face-to-face again? • Is there a a Better Way? . ECN’s……….Vision Restored • Electronic Communication Networks •Incredible Trade Clearing •Transparency into the Market •Allows you to Advertise! •Allows you Negotiate! . and others . Tradescape. TradePortal.B. Watley. GroTrade. On-Site. A.and the window opens • To “Use” – A Direct Access Broker…who will help you onto the Hwy of DAT – CyBerTrader. RealTick. Momentum.ECN’s ….To “See” or to “Use” • To “See” – You only need $$$$…. Leads. Bloomberg Brass Utility (+ Strike 5/00) Speer. Kellogg Nex-Trade Market XT (Joined 4/00) .Datek InstiNet Archipelago .Who Is that MASKED MAN…. All-Tech Invest..Terra Nova Sec.? • • • • • • • • • ISLD INCA ARCA ATTN BTRD BRUT REDI NTRD MKXT Island . Com and NASDAQ Trader.com .The Other Players…Market Makers • Firms that Make a Market – On Bid & Ask at all times • Major Players You should know – – – – Goldman Sachs = GSCO Merrill Lynch = MLCO Morgan Stanley = MSCO JP Morgan = JPMS • These are just a few that represent different areas • NASD. ECN’s •Better Prices ! •Narrower Spreads! •Direct Access . Level I vs Level II The New Tools of the Trade . Level I Your Level I may look like this: But “What” do You Know? • “Who’s Buying. Who’s Selling?” • “How Much. How Often?” . Level II Now you “See” Who’s Buying… How Much…… Now. Real-Time! . Level II Now you “See” Who’s Selling… How Much…… Now. Real-Time! . Present Support & Future Resistance Or just the Bid & Ask . Level II – Scenarios • Goldman Sachs is Buying……Buying Everything • Wouldn’t You Like to Know that? • Level II makes it SEEN • …DAT allows you to Trade It! . Level II is a Great Tool…..But • It is only ONE of many • You need to learn • Next is EXDS with to SEE with Huge Support new eyes • But the S & P Futures are dying! . . . . • The Resistance Starts to Take Hold . •MONT Relieves. Leaving RSSF at the Bid •SBSH is Showing Unusual Size •The ECN’s are Growing at the Offer •The Prints Confirm the Weakening . •RSSF Relieves •A Bunch Jump to the New Low Offer •GSCO Holds the Fort . •Nobody Wants to Stick Around – •MM’s Leave it to the ECN’s •ECN’s Have Good size on Bid but Prints say Down •GSCO has Moved to the 1/2 . •Sentiment Has Changed 1 Minute Later . •The ECN’s are now joined by 4 MM’s at Bid •NITE has left the Ask & moved to 13/16 or higher •Prints show Strength to the Upside . 1/8 move – Typical •Looks like Resistance at Ask but it’s 4500 to 4500 •No real confirmation in Prints .yet .•NITE & HRZG join the ECN’s at new HIGH BID •MSCO has relieved to 3/4 . •MLCO. SBSH & Others lift to the 3/4 •Prints show decent Size and Number for Up Move . •JPMS Jumps higher at least an 1/8 •Prints say the ECN’s are unlikely to be Filled at 5/8 •SBSH has dropped unusual Size without being Hit •Looks like Formidable Resistance at the 3/4 . •11/16 wraps around to the Bid •Notice the light Share Size on the MM’s on Ask . •Prints show a “crunch” through of the 3/4 •ECN’s have good size on Bid •But MSCO wants to sell and holds the rise . •MSCO is taken out but MONT & PRUS Join the Ask •Notice Unusual Share size for PRUS •More 11/16’s start to Print . •PRUS lifts leaving MONT •Meanwhile ECN’s are mounting “Size to Buy” . •3/4 wraps around & BTRD joins the Hunt •HRZG has dropped to 5/8 – GSCO has moved up 1/8 •And NITE is showing only 500 Now •Prints are Ambivalent . •13/16’s are taken out – Actually most canceled •GSCO has moved from the 5/8 to the 3/4 – a 1/8 move •Look for a new High Bid . REDI & INCA •Prints look good for the 7/8 Attack •But “Size to Sell” on the ECN’s .•We get it at 13/16 with NITE. •ECN’s join the MM’s at the 7/8 with “Size to Sell” •REDI bails from the Bid •Prints start to show serious Size at Bid Price . •The Upturn weakens & a new Low Offer shows up •Support looks good but the Wave has Broken. •We settle into a Tug-of-War at 3/4 to the 7/8 . . . .Level II & DAT…….. • There’s a Lot Going on… – Support & Resistance – Who’s Who – Who’s been doing it the Most – Size of the Prints in Confirmation – Speed of the Momentum – The changing of Sentiment • There’s More….A Lot More . Who are You…and what do You want? • Trading is NOT a Get-Rich-Quick Scheme • It is stepping away from the old and dispelling the myths…. • It is not Magic.. but Understanding and Hard Work . • “OnLine” is merely E-Mail to a Trade Desk • Trade Desks “Handle” your Order • DAT allows YOU. with help from a Broker/Dealer (B/D). to place and Control Your Own Order .What’s DAT/ Who’s DAT? • To explain DAT…. With DAT or Without…… • Level II Allows you to see Buying pressures • Level II Allows you to see Momentum • Level II Allows you to see Who’s There • DAT gives you Direct Routing of your Order . Your Fate • DAT allows you to Enter.Your Control……. Place and Monitor Orders in the Market • Nobody “holds” your Hand • The Risk is controlled only through your Knowledge and Discipline .. • Then learn “How to Keep your Wins”…… • Only Then is Risk = Reward . • Learn “How not to Lose” First….Reward is Equal to Risk…... • Reducing Risk is the Goal….or not! • Learning to Trade is the Key……. and over the use of Your Money • It’s about Time….Vive La Difference! • Direct Access Trading gives you Power. Direction and Dominion over your order flow.. • It’s about Education… . Subject-Matter Expert Mike McMahon Technical Consultant Kevin Green Design Consultant David Stansfield Programming Guy Shurki Credits . FINIS .