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Tony Oz: Short-Term Trading, Part I

By Marc Dupe
TradingMarkets.com

Tony Oz is a professional trader who uses short-term trading strategies for swing and day trading. He is one of the
founding members of Day Traders of Orange County. The popular response to his Short-Term Trading Seminars spurred
him to author a book on short-term swing-trading techniques titled "Stock Trading Wizard." TradingMarket.com's Marc
Dupe conducted the interview with Tony during the week of the Nasdaq's biggest point gain ever in February 2000.

Marc Dupe: How would you characterize your trading style?


Tony Oz: The category it falls into is a swing trader, which would be both a day swing and an overnight swing, where I
will look to take positions in stocks that can be for two, three hours, or even longer. If the position justifies holding
overnight, Ill hold overnight. Sometimes my trades can be less than 5 minutes, but maybe only one or two out of 100
might be those types of trades. So the time frame that I look for is normally at least longer than a couple of hours.
Dupe: Why do you choose that time frame?

Oz: Comfort level. Thats the time frame Im comfortable with. I look at the bigger picture. I wont enter a trade
unless I think I can make pointsI dont look to make fractions. I look to make at least 3-to-1 on my riskreward ratio, which means if I risk 1 point; I want the potential to make at least 3 points. I dont get that type of
risk-reward ratio with a much shorter time frame. Actually, lets talk about 1999, the longest I had a position,
from the first day I bought it to the last day I sold it, was 32 calendar days. The second-longest was probably 5
to 7 calendar days. No, I take it back. I had another 30-day; they were big winners!
Dupe: So, what is it that helps you define the risk-reward ratio that you want?
Oz: Well the closer that I buy a stock to a support level, the less Im going to risk because if I buy close to
support level, if it falls right on the support, I cut it. Normally, where I look for it to go from that support level is
much higher than support. For instance, I found this stock last week that was pulling back from 60, was in a
decline and trading at 52, and came up with a play and thought the market was going to correct the next couple
of days. We see the stock correct to 45 3/8, which was 3/8 of a point over the 45 level, which we felt was pretty
good support. The price target was back to the 52-level, or optimistically 57, which was in the declining line of
the channel. It took two days for the play to place. I got filled at 45 3/8 and got out at 51 5/8.
My stop loss was at 44 1/4, so I was risking 1 1/8-points to try and capture 52, which was the bottom of the
range. So I was looking to make 6 1/2 or 7 points, risking 1 1/8. So we had almost 6-to1 on the bottom line of
estimates of the risk-reward ratio. Thats the type of trade I like to make.
Dupe: How do you go about finding these types of setups? What is your process?
Oz: Ok, I have three different sources that I get my trades out of. One is I have a watch list of 25 to 40 stocks
that I follow religiously--that means every day. And I will update that list. A stock will make the list and a stock
will be dropped out of the list once they stop trading in a certain pattern. So those are the stocks that I will look
at every day. The second source is my overnight scan where I run a scan looking for certain criteria and certain
filters and I look for stocks that are doing certain things.
Dupe: Your list of 25 stocks, how do you generate that list?
Oz: Well, that list has been generated since I started trading and when certain stocks make certain criteria, and I
start following them, then they make the list. Stocks that I stop trading, like US Robotics or Cascade

