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day trading advice from 2003

For those of us who were day trading full time after the internet bubble it was down trend after down trend. This move basically lasted from September 2000 – March of 2003. During that time it was just a matter of where you were going to short sell each day. Plenty of companies like World Com, XOXO communications and of course Enron were going down.

Day trading the short side was a little frustrating some days because of the uptick rule. It was common to see a short trade coming but not be able to get the trade off because you didn’t want to short the bounce (especially when things were in fractions). Bullets and conversions were available for the short sales but were expensive.

As difficult as it could be on some days to execute a short sale the moves to the downside intra day were consistent and there was good follow through. Basically all the market did was consolidate or go down. When the market consolidated many traders made a great living by performing what was called “rebate trading.” Essentially just  placing 25,000 – 100,000 share orders on an ECN attempting to take a flat on the trade and capture the rebate the ECN would pay. The stock didn’t even have to move it just had to print.

These traders would short sell stock and if the stock bounced they would short more, when the market pulled the stock back in they would take a flat and capture the full rebate. So a 25,000 buy and sell on the BRUT ECN at that time would pay a rebate of $2/1,000 shares. so a FLAT (in and out at the same price) of 50,000 shares would yield a profit of $100 just for the execution!

It was a relatively safe trade at the time because every blip to the upside came back down. So whether you were shorting and capturing the rebate or shorting size and holding on for the day, it was just a matter of when it would go down.

Then came march of 2003. When the statue of Saddam Hussein was pulled down by a tank that was the bottom. The news was still relatively bearish but the market stopped going down.  The little blips to the upside didn’t come back this time. Rebate traders were blowing out their day on one trade and bigger traders were blowing out their month on one trade.

Why did they do this you might ask? Well it worked for the last 2 1/2 years thats why! The news was still bad so they were justifying the short sales. It was one of the most frustrating periods to trade those next 6 months. The market would go up for 2 or 3 days, you would find a great spot to sell short, the market would pause, you would feel confident and then the market would blast off to the upside again. Frustrating.

What does this have to do with today? If you have an opinion on how bad things are in the market or where prices should be get it out of your head. Just pay attention. This is why in our training program Equity Trader 101 we are insistent on “it is what it is until its not.”

One of the biggest questions we get is what makes Keystone Trading Group different and the answer is we actually trade full time. There are many people who are great salesman who have never traded full time. As one of our traders you will be able to benefit from our real world trading experience.

Don’t have an opinion on how bad the market is right now. Trade the order flow in front of you, you will be glad you did. You don’t want to short an obvious uptrend and wonder why it’s happening because you think the news is bad.



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