Why outliers can be important...

Reference Post: Price movements which are random, ineffective, manipulative etc.
CGRB Buyout: http://www.reuters.com/

Huh, so what is trading?

Trading is a search problem; buyers search for sellers and sellers search for buyers. Buyers seek sellers willing to sell at low prices, and sellers seek buyers willing to buy at high prices. Traders must also find other traders who are willing to trade the quantities or sizes they desire.

The following axioms may appear as common sense:

1. Markets exist to facilitate trading. It provides opportunity to someone at all instants.
2. Trading takes most properties of a zero sum game. Some traders will always be manipulative to others.
3. They dynamic interaction between buyers and sellers, or supply and demand, is expressed through prices. Thus prices are a tool of discovery.
4. Prices also change to reflect new information arriving in the market.
5. The goal of a trader is to be spontaneous with the market.
6. The feedback loop process among traders indicates the spontaneous direction of market. Positive feedback occurs when higher prices attract more buyers, and lower prices attract more sellers; vice-versa for negative feedback.
7. Future prices cannot be predicted owing to the dynamic extraneous information entering in the market. Probabilities in the market are never absolute unlike in a game of cards.
8. Extreme events or once-in-a-generation-outliers may occur every couple of years.

The Morning Prayer

God, grant me the sensitivity to be tolerant of all people.

Help me always to remember that issues of race, culture, gender, and sexuality transcend all other things; even common sense. Especially common sense.

Lord, please help me shun logic and reason to accommodate vogue and fashion.

And if I ever become so open-minded, Lord, that my brain falleth out, all I ask is that it not hit anyone on the way down. Especially the Scholars.

Generous Lord, obliterate my identity and help me become a scintillating part of the System.

Amen.

SOES Banditry and NSE’s DMA

In the 1990s, SOES bandits were traders who used the Nasdaq Small Order Execution System(SOES) to submit orders designed to profit from very short-term price changes, similar to the generic scalping. The losers generally were the Nasdaq dealers who adjusted their quotes slower than few seconds. These high-speed trading strategies ultimately caused spreads to widen because dealers and other traders had to recover from other traders what they lost to the SOES bandits.

Nasdaq protected its dealers by restricting the access of bandits to the SOES system by classifying them as professional short-term traders. The issue is now forgotten, however, the new losers are public limit order traders. High frequency proprietary traders undoubtedly exploit these traders when prices change quickly, but unlike Nasdaq dealers these traders are not organized to complain about it.

NSE is considering providing Direct Market Access(DMA) and it will be worth watching how it protects the low end retail traders.

Being A Professional Trader

A Professional is a person supposed to be an expert on the subject he is dealing with for earning a livelihood. The inner work process of professionals is likely to differ. But they are adaptable, easy to get along with, open to change and great note takers. Their approach is holistic; rather than harping on a certain method since it is the sum of parts that is more important. Technical expertise comes naturally as they work for satisfaction and not merely for money. Research is a prized instrumental value which enables the development of more fundamental values, such as autonomy. A professional learns from his mistakes and utilizes them to bring more perfection to his trading. Their comments are realistic and precise but never abstract. Since Trading is a zero sum gain, most people in the industry from Investors to Analysts to Brokers find it tough to accommodate with professionals.

A professional can give bad name to his profession if he does something unethical or against his profession. Hence he follows strict ethical standards. Ethics are a part of practical, professional decision making. If they are willing to help newcomers, good; it will be a comprehensive mentoring. If they're not; it will be a simple silence or blatant 'no'. This is why most pro traders shy away from publicity and like to operate secretively.