Communications or stocks that were bought out, were replaced with other ones. The list of 25 is a constant list,
that means very rarely are there changes to the list.
Dupe: Without giving anything away, what are some general things you look for in generating that list of 25?
Oz: Generally Im looking for patterns, Im looking for breakouts where if I find the first day of a move after
consolidation. Thats a great easy play. Like Microsoft had a four-month, channel breakout not too long ago and
it broke out at the 102 level, it cleared that and went straight to 120. Microsoft is one of the stocks that is on
both my constant list and my scan list. Qualcomm is on my constant list too. The way I found Qualcomm was
when it made a breakout from the 140 level, about six, seven months ago--before it split 4-for-1. I played it back
and forth and it was my best performers last year, as well as the best performer on the Nasdaq.
Dupe: So on your scan, you look for stocks that are breaking out from bases to new highs or from recent
consolidations?
Oz: I have ten different scans that I run and each one of them looks for different things. It depends on the
market environment as to which scan will generate the high-probability plays.
Dupe: Which scan do you think generates the highest-probability plays?
Oz: If I like the market and I want to go long, there is a scan I like that looks for stocks that have traded more
than their average daily volume and have closed at the top of their trading range. If it is a strong day, I might get
80-100 results. And I look for the one that is in the first day of a move or the one that broke the downtrend.
There is a lot of meat in that trade. The ones that have been going up, you know, six, seven days in a row, the
risk-reward is not great because the support levels are way down there. There is just not a logical support level
to get in. So we'll follow some of these stocks and wait for a pullback. We might play them off intraday support
and resistance levels but those are not major levels. So, again it is not a high-probability trade.
Dupe: For the ones that you say break a downtrend, are you talking about a stock breaking a defined down
channel line to the upside?
Oz: : I might just look at the last five days of a 5-minute chart and look at the trend I have there. If that trend is
broken, if there is enough volume that day and the stock closes at the top of its trading range, and of course if it
trades higher the next day than the previous day's high, then I'll enter a position. Normally on these types of
tradesand it depends on how much of a pullback we've hadyou can find the 3, 4 or 5-to-one risk-reward
ratio plays; they're pretty easy to find. You don't get them every day. But if I don't get the setups, I don't trade.
I'll just sit on the sidelines and wait. I don't trade for the sake of trading. I guess that's been my secret of success.
Dupe: So in waiting for those trades with the higher risk-to-reward ratios to setup, you're obviously looking
for those that will give you the most upside potential. How do you determine what your profit target is going to
be?
Oz: Well, if we buy at support, of course we're going to look at where the next resistance level is, if the stock
has held. If we are breaking into new high ground, that's when it's really tricky. Depending on past performance
of the stock and depending on current performance of the market and the industry and the sector, you have to
make the adjustment as to what you think is the realistic price target. And this will vary drastically based on
seasonality factors. I mean if you play Alcoa (AA) at a certain time of the year, it can give you a lot more than it
will give you the rest of the 11 months of the year on the same type of a setup. So there is more to it than the
technicals, there's also what time of year you are in, what news is the driving force. It's just like fashion: One
season leather is in, one season it's flannel they want. It is the same thing. So you have to keep up with the
fashion and adjust your price targets accordingly. And you have to keep your expectations intact and never get
too greedy, that's what really kills you.

Dupe : So for profit targets, you look for recent highs?


Oz: Recent highs, recent consolidations, wherever those resistance levels were. Where did the stock have
problems going over a certain price? Do I think a test is necessary before we go any lower? I'm not a big short
seller. Unless the market really justifies it, I'll hardly ever take a short position. I do short when the market
direction is down and easy to see.
Dupe: Why don't you short?
Oz: Because I don't like playing against the trend. So if the trend of the market is going up, then there is no
reason. I was short going into Oct. 8 of 1998, and I reversed there and went long and I've been pretty bullish the
entire time. So I can count on one hand the short positions I've taken in 1099. Maybe two hands.
Dupe: January (2000) was a volatile month that gave some signs of a top. What conditions would have to
transpire for you to say the market is in a downtrend and that it is time to start looking for more short-side
opportunities?
Oz: It doesn't take a lot to realize that, hey, it's time to go short or that sentiment changes, certain developments
or the world economy don't look good. What we have right now is a scary environment and I agree with all the
pros, but it looks like you just can't stop this market. Not until I'm convinced that this market can be stopped
will I short-sell aggressively. I might play little short positions just to test the waters, but very small and with
very small stop-losses. It's not going to be Reminiscences of a Stock Operator type of shorting, not at this point.
Dupe: In determining your stops, do you have a rule where you risk just 1 point if a stock doesn't hold support.
Can you go over your methodology for determining what your initial entry stop-loss points are going to be?
Oz: When I look at a setup, the first thing I want to know are my exit points. That's if I'm right or I'm wrong.
The only thing that I'll adjust will be my trailing stops. But if I trade Commerce One (CMRC), being up 4 points
is not really being in the money. That thing is so volatile. Even being up 4 points, I might still leave my initial
stop-loss and not even move it up to break even. Where if I'm trading Microsoft (MSFT), being up 1 point is
considered being in the money. So my stop-loss is going to be raised to at least break-even.
Dupe: So let me clarify, with Commerce One if it moves 4 points you don't adjust your stop . . .
Oz: I guess what I'm trying to say is the volatility of the stock and the stock market and the price target will
dictate the numbers where the stop-losses are going to be. That's once a stock is in the money.
Dupe: I'm a little unclear how you determine your stops.
Oz: Let's say I'm looking at a stock that's trading currently trading at 50. And I think the stock can go up to 65
and has a 15-point price target. And I think that 48 is pretty good support, if it goes under it I'll put my stop-loss
at 47 1/2. I'm willing to lose 2 1/2 points to try and make 15. If I'm right, I'll try to ride it all the way up there.
The closer the stock comes to my target, the tighter my trailing stop is going to be. Now my religious rule is to
sell half of my position at my price target. No if, buts, when, what. And that puts me in a win-win position
psychologically.
Dupe: How do you go about building a position? At what point do you pyramid?
Oz: I try and buy the dips. Basically, if the stock is pulling up and going in the direction, every time it dips and I
can find that a stock is holding a certain price, that's where I will go in and add. Because if it doesn't hold that
price, and it just falls a bit lower, than I can cut what I just added. Whereas if it keeps just going vertical, now

