| | | | A Profitable Dive Into Black Waters
Author: Corey Snyder, Publisher
"When I was your age, they would say you could become cops, or criminals... Today, what I'm saying to you is this: When facing a loaded gun, what's the difference?"
- Frank Costello, The Departed (2006)
Before I could get to my coffee this morning, my phone began buzzing...
"We need to get in on Monday… dark pool showing huge blocks."
And there goes that buzzword — "dark pool."
The way it's presented today is that these exist as some sort of secret speakeasy where hedge fund principals, investment bank MDs, and other "street" guys meet to kick back and trade the markets…
That is, of course, without letting retail see beyond the beady eyes of the gruff gentleman behind the entrance, controlling the sliding door viewer…
That's not entirely the case.
In fact, much of the information is out there for your personal benefit…
I use it.
But before I dig into how you can profit from the data, let's talk about what a dark pool is and why the "us vs. them" angle won't do you any good...
Conflicts for Interest
Simply put, dark pools are privatized exchanges that allow for the anonymous trading of securities, typically in large block trades or, "size."
They're nothing new.
Ostensibly created to let through massive orders that would help minimize the impact of slippage and gamification by HFT (high-frequency trading) firms, they've been around since the eighties…
Now, the benefit of low transparency here lies within the use of the book — there isn't one with a dark pool…
You see, most traders I know watch the tape and order book. If you know how to read them, you can sometimes find an edge.
But in a dark pool, there's no light illuminating the liquidity — who is trading or what kind of size…
NASDAQ reported earlier this year that off-exchange execution has accounted for over 50% of trade volume some days, although the rise in retail has helped in adding liquidity back to the market…
This raises red flags, which is understandable.
In fact, several major banks that opened up dark pools over the year have had to settle and pay millions to the SEC…
As you'd expect, all of that data makes double-dipping a little too easy. The irony is that a couple of them were nabbed for using data to entice HFT firms (see NY Attorney General v Barclays).
But some dark pools allow HFT firms...
There's also the issue with front-running or jumping ahead of clients to place trade orders, using the visible where things are "invisible"...
Just how is retail to realize the value or price of an asset when the "big kids" are off trading in an undisclosed location?
That's also not entirely the case.
More than likely, you've already had orders routed to dark pools if your broker or bank operates one… You just didn't know.
And this comes with its own concerns when considering "price improvement."
You can look into the now famous Citadel Securities and the penalty the firm paid in 2017 to see what I mean...
But dark pools are legal... and they're supervised...
(Relatively speaking, of course.)
It's not as if the SEC has no clue as to what's going on, it's just that the foregone transparency might aid the moves made by bad actors...
Recently, SEC chairman Gary Gensler publicly stated that he and regulators would be swinging their weight around in "guarding against fraud and manipulation," even pointing his finger at institutions.
The issue here is less about the conflict of interest and more about fragmented trading, which invariably creates volatility due to price discovery, or a lack thereof...
How can you size up the buffet when a section of it is roped off?
Well, you can't.
And that's an issue… better prices on other exchanges.
But that's of less importance for now…
Start Swimming
Since 1998, FINRA (Financial Industry Regulatory Authority) has been responsible for overseeing ATSs (alternative trading systems).
But the availability of data for retail didn't come about until 2014 with subsequent updates since then to improve reporting…
What's your point?
You can use it to your advantage.
The data is out there for the cost of a few keystrokes and a click or two.
It's something my colleagues and I have used to our advantage...
And it can give you insight as to why a position you're holding is either up or down on anomalous activity…
This is especially true if you see little to no material information.
For instance, it happened to my inner circle last month when one of our positions moved south... for no reason at all...
But after digging, Trickshot members stayed the course and we're up...
Sure, dark pools and the way they operate deserve some scrutiny.
The name alone is somewhat unsettling...
But talking about it won't do much for the account...
Using the data will.
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| | | | | | | Is the trade over? That's always the big question... especially when it comes to taking profits at market highs...
Learn more about what Options Coach Chris Hood thinks the Reddit crowd is missing and how to apply it to trading for profitability...
