Day Trading Book Recommendations | Great Point Capital

It may seem difficult to find books on market trading that seem ethical and trustworthy.   It can be tricky finding a reliable source with values aligned with your own.  There is a wealth of information available with many great books on day trading for new and experienced day traders alike.   It’s important to keep up with changes and technological advances as things always happen fast on Wall Street, and technology is changing even faster.  

 

In spite of the rapid changes, some basic age-old philosophies still hold value and we would like to share with you some of the best educational and interesting material for  traders from timeless classics to modern documentaries set in today’s fragmented market setting.  The following day trading books are sure to enlighten an up and coming trader the experienced quantitative trader.  

 

  • The Disciplined Trader, Developing Winning Attitudes

Mark Douglas wrote and published The Disciplined Trader in 1990, and it has been a valuable tool for traders at any stage in their career ever since.   In this in-depth analysis of successful winning attitudes, Douglas evaluates the psychological practices of many successful traders.  Douglas offers a chronological system for traders to understand and control their thought process, and reveals how you may inadvertently be limiting your earnings.

Douglas reveals three stages to becoming a successful day trader, and helps you understand how your very thoughts control your perception of the markets.  Douglas helps us to reign in our emotions whether we’re experiencing some losses or having a profitable day.  

In this modern and ever-changing market environment, staying focused on the market can be challenging enough, focusing on and controlling your psychological composure can be even more challenging.  

While computerized algorithms are conducting quantitative trades, let’s not forget that the human factor drives those choices, even the automatic ones.  Keeping control of your emotions can be the difference between profits or losses.

We give The Disciplined Trader two thumbs up and recommend that you give it a read.  

  • Trading Systems and Methods (5th Ed.)

Written by Perry Kaufman nearly 30 years ago, this day trading book provides techniques and tools to help day traders meet their goals.  Trading Systems and Methods is available in the Fifth Edition with updates for the market environment today, and compares systematic methods in almost all areas including risk management, momentum, arbitrage and trends.  

Kaufman gives details on each technique disclosed, and helps you to understand how to use them to your best advantage.  Trading Systems and Methods provides more explanation on statistical and mathematical concepts of trading systems.  

In this updated Fifth Edition, Kaufman gives more information on systems in the current market environment and the risk associated with those systems than in prior versions. This new version also includes access to a website packed full of extra materials, and spreadsheet for an interactive experience.  

Trading Systems and Methods provides valuable reference material to current trading systems, revealing methods and techniques to use them advantageously as a successful day trader.  We highly recommend adding this to your reading list.

Contact Great Point Capital, LLC today, in either our Chicago Office, or our Austin Office, to learn more about how we can successfully trade together with high performance results. Great Point Capital, LLC offers buying power, access to Takion software platform with excellent IT support, and the benefits of working with an experienced team.  

 

Stock Exchange Data Fees Rising at an Alarming Rate

Stock exchange data fees imposed upon brokers and traders are receiving a lot of attention these day, with very good reason.  All of the stock exchanges in the United States which include the two largest exchanges in the world, the New York Stock Exchange (NYSE) and Nasdaq, are required to provide all market data through the Securities Information Processor, also referred to as the SIP.   All securities data must flow through the SIP for consolidation in order to display the current pricing and provide an environment allowing traders to perform their obligatory duty of best execution.   

Exchanges provide data in another way, through colocation of equipment, allowing outside firms to purchase connection to their own computer servers to access the exchange’s Premium Data Products.  The rising costs of these connectivity fees are causing disbelief among those dependent upon that information, as they continue to skyrocket with an average annual increase of 20% per over for the last five years!

Two Revenue Streams for Stock Exchanges

Bringing Buyers and Sellers Together

It is important to realize that exchanges make money two different ways. The fees charged for bringing together buyers and sellers is the traditional revenue stream for a stock exchange.    Exchanges used to earn decent revenue stream strictly from trading.  The market structure has changed drastically since those days, before the onset of electronic trading venues and the emergence of several dark pools.  

The combination of the speed that only a computer can provide carrying out strategically written algorithms, created a highly competitive marketplace like absolutely nothing anyone had ever seen before.   This new environment opened up many more options available for buying and selling securities, creating a might tighter big-ask spread.  