where do I cut what I added if it goes against me? So I'll pyramid by trying to pick those points where the stock
is pulling back as it's channeling up, I'll try to pick those bottoms.
Dupe: How much do you decide to add to a position when you're pyramiding?
Oz: It depends on my initial strategy. I mean it's all planned out. So before I enter a trade, I already know
exactly what I want to do with it. It's a certain risk I'm going to take so if I want to make my risk greater, that
means adding to my position, certain things have to be decided in advance when I start. Well this is what I
normally do. When I try and catch a falling knife, if you will, I will buy a very small position and I will be more
liberal on the stop-loss. Let's say I want to buy 3-400, a third or a fourth of a position. Now if the stock holds
that level and goes up, I know I've bought the position. But if the stock goes right through me, and I had a full
position, then I'm going to experience some serious
pain. I also have to have a much tighter stop-loss.
Some of those more volatile stocks are just
impossible.

Tony Oz: Short-Term Trading, Part II


By Marc Dupe
TradingMarkets.com

Marc Dupe: Last time we spoke, you talked about


pyramiding, stop-loss placement and how, in some of the
more volatile stocks, it was impossible to get out at a
decent price.
Tony Oz: There are trades that I've blown twice, or stop| View Archives | Print | E-mail this page to a friend |
losses that I've blown twice on the same stock on the same
day! With one of them, it took 25 points before I was able to
get out just because of the volatility. When they fall like
that, there's nothing you can do. You just sit there and pray that someone will pick your order. No buyers. And I was going
out of market to get out. The second time, it was the same thing: I bought it again, and it fell again. This time, I knew I had
to go way out of market, got out and the stock went down 20 points or so within three minutes.
If you're trading with Nasdaq stocks, market makers are required to publish a firm quote, what they call "the firm quote"
rule, where each participating market maker in that stock has to post a bid and an offer for the stock. So you're going to
have different price levels where each market is going to be atbuying or sellingand the ECNs, who are also market
makers, are included and you'll trade against them. Say the last trade in a stock was at 100. You might have someone
bidding at 99 7/8, 99 3/4 , someone bidding at 99, all the way down to whatever the lowest price is. On the offer you'll
have the same thing, where they're offering at 100, 102, and so on.
Now in a momentum stock, what happens is that supply and demand are pretty much one-sided. So it's either a lot of
buyers or a lot of sellers and that's why we get these big moves. Now if I'm in one of those volatile stocks and there is a lot
of selling pressure and we all enter our sell orders, that way we're at the mercy of the market makers to fill orders. Market
makers are only required to fill 100 shares now. If there's 10,000 shares for sale, you'll have one market maker at 99, and
he's going to take 100 shares and he's going to move, the next one's going to be at 98, then he's going to (buy the shares)
and move, and the next one at 97, and he's going to move.
The inside market is made with the best bid and the best offer. Any broker you trade with can only fill you at the inside
market. Sometimes, when there's a lot of selling pressure, the market makers are not going to refresh their quotes fast
enough and they are going to hold the market. But basically all the trades will take place underneath them. A market
maker can stay at 98, for instance, for 27 seconds and buy 100 shares every 27 seconds and stay there and meanwhile
we put a sell on Datek, on Schwab on some account, and the order is just waiting. It's basically hung in the air because
there is no one buying at 98. But they can't legally execute us under 98. But if you have direct access, you can actually