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| | | FINAL PRINTS: The Major Indices Wrap-Up |
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| Index
S&P 500
Dow Jones
NASDAQ
Russell 2000
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| Weekly +/-
-76.85
-761.37
-248.03
-64.50 |
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| % Change
-1.72%
-2.20%
-1.64%
-2.90% |
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| Close
4,441.67
34,607.72
15,115.49
2,227.55
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| % YTD
+18.70%
+13.07%
+17.28%
+12.80%
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| | | MARKET WHISPERS: The Weekend Scoop
- Uncle Sam Wants YOU (to Get an EV) - Late Friday, U.S. Democrats came to the table bearing gifts for electric vehicle shoppers. But there's a bit of favoritism attached. In an effort to make EVs the standard, a proposal for $12,500 in tax credits towards the purchase of EVs made by the "Big Three" - General Motors (GM), Ford (F), and Stellantis NV (STLA) - could become law, leaving other EV makers to scrap for a $7,500 incentive instead. In other words, the Big Three are the first among equals.
- CORRECTION: Not a Typo - Mike Wilson of Morgan Stanley (MS) sounded an alarm before investors headed into the weekend that they should start preparing for a correction. According to the chief investment officer, Wilson stated that an "ice scenario" could be in the making, referring to lagging numbers from an "overconsumption binge" after lockdowns were lifted. Wilson went on to say that a "20% correction" should be positioned for. Way to kill the afternoon rally, Mike.
- JPMorgan Turns on Crypto - Big Bank JPMorgan Chase (JPM) joined Morgan Stanley in pressing the fear button this week, only in cryptocurrency rather than equities. The bank's crypto expert and global market strategist, Nikolaos Panigirtzoglou, argued that the recent jump in altcoins may not last and could inevitably lead to a similar plummet in digital assets as seen in May of earlier this year. Way to kill the crypto rally, Nikolaos.
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| | | | | Did you miss Options Coach Chris Hood's landmark event? Chris does a deep dive into his cornerstone strategy that has been paying him every week for years...
Click below to watch now.
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| | | HIT OR MISS: Who's on Deck for Earnings
- Monday, September 13th - NAPCO Security Technologies Inc. (NSSC), Oracle Corp (ORCL), Volt Information Sciences Inc. (VOLT), SeaChange International Inc. (SEAC)
- Tuesday, September 14th - Fuelcell Energy Inc. (FCEL), AstroNova Inc. (ALOT), MYT Netherlands Parent NV (MYTE), Aspen Group Inc. (ASPU), Kaspien Holdings Inc. (KSPN), IBEX Ltd. (IBEX), DAVIDsTEA Inc. (DTEA), High Tide Inc. (HITI), SkillSoft (SKIL)
- Wednesday, September 15th - JinkoSolar Holding Co. (JKS), Weber Inc. (WEBR), Canaan Inc. (CAN), Innate Pharma (IPHA)
- Thursday, September 16th - N/A
- Friday, September 17th - Manchester United (MANU)
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| | | Enjoying Dawn Report? Learn something, made some money?SHARE YOUR STORY WITH US OR TELL US HOW TO SERVE YOU BETTER.Let us know at info@rogueinvesting.com |
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| | | | | | | | | | Copyright © 2020 Rogue Investing. All Rights Reserved. There is a very high degree of risk involved in trading. Past results are not indicative of future returns. Rogue Investing.com and all individuals affiliated with this site assume no responsibilities for your trading and investment results. The indicators, strategies, columns, articles and all other features are for educational purposes only and should not be construed as investment advice. Information for any trading observations are obtained from sources believed to be reliable, but we do not warrant its completeness or accuracy, or warrant any results from the use of the information. Your use of the trading observations is entirely at your own risk and it is your sole responsibility to evaluate the accuracy, completeness and usefulness of the information. By downloading this book your information may be shared with our educational partners. You must assess the risk of any trade with your broker and make your own independent decisions regarding any securities mentioned herein. Affiliates of Rogue Investing.com may have a position or effect transactions in the securities described herein (or options thereon) and/or otherwise employ trading strategies that may be consistent or inconsistent with the provided strategies. An InvestPub Company. |
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| HIGH RISK WARNING Trading foreign exchange, stocks, options, or futures on margin carries a high level of risk, and may not be suitable for all investors. Before deciding to trade, you should carefully consider your objectives, financial situation, needs and level of experience. RogueInvesting.com provides general advice that does not take into account your objectives, financial situation or needs. The content of this website must not be construed as personal advice. The possibility exists that you could sustain a loss in excess of your deposited funds and therefore, you should not speculate with capital that you cannot afford to lose. You should be aware of all the risks associated with trading on margin.You should seek advice from an independent financial advisor. Past performance is not necessarily indicative of future success. |
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