Within the newly fragmented market place, exchanges that once dominated the market began to lose market share, and liquidity.  Prior to the onset of electronic algorithms, for example, the NYSE dominated the marketplace by trading approximately 80% of all market trades.  Since the late 90’s and the introduction of the various Alternative Trading Systems (ATS), and the more than 40 dark pools, the NYSE now trades less than 20% of all market trades.  

Premium Data Access Fees

US Stock Exchanges have developed a second revenue stream, charging for access to their “Premium Data” with a proprietary line of communication other than the SIP.  These direct feeds are installed right to the exchanges servers, connecting the broker or trader to the servers of the exchanges through collocated equipment.   These direct connections provides a slightly different view of the market with what the exchanges call “Premium Data Products” or “Depth-of-Book” data.  For example, in 2006 the NYSE acquired Arca, and began to charge for depth-of-book data that had been free of charge prior to the acquisition.

These direct feeds may be providing the same information, although the way it is delivered, or more specifically the speed with which information is delivered, is the main competitive factor.  In fact, these direct feeds are viewed as more than just a competitive factor, they are absolutely necessary for traders to conduct competitive trades.  

Market Makers are forced to pay the premium data connection feeds as there is no other choice if they want to conduct trades competitively.  The premium data products provide information that is not only advantageous over the SIP, it is a matter of necessity.  Market makers cannot compete without this premium data from direct feeds.  The direct feeds will outperform the SIP, every time.  

Early in 2016, Larry Tabb published an article in the Bloomberg View entitled “Stock Exchanges are Eating Your Returns”, where he reveals the total quarterly revenue of exchanges in US equity markets increased by 16% from 2010 to 2015, while their data and technology revenues increased by 62%.  In addition to this, the revenues of their customers, the market makers providing liquidity and trading on the exchanges, decreased by 75%.  

Great Point Capital, headquartered in Chicago, with offices in Austin, offers traders support and tools necessary to make the most of their trading careers.  We are one of the few firms authorized to utilize the Takion Software platform for trading, giving full access and support to our traders in house as well as remotely located.

Contact Great Point Capital, LLC today, in either our Chicago Office, or our Austin Office, to learn more about how we can successfully trade together with high performance results.

Day Trading Book Reviews | Great Point Capital

If you’re looking for some good books to add to your knowledge of Day Trading or Trading Stocks, we have a couple that we give two thumbs up in review:  Reminiscences of a Stock Operator by Edwin Lefévre, and Market Wizards, Updated – Interviews with Top Traders by Jack Schwager.  

 

Basic age-old philosophies still have merit and we would love to share with you some of the best educational material for day traders from timeless classics to compelling documentaries set in today’s fragmented market structure.  The following two day trading books are sure to enrich and enlighten a trader new to the business and even the experienced quantitative trader.  

 

 

  • Reminiscences of a Stock Operator

 

This classic trading book was written by American author Edwin Lefévre, and published in 1923.  Claiming to be fictional, it clearly depicts the investing trials and tribulations in the life of Jesse Lauriston Livermore, a well-known securities analyst and day trader who began his trading career at the young age of 14.   

Jesse Livermore was born in 1877 into a farming family of Massachusetts.  He left the life planned for him on the family farm to put his superb mathematical and analytical skills to use trading stocks.  He is famous for making several multi-million dollar fortunes during the 1920’s, (over one billion dollars by today’s currencies), and then losing them several times over.  Throughout his illustrious career, he amassed a wealth of knowledge that has been shared for decades through the writing of Edwin Lefévre, including the following quotation, one of many, that is shared in this book:

It was the change in my own attitude that was of supreme importance to me. It taught me little by little, the essential difference between betting on fluctuations and anticipating inevitable advances and declines, between gambling and speculating.

It may appear that some of these factors have been removed from the decision making process with the onslaught of computerized algorithms driving the stock market today.   Edwin Lefèvre reminds us that in spite of the changes with technology, these human factors still drive the tools we use for trading today.  

Reminiscences of a Stock Operator has offered wisdom to investors and traders for generations, even Alan Greenspan is quoted as saying that it is “a font of investing wisdom”.  An updated version was published in 2009 with insights into the life of Jesse Lauriston Livermore.   

