The Market Maker's Edge: Day Trading Tactics from a Wall Street Insider [Hardcover]

Josh Lukeman (Author)

Book Description

Publication Date: May 16, 2000

Day trading tactics from a Wall Street insider A groundbreaking work in electronic trading, The Market Maker’s Edge gives you the unique point of view of an actual “Ax.” The Ax — usually the day trader for a major Wall Street brokerage firm — is the market maker who controls the movement of a particular stock. Ax Josh Lukeman trades the stock market’s blazing hot technology sector for Morgan Stanley. Now, this professional trader gives you an effective, step-by-step trading plan used by Wall Street professionals to minimize risk and maximize profit. You get the latest methods of stock selection...entry and exit points...examples and charts...hair-raising anecdotes of traders who have won and lost millions of dollars, sometimes in minutes...and plenty of sound wisdom for avoiding the pitfalls of greed, fear, attachment and shame from a real pro.

Editorial Reviews

Review

"This book will let you see the little-known but effective trading tactics and methods of today's top market maker's." (Technical Analysis of Stocks & Commodities Magazine )

"Wall Street pro offers...insights on trading." (Business Week )

From the Back Cover

A Market Maker Reveals How He:

• Times Entry and Exit Points for Minimum Risk, Maximum Profit.
• Combines Fundamental and Technical Analysis.
• Stays in Control of His Environment Every Day, with Every Trade!

Hundreds of books, written from the buy-side viewpoint of the successful trader, promise you the secret to day trading success. The Market Maker's Edge is the first book to turn the tables, working from the sell side to explain how the market maker­­or "ax"­­routinely maintains the upper hand on individual traders, seizing profits while controlling risk in today's volatile, lucrative marketplace.

Written by Josh Lukeman, a Morgan Stanley Dean Witter market maker who has honed his skills for years against other market makers and traders, The Market Maker's Edge reveals little-known tips and traps that include:

• 4 signals for spotting and profiting from a developing trend.
• Important risk control concepts every trader must know to protect against losses.
• Advanced trading strategies based on recurring technical patterns.

Today's top market makers operate in an intensely competitive atmosphere, when split second decisions are made with millions of dollars at stake. The Market Maker's Edge is today's only trading book written from inside, deep inside, the market maker's domain. Use it to open the door, and shed valuable light on the trading tactics and mthods used by Wall Street's most powerful market making institutions.

(20000522)

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Product Details

• Hardcover: 304 pages
• Publisher: McGraw-Hill; 1 edition (May 16, 2000)
• Language: English
• ISBN-10: 0071359753
• ISBN-13: 978-0071359757
• Product Dimensions: 9.3 x 6.2 x 1 inches
• Shipping Weight: 1.3 pounds
• Average Customer Review: 3.9 out of 5 stars  See all reviews (54 customer reviews)
• Amazon Best Sellers Rank: #1,023,747 in Books (See Top 100 in Books)

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Customer Reviews

Most Helpful Customer Reviews

69 of 70 people found the following review helpful:

5.0 out of 5 stars Average in some ways, but top-notch in others, January 8, 2005

By 

Gregory Smith - See all my reviews
(REAL NAME)   

Amazon Verified Purchase

This review is from: The Market Maker's Edge: A Wall Street Insider Reveals How to: Time Entry and Exit Points for Minimum Risk, Maximum Profit; Combine Fundamental and ... Trading Environment Every Day, Every Trade (Paperback)

When you buy a used book, you can tell a lot about the previous owner by what they decided to highlight. In the case of the copy I purchased, the person who originally purchased this title was intrigued by the discussion of trend following and support/resistance. Unfortunately for them, the advice this book gives in those areas is thoroughly ordinary. The fact they felt this title was worth selling is really the fault of their not realizing that it's the sections on position size, indicators, and gaps that are the really the world-class discussions in this book.

To anyone who has really struggled with the problem of position sizing (how much of a stock to buy/sell), there is only one right answer: determine the position size based the combination of where your stop order will go combined with how much money you can afford to lose. Josh provides a straightforward and totally accurate way to do that, something you'll rarely find in any recommendations for day traders. If you don't recognize chapter 2, "Five Steps to Determine the Proper Position Size" as the only right way to trade, you need to keeping reading it over again until it's totally natural to you. If you trade and you're not familiar with thinking in terms of stop loss risk relative to position size, you need this book desperately.

