JWBK169-Lien July 3, 2007 13:56
Man Versus Machinethe stock. If it is a slow day, and I am just trading back and forth, I
will trade small size. If I see there is a buyer, I will put on size. But
I will never put on a huge position because I never want to have a
single trade that will put me out of business.Q: When you go large size, do you average up?
A: No, not necessarily. Usually, when I put size on, it is because
I have an edge where I see someone pegged to the bid or offer
and I know there is a buyer or seller. Market makers and hedge
funds have a lot of positions to watch. They often have a big order
to work. So they are not micromanaging the order. They may have
100,000 shares to fill. So they put them on the computer, which
puts them on the bid. So, if the bid moves, they move. If it goes
down, they go down. They just want to get their stock filled. But
usually they have some sort of limit. So me, I am watching fewer
stocks. I see more of what’s going on. I bid up, and he comes up. I
bid up to a certain amount, and he won’t go any further. Anyway,
I can usually tell where he can go to. So I will try to buy up all the
offers, bid up to the point where he won’t go any further, and then
sell the position to him.
For example, if I know the buyer will go up to 80, and I see
60 bid by 65, I watch the 65 offers and I buy those. I buy 70 offers,
I bid 70. I bid 75. I bid 80 on one ECN. I see him bidding 80 on
another ECN. I sell to him. I do it again and again. That is just one
thing. What I am trying to tell you is that these guys are watching
20 stocks. They don’t have to worry about micromanaging the
position. They have a lot stock to do. They get filled and that’s
all they care about. Once in a while the guy leaves and you get
stuck. But you have to know your size and limits and know from
experience how to do this. When a market maker has to fill a big
order, they can’t really hide from someone who is watching the
stock very closely. If the fund is buying 100K shares of stock and
they are going to hold it for a year, what do they care if they buy
it at 65.60 cents or 65.90 cents? But me, if I can make a dime on
10,000 shares, that’s$1,000.