We highly recommend this book, it is sure to please while adding to your understanding of stock trading.

 

 

  • Market Wizards, Updated.  Interviews with Top Traders

 

In Jack Schwager’s original book, Market Wizards, published in 1989, he dives into the attitudes of some of the most successful traders on Wall Street.  In this new version, Market Wizards, Updated – Interviews with Top Traders, Schwager highlights new interviews with some of the most successful traders in the markets.

Schwager showcases interviews with some well known money-makers like Paul Tudor Jones, founder of Tudor Investment Corporation, philanthropist and hedge fund manager.  He also features and interview with Ed Seykota, a commodities trader with degrees in both Management and Electrical Engineering from MIT.  Ed was an original pioneer of computerized systems trading.

Bruce Kovner declined an interview to Fortune Magazine when they wanted to run a story called “The 11 Billion Dollar Man”, as he rarely gives interviews.  Bruce graduated from Harvard College in 1966, then started trading commodities.  He founded Caxton Associates in 1983, a well-known hedge fund.   

Jack Schwager reveals these industry leaders’ trading philosophies, thought processes and skills deemed necessary to be a successful trader on Wall Street. Schwager summarizes what he believes to be the biggest lessons learned from his interviews.

Shwager offers a variety with different market outlooks, and each success story differing from the last.  One thing stands out as a constant, however, that solid methodology combined with the right mental attitude are fundamental characteristics for trading success.  

Give Market Wizards a read, we’re sure you will find it as enjoyable as we do.  

 

Contact Great Point Capital, LLC today, in either our Chicago Office, or our Austin Office, to learn more about how we can successfully trade together with high performance results. Great Point Capital, LLC offers buying power, access to Takion software platform with excellent IT support, and the benefits of working with an experienced team.  

 

Direct Data Feeds are Necessary – Not Optional

Advent of Computerized Online Trading and Alternative Trading Systems

In 1998, the SEC rolled out Reg ATS, which allowed off-exchange venues to operate as an exchange while exempt from registering as one.  This brought about intense competition from the various Alternative Trading Systems (ATSs), as they are not subject to the same stringent requirements as the registered exchanges.  

Reg ATS addressed concerns brought about by trading on these types of venues, however, by legalizing this type of trading the SEC also fiercely increased competition by providing many more options to investors.  Reg ATS contributed to a fragmented marketplace, as once dominant stock exchanges drastically lost valuable liquidity.

The SEC responded to the rise in trades occurring in the various off-exchange venues with Reg NMS.  The National Market System (NMS) sought to improve fairness by displaying the best price, regardless of where the order originated.  

All participants in the market have the same access to the Securities Information Processor (SIP), which consolidates all market data for securities.  All trading venues including Alternative Trading Systems (ATSs) and dark pools, are required to provide securities data in real time to the SIP, and are not allowed to provide this information to customers prior to the SIP, providing transparency to the market.  Reg NMS further obligates venues to conduct transactions at the NBBO, or National Best Bid Offer.  

The role that the SIP plays in the market is an important factor in the rise in fees for direct data fees.  If everyone received the SIP information at the same time, it wouldn’t be necessary for proprietary data feeds costing tens of thousands of dollars monthly simply to access “Premium Data” resting on exchanges servers.  As long as this data is ‘distributed’ at the same time, exchanges are in compliance with Reg NMS.  When the recipient receives that information is out of their control (although it is painfully obvious that a direct feed will receive data faster than information first routed through the SIP).

The SIP is necessary for consolidating market data, although there is a latency problem due to this requirement, it takes time to consolidate each venue’s data.  Even though it is only a matter of microseconds, the difference in time compared to direct data feeds is significant.  Direct data feeds co-located to the exchanges servers provide instant market data considerably faster than the SIP.  This difference in latency opens up a window for computerized algorithms to dominate the activity by snatching up securities at an advantageous price, sometimes even causing a shift to the NBBO then using that to their advantage.  This is why market makers are at the mercy of exchanges, they have no choice but to purchase the direct feeds.  

