Trading timeframes: personal recollections

In the late 1990s, amidst the fervour of the burgeoning tech boom, the US markets were a playground ripe with inefficiencies, particularly fueled by fractional pricing. Back then, Level 2 traders had a straightforward playbook: exploit the bid-ask spread with 1000 shares, playing for teenies, eighths and quarters. It was a game of meticulous accumulation, pocketing gains of $62.50, $125 and $250 throughout the trading day. By year-end, the adept were boasting six-figure accumulations. After my time at the LSE, Cass and Cambridge, plus stints in investment banking and quantitative fund management, I was entrenched in Jersey City. I was in fact within earshot of Manhattan's proprietary trading houses, witnessing matters firsthand not long after the dawn of the day-trading phenomenon.

But as time marched on, pressure from institutional market makers mounted on the SEC. The so-called SOES Bandits were gnawing away at the profitability of investment bank market-making desks, prompting the Commission to decimalise quotations, effectively slaying the spread game.

In response, spread traders shifted focus to intraday swing trading, armed with 5-minute tick charts, hunting for telltale signs of institutional activity on Level 2 and in trading volume. Then came the era of algorithms, with their erratic behavior sparking numerous flash crashes that wiped out many margin traders.

This, in my estimation, marked the rise of swing trading over days to weeks as an enticing alternative. With stop losses strategically placed to ward off flash crash risks and minimal reliance on margin, swing trading gained traction and remains popular to this day. However, it demands a considerable amount of screen time within the trading week.

From my own observations and the anecdotal evidence around me, it seems a new breed of trading is emerging, particularly among the more scholarly and perhaps older traders. Enter the resurgence of techno-fundamental position trading. The premise is straightforward: identify institutional moves and ride their momentum over weeks to months. A few hours of research over the weekend is all that's needed to partake in this evolving game.