Thursday, April 05, 2007

International Trading Perspective From

From Brett: I recently put out a call for English language summaries of international blog posts written in other languages. Jesus Perez Sanchez of the Especulacion site was kind enough to offer this interesting trading perspective. Here is the original post in Spanish; below is an English language summary. Jesus is a computer science engineer in Spain and has built his site into one of the most visited in Spain. Although he writes about discretionary trading, he has an interest in trading systems and their development. He welcomes questions and comments to his email address: jesus.perez.sanchez at gmail dot com.

The Spanish Market is the only market where you can know who is buying and who is selling in each transaction (the agency). Those data are huge, and it is very difficult to extract information to make trading decisions. There are some people that are focussed on particular stocks. They have learned which are the more important agencies that manage the price of the stock.

After thinking how to extract information from those data, I decided to generate some graphics that relate the stock price with the stocks that have an agency. My idea was to try to identify when an agency is begging to take position in a stock. As you know, some agencies manage important amounts of money and can´t buy all the stock only in one operation. That kind of agency needs to accumulate stock little by little. That is very well reflected in the graph and allows me to be able to buy at that time. That process of accumulation will make the value rise or at least to stay in the same level. This also happens when the agency decide to sell.

You can see in the BBVA graphic how Morgan Stanley stock reflects this process.

You can read the post that I published in Febraury:

The data in red colour are the stock price and the data in the blue colour are the agency volume.

From Brett:

This has some interesting similarities to my own research on dollar volume flows. It is also relevant to research on large block trading. I've consistently found that one factor that separates professional traders from non-professionals is that the former group has a good feel for who the players in the market are and what they are doing during the day and day to day. This post from Jesus reflects such an awareness. He is able to track the volume of specific market participants and use this information to ride their coattails. While there are differences between the U.S. and Spanish markets, the underlying idea holds for both markets. If you can isolate the large trades in a given stock and track whether those trades are occurring more at the bid price (aggressive sellers) or at the offer (aggressive buyers), you can gain a very nice picture of the sentiment of the market's largest participants. Reading this volume distribution in real time provides a very useful edge. Many thanks to Jesus and Especulacion; I look forward to providing further summaries of his posts.