Q&A

---

Since You Asked

Confused about some aspect of trading? Professionaltrader Don Bright of Bright Trading (www.stocktrading.com), an equity tradingcorporation, answers a few of your questions.

Don Bright of Bright Trading

---

PARAMETER EQUATION?

Say a stock is priced at 30 and trades one million shares perday. If you place a buy market order for 1,000 shares, to what price doyou drive up the stock? This assumes that had you not entered the order,the close would have been 30. Basically, I'm looking for an equation havingparameters: price, average daily volume, and order price (and I know thisis difficult) for how much you affect the price of the stock. Thanks.--Sky123987

There is absolutely no way in the world to know anything like this,regardless of what others may say. This is a marketplace, and much likeany other free market, you have buyers and sellers with different agendas,different hedges, and perhaps 100,000 shares or more of "iceberg" ordersthat don't show up in NYOB or Level 2. ("Iceberg" orders are where theactual share size is not displayed.)

Our traders are taught to watch the actual trades, not just the numberof shares being bid for or offered. That way, they can tell if there arehidden orders, or trades from the "dark pools." Here's where to check:www.redi.com/forms/algo720.pdf.

You may actually get price improvement from National Best Bid or Offer(NBBO) based on proper routing (SigmaX, in our case).

---

VARIATION ON A THEME

I submitted a limit order to narrow the bid-ask spread and I actuallygot a price improvement! Why does this happen? -- bidask

Several reasons could apply. First, there may have been a better priceon another market center (ECN and so forth) between the NBBO, which requiresthe orignal market destination to forward to the better price destination.This is due to the National Market System (NMS) rules.

In addition, there are "hidden pools of liquidity" out there that areoften priced between displayed bids and offers. Major firms have millionsof shares offered and bid for in these pools. You can learn a bit moreabout that at www.redi.com/forms/algo720.pdf.

Another way for this to happen is you may send in an order at a certainprice, but immediately after that, a better order comes in where they fillyour order.

Sometimes there are iceberg orders. And sometimes there are orders thatare not displayed.

Hope this helps.

---

IS THERE AN X FACTOR?

Can anyone be trained to trade for a living? Is there some typeof X factor involved? -- Anonymous

My answer is a resounding "yes and no." I have worked with hundredsof professional, full-time, and part-time traders over the last three decadesor so, on various trading floors and within various trading venues. A greatdeal can be "taught," such as working strategies. But a great deal cannot.The results have ranged from astronomical successes to dismal failures(and that really concerns me). It's the same thing on the trading floors.

Somehow, there is something that some traders have and others don't.That doesn't mean you can't be trained to make money trading; many can,but the level of success varies greatly. The "love of the game" has a lotto do with it. Understanding that there are no absolute systems in themarkets has a lot to do with it (so many traders spend so much time tryingto fine-tune something that may be flawed from the get-go).

Understanding the risks and the rewards has a lot to do with it. Forexample, studying how to play blackjack correctly can certainly help youbecome profitable, but the level of success varies from player to player.A computer cannot beat the casinos (many have tried over the years). Afterall, you must have casino knowledge to get away with counting cards. Iwas barred as recently as last weekend. I think I got greedy (and thathas something to do with this discussion as well).

---

E-mail your questions for Bright to Editor@Traders.com, with the subject line direct to "Don Bright Question."

Originally published in the September 2008 issue of Technical Analysisof STOCKS & COMMODITIES magazine. All rights reserved. © Copyright2008, Technical Analysis, Inc.

---

Return to September 2008 Contents

---