The SIP along with Direct Data Feeds represent a two-tiered market, although revenues from proprietary data products go directly to the exchanges selling them.  The information from the SIP is always a little ‘late’, requiring a direct data feed to conduct competitive trading for clients, thus providing the best value to investors.  

Great Point Capital, LLC is headquartered in Chicago with offices in Austin.  We strive to provide our traders with the necessary tools and support to fully maximize their trading potential.  We are one of the few firms authorized to utilize the Takion software trading platform, giving full access and support for successful trading.

Flash Boys Review | Great Point Capital

Flash Boys, a Wall Street Revolt

Michael Lewis is the author of Flash Boys, a Wall Street Revolt, written about a group of men that banded together to investigate the insidious happenings on Wall Street.  Flash Boys was published in 2014, and is a non-fiction account of the rise in high frequency trading due to predatory new computer algorithms put in place by brokers and big Wall Street banks.  Flash Boys reveals how, as the band of revolutionary new Wall Street friends claim, the market is rigged.  

Brad Katsuyama, and several of his colleagues walked away from million dollar employment offers to get to bottom of what was happening on Wall Street to inform the public, investors, and other traders of how predatory HFT firms were manipulating the market.  

The book starts out focusing on the new found love for speed in the marketplace.  Not just timely, we’re talking microseconds (a microsecond is one millionth of a second)!  Installing the newest and fastest high speed fiber optic cables, gave an advantage to only big Wall street banks and brokers, an advantage worth billions of dollars.  Lewis reveals, in fact, how many of them were willing to pay millions of dollars simply to gain a few microseconds of an advantage.  

This book explains how electronic algorithms have replaced the human trader on the floor, and how this sweeping technological change has impacted the markets.  

Brad Katsuyama, and his colleagues went on to found IEX, the Investors Exchange, the newest Stock Exchange recently approved by the SEC,  offering a solution to fix some of the broken areas they revealed in their quest.   Brad set out on a mission to pursue the truth about what was happening in the markets since the onset of electronic trading.  He never lost sight of his goal of informing investors of the truth, and maintaining his ethical values.  

Flash Boys is a very enlightening book for not only day traders, but for anyone with a retirement or investment account of any size.  Michael Lewis grabs your attention with the first chapter and keeps you engaged and wanting to know what’s coming next until the very end.  This one is definitely a worthwhile read.  

Read more about IEX, The Investor’s Exchange, in our recent blog.  

 

Contact Great Point Capital, LLC today, in either our Chicago Office, or our Austin Office, to learn more about how we can successfully trade together with high performance results. Great Point Capital, LLC offers buying power, access to Takion software platform with excellent IT support, and the benefits of working with an experienced team.  

 

Regulations and Trade-At Rule

RegATS, RegNMS and the effect on Markets

RegATS was established in 1999, and actually increased the popularity of ATS (Alternative Trading Systems), as they then became allowed to register as a broker dealer, rather than as an exchange that must adhere to more stringent rules. This caused the volume traded on ATS systems to increase, having the opposite effect on the markets as they quickly lost liquidity.

The SEC responded in 2005 with RegNMS, which was aimed to unify and streamline the ATS market share by requiring that all orders coming from an ATS be routed through a national market system, creating one combined network.

RegNMS also required that all exchanges route all orders, regardless of where they originated,  to the trading venue with the best displayed price, which did not necessarily have to be on an exchange.

These regulations dramatically decreased the strong position that exchanges had on the market, as they lost even more liquidity.  Prior to RegNMS, for example, the NYSE traded approximately 85% of total market share, while after RegNMS that volume dropped to about 30%, and went as low as 20% in 2014.

Trading in ATS venues and Dark Pools was even more attractive with these regulations, along with a loophole in RegATS which allows trading with hidden prices as long as the total volume of those trades is less than 5% of the volume trading of the stock nationally.  Investors were allowed to go into dark pools and trade anonymously to avoid alerting the HFT firms of what their intentions were.  As more and more investors went to dark pools, exchanges again lost market share.

 

 

 

SEC Begins a Tick Size Pilot Program to address Trade-At Rule

Various proposals have been addressed to the SEC as options to implement a Trade-at Rule to address the liquidity of the markets and off exchange trading.  One proposal referred to as a Tick Size Pilot Program is in process currently and will evaluate the effect of widening the tick size.  Under this pilot program, the tick size will be increased from one cent ($.01) to five cents ($.05), only on certain piloted securities.