see where the trades are printing at 95, at 94 and you know people are executing out of market because that is where the
real market is.
The outside market is any level that is not the best bid or best offer. You can see where each ECN or market maker is on
Level II. The inside market is the best bid and best ask from all market makers on Level II, that's the best quote. The
question is, is that quote "real" or not can you execute against that quote? And that's what you don't know. Now what we
do is we look at the time actual prints, the actual trades that take place. When I can see that trades are trading below
whatever the inside market number is, then I know I'd better go even lower than that if I want to get out. So for instance, if
you had seen Qualcomm (on Dec. 30, 1999), CNBC was going nuts because they couldn't understand the ticker.
Qualcomm would go up 27 on the ticker, and then down 20, it was going all over the place. Trades were being printed all
over the map. And they have 90 seconds to report those trades and sometimes those 90 seconds mean five minutes by
the time they print it.
Dupe: Were you trading Qualcomm?
Oz: (On Dec. 12, 1999) I carried 100 shares (before the 4-for-1 split) overnight. The stock opens for trading at 740 and it
falls down to 640 within 24 minutes, 100 points with no upticks. You couldn't get out. People who put a market order with
the Schwabs and E*Trades of the world, got out at 640. So with my direct access I went out and picked someone at 720
right at the open and got out. So at the time, my order was about 18 points below the best bid, just to be able to get out.
So what you seepeople don't realize it, they'll never talk about that in books out there about buy-on-the-bid and sell-onthe-ask when it comes to direct access: It's about being able to get out when you want to get out and finding the liquidity.
People have to understand how the game works when it comes to these volatile stocks. They don't move like they do on
the upside and the downside for no reason. There is a reason they move like that. It is because the market makers don't
really participate in the market making there. They just walk away.
Dupe: And just the daytraders participate?
Oz: Most of these real volatile stocks, it is just pure daytraders, the ones that move like that. The market makers are
participating more if there is some action or if they have orders to fill from some funds, but they won't take the action.
That's why you see these lines on the one-minute charts that go down 10, 15 points. If I'm in a stock like Commerce One
(CMRC) when it used to be at the 300 dollar level, 3,000 shares of stock sold on the bid, if they preference all the bids
out, can drop that stock 10 points. It just takes the liquidity away and boom!
Dupe: With just 3,000 shares?
Oz: Yeah. Because every market maker is sitting there with 100 shares, you know, and if there is some selling pressure or
a sell program that hits, they all pull off their bids, and it's gone. It is not going to see that much volume.
Dupe: Could you talk a little bit about how you read the market makers to help your trading?
Oz: The only way watching the Level II screens helps my trading is just my ability to execute against them. I don't try to
play the game of scalping, so I don't care who's buying or selling at that moment. But I do care who is buying and selling
over a longer period of time. Just identifying Goldman on the bid or the offer as an aggressive seller for a period of time
and then seeing them on the other side when the market is going against them, tells me Goldman Sachs is heavy on the
other side of the market and he's just starting to cover short. So if I see Goldman on the bid for seven days on a certain
stock as the market runs up, and he's on the offer, selling hard into a lot of buying pressure and the market is making new
highs that day, then I know Goldman is trying to unload his long positions.
When it's the other way around, when I see Goldman on the offer for seven days, and finally he comes on the bid but the
market is tanking like it was with the Internet sector into May from April 14, (1999, when the bottom dropped out from
Nets) then I know the market is reaching a bottom. Goldman gave me the sign of the bottom the day before because he
was the only buyer and the market was tanking hard. I was waiting to come in on a reversal day. The reversal day came
the next day and Goldman was the only buyer the entire day before. He was just sitting there and sucking everything up,
covering and reversing. I had watched Goldman do this on Ebay (EBAY) and RealNetworks (RNWK).
Dupe: Are you saying that Goldman was in large measure responsible for the move and reversal in some of the
Internets?

Oz: Oh absolutely. Hey, money talks.


