"This book will let you see the little-known but effective trading tactics and methods of today's top market makers."--Technical Analysis of Stocks and Commodities
Active traders must get inside the head of the all-important market maker--"The Ax"--before they can begin to truly compete.
The Market Maker's Edge, written by longtime ax Josh Lukeman, is the first inside look at how axes think, what they look for, and, most important, how they can be beat.
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A groundbreaking work in electronic trading, The Market Maker's Edge gives you an effective, step-by-step trading plan used by Wall Street professionals to minimize risk and maximize profit.
Book Info
Written by longtime ax Josh Lukeman, is the first inside look at how axes think, what they look for, and, most important, how they can be beat. Softcover.
From the Back Cover
A Market Maker Reveals How He:
- Times Entry and Exit Points for Minimum Risk, Maximum Profit
- Combines Fundamental and Technical Analysis
- Controls His Environment Every Day, with Every Trade!
Hundreds of books, written from the buy-side viewpoint of the successful trader, promise day trading success. The Market Maker's Edge is the first book to turn the tables, working from the sell side to explain how the market maker routinely maintains the upper hand, seizing profits while controlling risk in today's volatile marketplace. Written by a Josh Lukeman--a Morgan Stanley Dean Witter market maker who has honed his skills for years--The Market Maker's Edge reveals:
- 4 signals for spotting--and profiting from--a developing trend
- Important risk control concepts every trader must know to protect against losses
- Advanced trading strategies based on recurring technical patterns
Today's top market makers operate in intensely competitive atmosphere, with millions of dollars at stake. The Market Maker's Edge is today's only trading book written from inside the market maker's domain. Use it to open the door, and shed light on the trading tactics used by Wall Street's most powerful market making institutions.
About the Author
Josh Lukeman is an active short-term trader at Morgan Stanley, where he also produces a daily technology sector bulletin for fellow traders.
Excerpted from The Market Maker's Edge: Day Trading Tactics from a Wall Street Insider by Joshua Lukeman, Josh Lukeman. Copyright © 2000. Reprinted by permission. All rights reserved
PREFACE
The on-line trading revolution is transforming the investment world at a dizzying speed. In a single year, between April 1998 and April 1999, the number of trading accounts opened on-line in the United States increased 25 percent, rising to over six million. At the beginning of the year 2000, over 8 million on-line accounts exist. The potential growth rate for on-line accounts is startling, given that they comprise fewer than 10 percent of all brokerage accounts.
CNBC reported that a majority of day traders go broke within their first six months of trading. Active day traders are responsible for 30 percent of the million-plus on-line trades executed daily. The combination of the huge number of Americans who are trading on-line and the high expected failure rate for beginners results in a potential powder keg: In the first years of the new millennium, more Americans will lose money day trading than ever before. There is a national need for an all-encompassing, simple, and effective day trading guide; thus, The Market Maker's Edge.
Day traders have been around since the inception of the stock market in 1792. Human beings have speculated on prices since the dawn of currency, and this trend will continue regardless of the state of the market.
Public interest, demand, and participation in day trading increased dramatically during the roaring bull market of the 1990s. Higher rates of return, advances in technology, ease of entry provided by on-line brokers that charge lower commissions, and a public that cannot afford to retire have all contributed to the explosion in ownership and interest in the stock market. Almost 50 percent of the American public had some sort of equity ownership in 1999. The majority of these investors and traders have unrealistically high expectations of the amount of money they can expect to receive from their investments, creating a need for education.
Many of the principles behind profitable day trading are simple. Yet time and again, people tend to complicate the decision-making process due to a number of factors, both internal and external.
Day trading magnifies the emotional pitfalls people face in everyday life, including greed, fear, attachment, shame, regret, and the search for security. These emotional and psychological traps that I call the internal factors are the most common causes of financial loss in the trading world.
To be successful, every trader needs an effective trading plan. The best plans are simple and comprehensive, addressing external factors such as risk control, entry and exit, technical and fundamental analysis, trend spotting, and trading tactics.
This book stands out from most books on trading in that it places special emphasis on both the internal and external factors. It is also unique because it is written from the perspective of the sell side of the trading world, shedding light on tactics and methods used by professional Wall Street traders.
The information that has not been readily available to the public is what market makers actually do, and what makes many of them effective day traders. Day traders have all sorts of misconceptions about market makers' roles and objectives. Market makers are incorrectly stigmatized as the enemy of day traders, when in fact the main enemies of day traders are day traders themselves.
Market makers come in all shapes and sizes. They range from small retail order flow shops that do not put up any risk capital, to the largest institutional global banks that consistently take large risk to facilitate order flow. Institutional market makers' strengths lie in their experience and technical expertise. One advantage they enjoy is that they understand the way that order flow works. Large buyers or sellers always leave traces through their activity. Their activity is visible to all who know how and where to look for it. The Market Maker's Edge helps to clarify this activity, providing traders who lack market making experience with information about how order flow works. This book sheds light on a simple way to take advantage of identifying short-term trends emanating from volume.
Another advantage market makers have over day traders is their large financial backing, which permits them to expand their risk profiles in order to withstand larger losses. The large global banks that have market making operations have the deepest pockets. A $10,000 loss may be large to a day trader, but to an institutional market maker it is simply the cost of doing business. Day traders can make up for their lack of large financial backing with proper risk control and realistic expectations, both of which they will learn about in this book.
Day traders who are in the early stages of development have to overcome their lack of experience, which is often only acquired either by learning what not to do or by making mistakes. This process can be very expensive, more so than many can afford. The Market Maker's Edge provides guidance in the form of a step-by-step process for developing and maintaining a diligent risk profile, which will help beginning day traders to weather the initial storm.
Information used to be a commodity that the top market makers enjoyed as a result of having well-endowed research departments. The Internet has broken down the information barrier between global banks and individual investors. The best research is now easily accessible on the Internet for all to see. Sometimes market makers are the last ones to catch wind of important information that is released on the Internet.
The Market Maker's Edge will teach you how to trade with the best market makers, not against them. You will become adept at overcoming short-term gyrations by sticking to the methods and tactics provided in this book. The Market Maker's Edge will help you overcome fears or weaknesses by developing successful trading habits and focusing on your strengths. Your conviction and staying power will increase and you will become a better trader, less susceptible to the influences that are outside of your control.
JOSH LUKEMAN --This text refers to an out of print or unavailable edition of this title.