NYSE and the Retail Trader

This begins a 4 part series on NYSE and NASDAQ market participation and is a follow-up of my August 17th post on the Facts of Life.. I began this study to better understand how orders flow, who controls the markets and how they do it, since I'm always looking for a trading edge. As the NYSE evolves from the specialist mode to a hybrid mode to an electronic market like the Nasdaq, the dynamics of order flow and how it is controlled have also evolved. My goal is simply to look at the statistics provided by the NYSE and Nasdaq and to determine if, in fact, some patterns and probabilities can be detected.

I welcome your thoughts and comments on these posts as I do not claim to be a savant (or even very smart as Mr. Market keeps reminding me) and 2 heads are always better than one when looking at a data field. The data is presented as digital photos for ease of presentation. If anyone wants the Excel files to play with, e-mail me at bzbtrader@aol.com and I'll be glad to forward them.

The statistic that stands out for me is the size of retail trades. This represents the volume of trades through retail brokers such as Schwab, Fidelity, TradeStation, Interactive Brokers, ETrade, AmeriTrade, etc. There's an awful lot of money being spent by these brokers trying to attract a client base as evidenced by my weekly mail and phone calls from at least 3 of those mentioned above. Assuming each client makes 1.5 trades per day equals roughly 123,000 traders on an average August day. That's not a lot. Neither is the volume of retail trades. The consistency of the average trade size is also interesting since I had expected that traders would scale up on positive days and scale down on negative days. In fact, the tendency appears to be the opposite. This sheet reflects only NYSE data, an arena I much prefer to the Nasdaq (Qs are the exception), although many traders I know would rather eat ground glass than trade the Big Board. If there's any simple lesson to be learned from this first glance at the data, it's that going with the flow is an absolute must and that to follow or get out of the way are the only safe courses of action.

For several years I was able to generate a respectable and consistent ROI when I found that it was possible for a retail trader to actually move NYSE stocks, in the low volume (less than 75,000 daily volume) issues which tend to be illiquid with huge spreads and thin or no options . But this endeavor requires at least $200K in risk capital and a special set of trading skills and risk management rules. My current risk comfort level prevents me from following this path again as I encountered more than a few moments of dread and terror along the way.