BPA trading room Q&A: November 10, 2015
Al, you sometimes mention that you keep your eye on other products during the day. What is it about the behavior of the Emini that makes it your primary focus for short-term trading, and does this change when the Emini volatility becomes extremely low?
Audio duration: 4min 28secs
The most perfect market in the world
Yeah, I do watch other markets — I bought the Euro today versus the dollar for 20 pips, and that was the only non-Emini — well, I say that — I believe that’s the only non-Emini that I took today. But the reason why I like the Emini is I think it’s the most perfect market in the world. It has huge computer participation, huge institutional participation, it’s a surrogate for the S&P 500 which is the most important stock market in the world, and makes me feel like I’m a player, that I’m really in with the big boys and big girls — I say “big girls,” I have a daughter at Harvard Business School — so big boys and big girls. I want to feel like that I’m at the very top of my game and that I’m playing in the highest arena of competition, and I also want to be in a market that is the most fair.
I know Richard is listening. He will probably listen to this at the end of the day, and he and I have had many discussions about fairness, and I believe the Emini is as close to being a perfect market as there is. Everything that it does is very mathematical and very logical. The logic might be perverse, but it is still logical, and I feel like I have a really good sense of it, and I like the challenge of it. Thus I can make a good living trading it, so that is why I trade it. There are many other things that you could trade in a lot of huge markets, all of them good. Bonds, they move a little slower, fewer ticks per day, so you got more of an issue of the bid-ask spread. Forex markets, huge, but they trade really well.
Emini the pinnacle of trading
For me, I feel like the Emini is the pinnacle of trading. I think it’s the most perfect market, the most institutional market, the most computerized market, and I enjoy it, and it’s also really logical. And it’s not like there’s nothing to do when the markets in a tight trading range or really boring. To me, I see stuff on every bar, every second, every tick, and pretty much on every second off the day. In my mind, I’m processing if I want to buy here, how can I make money? If I want to sell here, how can I make money? And I’m just doing that all day long. And on every bar I’m trying to figure out, “Okay, how can I make money buying this bar? How can I make money selling this bar?” So intellectually, it’s really stimulating.
Sometimes, when it’s extremely quiet and the range is like a 2-point tight trading range and it’s likely to continue for a long time, I’ll trade other markets. However, usually when the Emini is very quiet, everything else is very quiet. Also, I really don’t like tight trading ranges where you buy below the prior bar, and you wait 30 minutes to make one point. It’s just too much work. I hope that answers your question.
Differing views on market fairness?
But anyway, what I was saying about the Emini being a perfect market and the most impossible market on the planet for traders to cheat trading — I was saying Richard, who runs my Brooks Trading Course website, has a different view on it. He believes that cheating is going on all the time and that firms are conspiring together and ganging up to take money from the little guy. And I could go on for a long time about why I think that is not a significant part of the market. For one thing, there are over 200 major institutions trading, and even if you get five of them meeting in a room deciding, “Hey, we’re going to take control of the market,” their five is not big enough to push around 195. So they might be able to move things around for two or three ticks for a brief time, but they cannot make the market do something illogical for more than a very brief time and/or more than a few ticks. And if they start doing it repeatedly during the day, it will be found out. The other 195 firms are not stupid. They have really smart people, and they’ll see a pattern and they’ll stop doing whatever they had been doing that was causing them to lose money and causing those five corrupt, sneaky conspiratory firms to make money. So I just think it’s not an issue. It certainly does not affect my trading.
Information on Al’s Online day trading room
Note that Al was obviously trying to get me involved in this topic! Well, as Al does enjoy a good argument, here is my comment on his misquoting of my view.
I do believe the market is fair actually, but not in the same way Al sees it. It is fair because we have a high degree of transparency, so putting us on a fairer level playing field with the institutions. BUT we have a critical weakness in our capacity to handle large drawdowns and this is where the big boys win easily by shaking us little guys out over and over again. And not just us retail traders as Al notes, I believe the shakeouts are equally effective for many institutions whose traders are not so nimble/good or do not have access to advanced trading algos that the big guys run.
My main disagreement with Al on topic of market manipulation is that I have not said that large institutions work together, in a conspiring way, to CHEAT us out of money. But, a big BUT, their algos DO work together to take large chunks of $$$ off everyone else. How? By simply being coded to run a limited number of market auction strategies that have been proven over time, well before computers arrived, to move the market to shake out said weak traders. Always been that way, always will be. The apparent collusion is, in my view, simply many algos (along with good humanoid traders) seeing the market auction price action and joining the same basic strategy. So, not cheating, and just ‘working together’ in real time to follow proven trading strategies.
To me trading is a game being played. And Al did say above that he too wanted to be at the top of his game, right? Is Al ‘cheating’ when he sells the top of a bull climax? No, he just knows from experience that it will likely reverse, either there or soon after, and places trade along with countless other good traders and algos.
And the ‘huge computer participation’ that Al mentions does not just apply to the ES in my view, but all instruments. Those big guys trade everything via their algos and even control how the TICK moves, to further bamboozle weak traders. In business parlance the big boys are simply employing strategic coopetition. Ref https://en.wikipedia.org/wiki/Coopetition
Just my 2 cents. Not worth a lot. 🙂