Reader FAQs

Day Trade Online, First Edition vs Second Edition

(1) I bought the first edition of Day Trade Online. Should I buy the new edition? How is the second edition different from the first?

The new, hardcover 2nd edition of Day Trade Online is completely updated and revised. The revision is written from the perspective of my 13 years of trading the NYSE. The markets have changed drastically since the late "90's", and new edition addresses those changes. Among them, the book discusses the recent changes to the structure of the NYSE's specialist system and the move towards a more transparent, electronic trading model. The book uncovers new secrets on how to use the NYSE's transparency, including the release of the specialist's limit order book to public, to your advantage. These tips are applicable to both scalpers trading less volatile stocks, and momentum players who choose the trade the market's most volatile stocks. Perhaps the best way to see if the new, hardcover edition is right for you is to take a look at the table of contents available thru our link to Amazon here.

(2) I went into my local bookstore and they had the 1st edition in paperback, but not the new second edition in hardcover. Where can I purchase the new book?

While I would much prefer that bookstores only carry the new hardcover book, it seems like many bookstores including Barnes and Noble and Borders are still carrying the old, paperback version. If you cannot find the new edition at your local bookstore, please ask them to order it. Another alternative is to order directly thru my website via Amazon.

Changes To the Rules and Structure of the New York Stock Exchange

(1) Would you please comment on the NYSE's "next generation model" and the reality that the NYSE will no longer force the NYSE specialists to give priority to customer orders over their own?

This is a fantastic question. As I say in the book, the NYSE has gone through more changes recently to its rules and structure than perhaps at any time in its long and storied history. I am a firm believer that the investing public, and specifically the active trader, has more to benefit than to lose from these new rule changes. I believe that the NYSE has become a more "fair" marketplace as a result.

Perhaps the most significant change in the "next generation model" is the fact that specialists will now be put on equal footing with customers. In other words, in the days of old, the NYSE specialists had a duty to give priority to customer limit orders over their own buy and sell orders at a given price. With this burden and responsibility of priority came some benefits and advantages to the specialist over the public. Among them was the ability of the NYSE specialists to get an advanced look at a customer order before the rest of the investing public would see it. This would allow the specialists, in some instances, to "penny jump" the order and provide liquidity at a price point that was a penny better than a posted limit order of the investing public.

For example, imagine that you were a buyer at 25.00. and you were the highest bid in the market. If a seller saw your bid and wished to "hit the bid", or sell to you, the stock would be expected to trade at 25.00. However, in reality, it might trade not at 25.00 like it should but instead at 25.01, with the NYSE specialist essentially penny jumping ahead of your order. The result? The specialist was able to buy stock a penny better (25.01) than you while your order at 25.00 remained unfilled. Technically, this was not illegal because the NYSE specialist was able to pay the seller a better price (25.01) ("price improvement") for his or her stock than you were willing to pay (25.00). This was one of those gray areas in the rules that caused me much frustration over the years because it often times felt like the NYSE specialists had a huge trading advantage over us. Thankfully, the move towards a more electronic trading model has essentially made this a thing of the past.

I have not changed my approach to scalping on the NYSE due to these new and proposed changes to the order handling rules of the NYSE. In my opinion, it is best to view the NYSE specialists (or "designated market makers" as they are now called) as (1) still having a mandate to maintain an orderly market and (2) having less of a trading edge over the investing public that they once had. Because of this, the active trader trading NYSE listed stocks is on a more level playing field with the specialists today than at any point in history.

(2) In some NYSE stocks, the trading has become fragmented and many trades seem to occur "off the floor" on other exchanges instead of on the floor of the NYSE. Given this trend, do you still prefer routing your orders to the NYSE? Does fragmentation affect the way you trade?

Yes, I still prefer to route my orders to the floor. In general, I still trade the same way whether the stock has a heavy concentration of prints on the NYSE, or off the floor. I much prefer to have the order routed directly to the NYSE because I feel that it gives me access to potential liquidity that might not be there on other exchanges. There will be many times when your order will get executed at the same price regardless of whether it was sent to the NYSE or to another exchange. But there will be some times when that is not the case. Thus, to give myself the best odds, I prefer to keep my orders down on the NYSE floor.