Dupe: Is it the daytraders causing the movement and volatility or the Goldmans?
Oz: Some of the volatility that you see is when the market makers are just not participating. Some hedge fund manager
once said that when he wanted to buy some stock for his fund back in the old days, he'd say, "Buy me 15,000." The
market maker would automatically short him 5,000 and then fill him the other 10,000 and work his order. Now, they just
step away and fill him at the market from all the other places, and they'll move the price of the stock up 3 or 4 points. Like I
was telling you, they're saying all the daytraders and ECNs are adding liquidity. But the market makers are afraid, they're
scared to death to short him 5,000 shares. They just walk away.
Dupe: They're afraid of daytraders?
Oz: They're afraid it's going to go against them in lots of different ways. That's what happened with Amazon.com (AMZN).
Amazon (AMZN) cleaned out a lot of market makers. They suffered some serious losses because when people were
putting orders to buy 10,000, 20,000, 30,000 of Amazon, and the market makers were doing the old market-maker trick
"Hey, I'll short it to you and go buy it on the bid later on"well, it didn't happen. The stock just went to the moon. And
they ended up being short and margin calls and all that.
Dupe: So you do seem to be saying that the action in these stocks is caused by daytraders.
Oz: Well it is, but it is actually caused by the market makers as well. Because they are the ones that don't participate in
the markets like they used to. The market is not fixed any more like it used to be. That's why you get this volatility. They
don't sit there with a 3/4-point spreadwith the real market being on Instinetand an order comes in to buy and they fill it
on the offer and go to Instinetwhere the real market isand pick it up there and make their spread. That's not the case
any more. So when you list those things out and you have an economy that's just booming you're going to have some
movement in stock prices. So it's all of the above and of course the daytraders are adding.
K-tel (KTEL) started it all in April 1998. It was a seven-dollar stock and used to trade like 300 shares with a float of 1
million. And they came out and said they were going to sell their music on the web. They didn't even have a website yet.
And the stock went up to 80. Of course, it went all the way back down to 4 or 5, but professional traders, big traders, got
completely wiped out on this because of the low float. There was 1 million float and the stock was trading like 16, 20
million a day. It was just incredible. And that just paved the way to the next move of Amazon and they learned the lesson
on KTEL and now Amazon comes toward the 100-mark and it just blew right through it and went to 140. From 38, it went
up to 140. And I think a lot of it had to do with what happened to KTEL two weeks before. KTEL just played the news
perfect. Every time there was something down on the stock, they came up with another news quote, another deal and
then they announced a 2-for-1 stock split. The whole thing was stock manipulation at its finest.
I think that was the turning point for the market to become as volatile as it is. The level of expectation changed. You had a
seven-dollar stock that goes up to 80 within three weeks or so, hey, I want to buy. Puma Technology was the same thing.
That was a two-dollar stock and it goes up to 150. And Puma used to be a daytrader's stock, and you know what made
that run in Puma possible? It wasn't the great news by itself. It was the market makers who stepped out of the way. Before
it was the market makers who used to scalp the daytraders to death on it. Not the daytraders scalping the market makers.
The market makers scalped the daytraders on that stock. They were trying to play it and play it time and time again
because that used to be such a daytrader's stock.
I'll give you another example. One sale fell from 104 to 44listen to thisin 14 minutes! Everybody that had a stop-loss
under 100 like at 99 7/8 99 3/4, with a Datek or Schwab-type of brokerage, got filled anywhere below 50. There just were
no upticks. The stock was trading 5-, to 10-points out of market. If you didn't have direct access and weren't willing to sell
10 points below what you thought was the best price, then you were already experiencing pain. So if the stock fell down
from 100 to 90, now you had to try and sell it at 80, even though you see the best bid at 90. If you weren't willing to do
that, you wouldn't have gotten out.
Dupe: So what would you recommend those trading momentum stocks and trading with Schwab and E*Trade?
Oz: Number one, don't trade the fast-moving stocks with those brokers. If you're going to play with fire, at least have the
toolshave the fire hydrant. I also recommend they take a seminar or a class with someone who specializes in trading
these fast movers. If you're playing with fire, you're gonna get burned so you have to know what you're playing with.
Dupe: So with Level II in these fast movers, how do you know where to get out, how low to go?

