Lecture Notes: Trading Algorithms and the New York Stock Exchange

Introduction to Trading Algorithms

• Algorithms are written by programmers to create volatility and liquidity in the market.
• They often aim to shake out the Longs and target retail traders, creating opportunities for smart traders to profit.
• Algorithms are designed to travel to specific technical areas or strike prices.

Market Makers and Retail Traders

• Retail traders often feel targeted when prices hit their stop-loss and reverse direction.
• Algorithms create volatility by targeting common retail trading mistakes, such as selling a failed breakdown.

Words of Wisdom Podcast Introduction

• The podcast is the number one in the trading space, featuring veteran trader Richie Nesso.

Richie Nesso's Journey in Trading

• Began in the New York Stock Exchange in 1965.
• Grew up in a tough neighborhood in Queens, New York, with a background in sports and games of chance.
• Transitioned from being a runner to a clerk on the NYSE trading floor.
• Emphasized earning respect and not having things handed to him on the trading floor.

Trading Mindset and Strategy

• Importance of experiencing wins and losses to understand the market.
• Volatility and liquidity are key factors in profitable trading.
• Emphasizes the importance of focus, managing emotions, and understanding one's personality.
• Advocates for simplicity in trading strategies.

Evolution from Floor to Screen Trading

• Transition from reading order flow on the floor to utilizing screens and technical tools like Super Dome.
• Emphasizes the same principles of supply and demand.

Handling Trading Capital

• Importance of not being intimidated by large trading volumes.
• Advises traders to understand their limitations and manage emotions effectively.

Algorithms in Markets

• Algorithms seek to create volatility and liquidity.
• Important to recognize technical areas and strike prices as targets for algorithmic trades.
• Algorithms often target stop orders, creating opportunities for informed traders.

Retail Trading Challenges

• Common pitfalls include lack of risk management and understanding of market dynamics.
• Retail traders often make mistakes due to emotional trading and lack of discipline.
• Emphasizes the need for proper stop-loss placement and preventing account blowups.

Trading Journal and Strategy

• Journaling trades is crucial for learning and improving as a trader.
• Averaging into trades rather than single entries can be beneficial.

Market Cycles and Trader Psychology

• Market conditions and cycles like recessions and euphoria impact trading strategies.
• Recognizing emotions in the market helps traders make informed decisions.

Closing Thoughts

• Trading requires discipline, focus, and continuous learning.
• Successful trading involves understanding both technical analysis and market psychology.

Additional Resources

• Podcast links and other trading resources for further learning.