Tim Bourquin: By doing that, by getting in just as you see the levels going down, you're able to still get in there and get the price you want?
Ben Tippen: Yes. See you don't always get it. It has all to do with timing, how good your Internet connection is, who you're routing through, quite often you end up with a partial fill. So for instance if the price is 367 by 368 and you're waiting for the 368 to deplete, just as the last one goes off, you punch a limit order in to go long at 368. And then you might pick up the last couple of shares just before it changes price level. And then, of course, you're in a flat trade and it will be 368 by 369 and you're long at 368. That's another method to achieve the same results. Now that method is much harder. It's much more dangerous because just at the last minute as you punch in the level—it can stop. Someone can hold it on a refreshing order that 68 and then the whole level suddenly repopulates and now you're looking at a losing trade if you had to punch out.
Also another thing that happens as soon as the level depletes, you get in for your flat trade. And as soon as it goes through, you get back with pressure and it snaps back down and then once again you're in a losing position. So that style of entry is something we call a momentum entry. It's much harder but it does allow—you know sometimes when a stock is really moving in a particular direction, it's very hard to buy or sell on the other side of the direction. So for instance if it's moving up very strongly, it's very hard to bid it. And sometimes that's only method you can use to get yourself into the trade.
Tim Bourquin: Why do you think more of retail traders don't try to use this type of system where they're actually buying it where the market makers are buying or they're buying on the bid? Why aren't more people doing that?
Ben Tippen: Well, I just think, you know, even if you're not scalping and you're trading on a retail account and you're trading faster stocks. So you're trading stocks between say $20 and $60. So we call that momentum or P&L trading. Even if you're doing that, you should really be practicing a lot buying on the bid and selling on the ask. And the reason you should be doing that is because it teaches you to be patient. You're learning how to be patient. You're not being impetuous. You know if you're going to keep punching in and out, you can find yourself not waiting for good setups. If you're forcing yourself to be patient waiting for the price to come and pick you up, (a) you'll be putting your orders in at correct technical analysis places and (b) just learning to be patient. And that's a really important skill when you're trading.
Tim Bourquin: It sounds like to me that you could trade just with a Level II alone, but then I also heard just now that you're—it sounds like you're looking at charts, too. So describe how you're using charts in conjunction with your Level II.
Ben Tippen: When I'm scalping, the main reason I'm looking at charts for is to find the levels and I get those primarily off the 15-minute and the daily. They're the two timeframes that I get the best levels off when I'm scalping. The smaller time frames are not so important to me because I can see that in a Level II, which way it's going to go or you know I make my mind up which way I want to be, long or short from the Level II. But when it comes up to levels that I pick off the daily and levels that I pick off the 15 minute, they're the places that I want to generally take my trade away from. So if there is a strong daily resistance level, I'll wait for the price to get there and I'll look for a trade away from it. I don't look for breaks off these levels. You know if I'm looking to take a trade past the level, I wait for the level to be broken and then the price to return to that level, and then I'll trade away from it again. So I'm not way too big to break a level than entering a trade.
Tim Bourquin: So you're looking for a certain level on a chart. And then once you have that level then you're looking for some advantageous look in Level II to determine whether or not you can get the price you want?
Ben Tippen: Yeah. If I found what I think is a good level, I'll see how Level II behaves when it gets to it. I find that if it is a really good, especially a daily level, then I find that the Level II does behave differently when it gets to that point. What I don't want in a Level II is I don't want the price to be chopping quickly. When there's downward pressure against the bid, I don't want a small amount of pressure and then everyone on the bid dispose their orders out and it switches price levels lower. I want the price levels to slowly and smoothly deplete as the volume comes in. And what I find is when it gets to these daily levels, that's much more likely to happen. And when it's chopping and people—you know their orders are getting pulled it's causing the price levels to quickly switch, that's the time when I don't want to be in the play with big size. I want to be using smaller size so I can fill. You know we call them marker lots. So I can feel my way around the Level II and how it's going. How quickly the fills are coming in which side is filling quicker. You know if the bid is filling very easily, and it's very difficult to offer the shares out then I don't want to be really long in the stock. And that's something that I'm constantly feeling. You know if it's easy to buy it, generally speaking it's going to go down.
Tim Bourquin: [Laughs]. Right the hard trades are the best ones, of course.
Ben Tippen: Yeah. So, you know, if it's easy to get it on the bid then I'll put more shares on the offer. I want to be passively on the side that's harder to get. That's just one of the things that I look for. And when it gets to these price levels, I find that the Level II just acts a bit smoother...
Tim Bourquin: I'll be honest I don't talk to a lot of traders anymore that scalp. They used to be—everybody did it, right? Five, six years ago, even longer 10 years ago, everybody was a scalper. That's considered. But you don't find a lot of people that do this anymore. Why do you think that is?
Ben Tippen: I just think it's because of the commission structures. You know it is hard to get these commission structures. I'm part of a firm. We've got a lot of traders. We've also got sister companies that all trade under the same umbrella. We do, you know, millions and millions and millions of shares a day. And with all that shared volume, we go to our clearing firm, we all get a good deal, and then it's spread around everyone. Whereas when you're on your own as a retail account, you just do the volume that you do and you know, you end up with a rate of paying sort of $6, $7 per thousand shares. Whereas when you've got all of us as an umbrella group and these sister groups all doing huge volume and then all getting a good deal based on that running with the broker, you can see how it opens up more possibilities in terms of styles of trading.
I mean scalping was obviously big back when the fractions where around, but now it has changed to the decimals. It's very hard for retail people to get involved in it. They would have to be looking at faster stocks and looking for bigger moves to do the scalp style. But really that isn't the same as what we're doing. We're playing low priced stocks, which are very thick on the bid and ask and that allows us to control it more. If you've got a stock that's thinner or higher priced then you're looking for slightly bigger moves in the scalp, you know, it's considerably higher than what we're doing. The way we trade is much more like sort of institutional trading whereas people on mutual accounts, because of their commission structures, they're really stuck with more P&L style of trading.
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