We were pretty pumped about FAZ getting back in play today. However, we were also cautious of what the liquidity, computer algorithms and moves may look like on the open. We cautioned our guys from being overly aggressive on the open with the scalps until they figured out if the old programs seemed to be back in the stock at these prices. Let’s discuss.

In a stock like FAZ we mostly play momentum. In order to play momentum you need a few things: 1. A market that is moving. 2. Computer algorithms that blast the bids/offers and step up/down with the moves 3. Some sizable orders at key inflection points to help as your out of the stock. 4. You need to be quick on your execution. 5. Take your profits quickly.

When we say that we were cautious, we mean spending a bit of time learning those algorithms. Are they the aggressive type that step up/down every second if they are not getting filled? How often do they step? Do they cancel before they put in the new order? Do they change ECNs when they step? Do they step 3 cents at a time or do they do it in 5 cent increments? You get the point. There is a lot to learn about them.

Yes there are quite a few algorithms competing in this stock, but it seems there are always just a couple that are aggressive enough that you care about. You only need to learn about one or two that offer you an edge. It is almost silly to try to figure out every single algorithm in the stock, but learning about a few of them in the different times of the day is just an ATM card with access to unlimited funds. Seriously, talk about free money.

Today things were a bit wild on the open in FAZ. I was making some money in it but I could tell there was a bit of a learning curve to overcome. I was getting a handle on the different programs but I knew it was going to take some time. I overheard some of our guys making better money in AIG. I had recently traded it and today it seemed to be moving a good bit so it was an easy switch.

Switching over was definitely a great decision. AIG traded quite well and a few of us were able to capitalize on the short term moves in the stock. Should there be nothing better in play tomorrow I will go back to trading FAZ and figuring out the dopey computer programs. For now, keep an eye on AIG at $8 for support for a bounce play, and shorts around 10.20 and 10.5. We will be long the stock if it ever starts to hold above 11.05.

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