NYSE Trading Strategies

(1) I'm having trouble finding NYSE listed stocks have wide bid-ask spreads. Many are very narrow, and some are only a penny wide. What strategies do you use to attempt to exploit the bid-ask spread under these tight conditions?

Another great question. I would strongly suggest getting your hands on a copy of the new, second edition of Day Trade Online. In it, I spend a great deal of time explaining some basic clues for finding favorable supply and demand situations in stocks, even those with narrow bid-ask spreads. Included in the new edition is an explanation of the favorable recent changes to the rules that govern trading and market transparency on the NYSE. From the standpoint of the active trader, perhaps the most significant change was the agreement by the NYSE to make the real time data on the specialists' limit order book, called NYSE open book, available to the investing public. Once this information became available, it allowed the trader to view a more complete picture of the supply and demand in the stock outside of the immediate bid-ask spread.

So what does this mean for stocks with narrow bid-ask spreads? A stock with a bid-ask spread that is only a penny wide may not, at the surface, seem like a good stock for a scalper to exploit. However, it is quite possible that by glancing at the depth of the market, (the buyers and sellers "away" from the market on the NYSE specialist's limit order book), you will see potential gaps supply and demand that could be worth attempting to exploit for profit. Thus, a stock that doesn't at first glance look like a good trade because of the tight bid-ask spread might in fact be a great candidate for a short-term trade.

A 3rd Book in the Future?

(1) Do you have any plans for a 3rd book?

Yes, I have been working part time for several years on my third book. I am very excited about it and I will post information on this website when I have more information to share on this. It is a long-term endeavor. Writing a book is a very time consuming process, and, like trading, it requires a tremendous amount of concentration. I always try to make sure that my writing doesn't interfere with my trading or distract me from the markets. When it does, it can be very costly to my trading. For that reason, I have been taking my time with writing my third book. If you would like to be notified when there is more information on my 3rd book, please send an email to info@farrelltrading.com.

European Exchanges

(1) Do the European stock exchanges have the same fair order handling rules as the NYSE? Can the trading strategies that you discuss in your books be implemented on these exchanges?

This is a question that I get frequently, and unfortunately, I have never placed a trade directly on any European exchanges. So I just do not have enough information on the order handling rules of the European exchanges to give you an accurate idea.

The Day Trader's Survival Guide

The Day Trader's Survival Guide was released in November 2000. Conceptually, many of the trading strategies and market-making psychology that I discussed in that book are still relevant in today's market. However, the book is now 8 years old, and some of the specifics are dated to that time period. For this reason, instead of providing new information here for those strategies that are now 8 years old, I would instead encourage you to get the most up to date info from the new edition of Day Trade Online instead.

(1) Which online (direct access) brokers do you use?

Over the years, I have become a very big fan of Interactive Brokers. They have a per share commission rate that is perhaps the most competitive in the industry for active traders. In addition, they have a no-frills trading platform that can be customized to your needs.

(2) Is The Day Trader's Survival Guide video series still available?

No, the first edition of the video series sold out back in 2002 and I decided not to offer it for sale any longer after that.

(3) What about other questions from The Day Trader's Survival Guide?

Issues such as thick vs thin stocks, etc. are not as prevalent in today's market as they were back when the survival guide was written in 2000, as the market moved from fractions to decimals.

DISCLAIMER:
My books and my website are not to be taken as a get-rich-quick endeavor. They are meant as a primer on how the stock market works and provides insight into methods for exploiting inefficiencies in how stocks trade for profit. The information I provide is not meant to be taken as an end-all, be-all on how to trade stocks for a living. This is a risky business with a high failure rate; in part because of some of the market mechanics and the destructive forces of the "house edge" that we explain both here and in my books. Said another way, day trading is not for everyone. Anyone that that thinks that all they have to do is read a book on day trading and then they will get rich in the market should not be trading in the first place. In fact, it is contradictory to the central message that I convey in my books, one of protecting your hard earned trading capital, and only putting it at risk when the odds are in your favor. Proceed with caution and at your own risk.