The chart-based examples in this book are mediocre, but the indicator ones are excellent. The biggest standout section (Chapter 17, "Oscillators and Reversal Indicators") covers a few of the popular technical indicators, showing you exactly how you could trade with them in a way most likely to be profitable. The little chart showing exactly what divergence between price action and an indicator looks like is worth the price of the title for those who don't know what that looks like--this is the clearest set of examples I've ever seen on this subject. Equally clear discussion of trading Moving Averages, Bollinger Bands, MACD Histogram, Stochastics, RSI, and Momentum follow. I agree with that author that he's hitting all of the indicators worth following for the short-term trader here. Focusing on this reliable set instead of some of the more bizarre things some traders follow is absolutely the right approach to trading.

Additional good sections in here worth owning include a look into the mechanics of what makes an opening gap in terms of what's happening on the market-maker side and a very nice chart of popular economic reports (CPI, housing, employment, etc.) showing how the market will normally react to new reports in those areas.

The main real problem with this book is that it was written before the switch to decimal notation on the exchanges, and it focuses a little too much on trading in terms of a fraction of a point. The author usually writes in terms of a percentage basis, the right way to look at stock movements, with a small conversion chart included for those not familiar with this approach. But there are a number of times where he breaks
from this and falls back to the weakly justified "set stops 1/8 point below this" kind of commentary that plagues bad trading titles.

I don't give out a 5 star rating on a book unless I consider it a classic in its field or it offers something really unique, and "The Market Maker's Edge" meets the latter critera: the sections that are good reads for day traders are both more accurate and clear than any title I've read. That's a very rare thing indeed in a body of literature dominated by ill-conceived trading ideas and downright fraud.

65 of 67 people found the following review helpful:

3.0 out of 5 stars Misleading title, lacking actual mechanics of MM trading, March 22, 2001

By A Customer

This review is from: The Market Maker's Edge: Day Trading Tactics from a Wall Street Insider (Hardcover)

Although this book contains useful techniques to increase the novice trader's knowledge about trading, no market maker techniques and strategies are actually even mentioned in the book. In markets such as the NYSE, AMEX, etc. specialists (market makers) are privileged with the knowledge of every single order that comes across for the securities that they are trading. These specialists are then able to use this "information" to trade profitably. A recent WSJ article (March 2001) reports that specialists on the floor of the NYSE are making more money than EVER. On the NASDAQ, market makers use Level II and Level III "information" to make profitable trades. It is widely believed that 95% of market makers NEVER lose money and that 95% of individual investors (wannabe traders) ALWAYS lose money. So what does that mean? Trading is a zero sum game, somebody has to lose (YOU), and somebody has to win (MMs). This book should have talked more about how to trade (and win!) like a market maker, and not about old moving averages, macd, and what nonsense that individual investors (wannabe traders) use to lose money day in and day out. Market makers actually use ma's macd's and other technical signals to find out what the ignorant public is likely to do and use that information to trap and make money off of them. They know where the public puts stop orders, so they'll find an opportunity to dump/short stock, temporarily triggering sell pressure, then accumulate shares as the price drops to cover their shorts. Of course MMs use many other strategies to make money (that I don't know of), but this is an example of the mechanics of trading as an MM and this is their "edge". As none of this crucial information is even mentioned in the book, I feel three stars is actually quite generous.

28 of 28 people found the following review helpful:

4.0 out of 5 stars Excellent breadth, but lacking in depth, July 23, 2000

By 

"devinbatt" - See all my reviews

This review is from: The Market Maker's Edge: Day Trading Tactics from a Wall Street Insider (Hardcover)

Lukeman, a market maker at Morgan Stanley Dean Witter, offers up a work that covers a very large spectrum of trading info that is crucial to any investor. The title specifies its utility for day traders, but I found that it would actually be better suited to a momentum or swing trader (active traders, but not as active as day traders). If you are a savvy investor who has already read a number of books on investing techniques, this may not be the book for you. It is a bit basic, but not to the point of "stocks are..." or "bonds are..." Covered topics include risk control, trend spotting, fundamentals, timing and execution, technical analysis such as candlestick patterns, advanced trading tactics, and market psychology. The only complaint that I have about this book is that it lacks nitty gritty details, but it does have some depth. Also, it was a bit disappointing that there was little on actual market maker techniques, with the "dead cat bounce" being as advanced as the book got. But overall, this is an excellent book. If you are a novice and interested in active trading, then this book will give you so much knowledge that can almost guarantee your success. And if you are a very savvy trader, it may pay to pick this up anyway, because it may have one or two jewels that you are unaware of. Highly recommended!