Three groups and one controlled group were put into place, each with separate rules to trade by. One of the groups is actually using a trade-at rule, while another is required to quote in increments of $.05, and yet another must quote and trade in $.05 increments.

This Tick Size Pilot Program just started last year in October of 2016, and is schedule to run for two years  For more information on this pilot program, and to receive email updates of the program, visit FINRA.org.

Other systems proposed include the “Grand Bargain” which was suggested by the Intercontinental Exchange, ICE, which suggests a trade at rule combined with reduced access fees

Another proposed plan by Nasdaq suggests merely a decrease in fees with no trade-at rule at all.

Our View on Trade-At

Currently the trader’s public quote acts as a reference price for POF firms and dark pools to trade in front of him.  If a trader decides to display a quote in the public markets, that trader should get executions when orders come in at or through his displayed price.  The trader only gets executed once POF firms do not feel there is an advantage any longer at that price.  This means that the trader that risks the most in displaying a bid or offer is the last to be filled at that price.

That is not a fair system, and de minimis price improvements should not be used to justify the practice.

Most traders competing with this pricing model agree – a Trade-At Rule is necessary.

Headquartered in Chicago, Great Point Capital, LLC, is a member of FINRA and has been serving the trading community since 2001. Our mission is to be the leader in the equity day trading community by giving the best traders the tools and support to make the most of their trading careers.  Contact Great Point Capital, LLC today, in either our Chicago Office, or our Austin Office, to learn more about how we can successfully trade together with high performance results.

 

The Need for Trade-At Rule

Impact Technology has on the Market

The liquidity of US Stock Markets have been greatly impacted by the rapid advancement of smart computer algorithms working in conjunction with ECNs (Electronics Communication Networks), ATSs (Alternative Trading systems) and Dark Pools.  The automation of smart computers along with liquidity in off exchange venues has contributed to a dramatic increase in trading on these alternative venues and have caused quite a dramatic decrease in volume traded on registered exchanges.

It is this high speed coupled with the choice of using an ATS for fast execution and low cost that was a catalyst to what we now refer to as High Frequency Trading (HFT).  HFT firms incorporate the speed from smart computer algorithms which gives them the ability to see orders in process, and buy them up for themselves.  Since they can see all pending orders, they know if they’ll be able to turn around and sell at a slightly higher price, even in the sub-penny price range.  On high-volume orders, fractions of a penny add up to millions of dollars.

Sub-Pennying

This combination of speed from computers and liquidity in ATSs, added to the decimalization of the markets in 2001 has spurred another predatory practice referred to sub-pennying, which goes right along with HFT, and occurs regularly today.

Sub-pennying occurs when a broker gets in front of a displayed order by 1/100th of a penny, or .0001.    This is all done inconspicuously with a computer algorithm program that allows them to see an order is pending, so they’ll buy up shares within a sub penny difference.

Sub-Penny trades occur because POF firms have to validate taking the trade for themselves, so they improve the price by .0001. The market is showing $10.00 x $10.01, so when an order comes to the POF firm to sell at $10.00, they fill it themselves at $10.0001, letting them claim they improved the price for the customer. The truth is that there is probably a bid in a dark pool at $10.005, that the POF firm will then sell, immediately making themselves .0049/share in the process. Even if there isn’t anything in the middle that they can immediately get out of the trade, they are far from the bid, which is what all bidders in the market at $10.00 wish they could be.  All other bidders  never get the chance, however, as the POF firm steps in front of them without ever having to risk putting a bid into the open market.

This leaves traders experiencing whiplash in a scenario of “here one minute (second in this scenario) and gone the next” when attempting to execute their orders.

Most traders that we talk to agree – a Trade-At Rule is necessary.

 

Headquartered in Chicago, Great Point Capital, LLC, is a member of FINRA and has been serving the trading community since 2001. Our mission is to be the leader in the equity day trading community by giving the best traders the tools and support to make the most of their trading careers.  Contact Great Point Capital, LLC today, in either our Chicago Office, or our Austin Office, to learn more about how we can successfully trade together with high performance results.