Oz: By looking at a Level II screen, you're going to see different market makers at different levels below the inside market.
And you can see some of them start disappearing. That means they were executed against. Obviously people are going
out of market to get out.
Dupe: Again, going out of market here means going below where the market is trading at, right?
Oz: Right, going below, or when you want to buy when things run fast, you have to pay more. When these things are
running fast, you put a market order to buy and you get executed at the high of the day. You put a market order to sell and
something tanks, you get executed at the low the day. That's exactly why because there is no . . . what you see on Level I
is not where the market is. In order to hit them out of market I'll have to preference them. SOES won't help in a fastmoving market situation and you'll go to the back of the queue. It depends on the stock, but if there is not a lot of marketmaker participation, it's like a hanging rope. But things are changing. This will probably be ancient history in the next 2-3
months, because they are going to bring SOES back, cancel Selectnet and they're going to give the market maker only
five seconds. The Nasdaq wants to do a central ECNthey're losing too much business.
Dupe: Market makers will have to honor their bids within five seconds, they won't be able to do the 30-second delay . . .?
Oz: Right.
Dupe: And that will be better for independent traders.
Oz: Then we will take even bigger advantage of them than we already are. See this is the market maker, let me tell you
something. Right now, if something falls down really fast, and everybody is panicking and it trades 5 to 10-points below,
and I get a preference orderthat's how you get him, you hit him with a preference orderwell, for 10 seconds I can't
cancel it. And the market maker has 17 secondseven if I try to cancel itthat the order is in his hands. Now, for
whatever reason the stock starts bouncing, because it's a fast mover and when they bounce, they bounce quick, and only
thenwhen the stock's going against mewill I get a fill. You're at a huge disadvantage. Normally the best way to get out
of a fast market is to go to an ECN, because an ECN is real. Whatever you see there is really real. With a market maker,
you never know.
Dupe: You obviously gain an edge this way.
Oz: You see everyone where they are price-wise, but you never know with a market maker how much they are going to
honor. Now the sizes on the ECNs are real, so if you see 1000 shares, if you hit it that fraction of a second before
somebody else does, that's a guarantee fill. But normally when something tanks fast, everyone knows that's the place to
go and you won't find those ECNs at a reasonable price. For instance with my Qualcomm trade that I was talking about, I
basically gave away an extra 5, it was 20 points out of market from the opening price, but realistically speaking, I'm sure I
wouldn't have been able to get executed unless I was at least 15 points below, so I gave away an extra 5 just to make
sure that I went to an ECN, and not be at the mercy of a market maker. In that case I was willing to give up $500 and it
was a great choice, because obviously you saw what happened (where Qualcomm dropped nearly 100 with no upticks).
And you saw the ECNs at different prices and they were getting executed against. There was a lot of selling pressure.
Now remember, the market makers will trade against those bids as well. So if I'm Goldman Sachs and I want to tank
something, I can preference all the market makers and all the ECNs on the bid, all their bids, from $1 to 100, and that will
tank the stock. So you gotta remember that if there is a market maker that wants to get out at the same time and take
advantage of good shorts in this scenario, it's free game for them.
Dupe: Could you give a short definition of preferencing?
Oz: The Nasdaq has the Selectnet order routing which allows traders to negotiate terms and prices electronically. That's
how the Nasdaq was formed. So when you put an order on Selectnet, that order is broadcast to all market makers. When
we preference, we send an order to buy or sell at a certain price, and we can preference it. We can tell one of the market
makers, whoever it is, "Hey, we want to make this deal with you." Then basically for 10 seconds I can't cancel this order or
"proposal." In order to hit ECNs that you don't subscribe to, you have to hit them through a preference order. The
important point that people understand is that direct-access trading is not just about buying a stock on the bid and selling
it on the offer like most books will make you believe. If you don't have direct-access trading, you don't have direct access
to the market. That's the bottom line.
Dupe: Did you make any trades this week where this applied?
Oz: This week, I split a spread on Echostar (DISH)...

Dupe: Could you explain splitting a spread?


Oz: If, for instance, the stock is bid at 98, offered at 100, and I go in at, say, 98 1/2, and I put my bid on Island, and I
become the best bid, my bid will be shown on Level I. Now if anybody sells the stock, they're going to have to be executed
at my price. It doesn't have to be executed against me, but if a market maker is going to execute a market order for
anybody, that's the price they are going to have to execute it at. So basically, I'm making a market in the stock. I'm
dictating what the inside market is now. I'm splitting the spread that way. The real spread of the market maker is 98 by 100
or 2 points. Now I go in at 98 1/2 and I create a spread of 1 1/2 points. I'm creating the best bid. In the other case I can go
in, put an order at 98 on Island and I'll be along with the other market makers and if a sell order comes through the Island
ECN from whoever, I will get a fill. So this way I'm buying on the bid.
Dupe: You mentioned earlier that you look at a variety of market conditions including the strength of a certain sector and
general market conditions. How do you gauge general market conditions?
Oz: If I get enough emails, saying "Hey Tony, should I sell my long positions?" or "Do you think the bottom is near?"
normally that's a pretty good sign that the bottom is coming. In fact, that was exactly what happened in October 1998. I
can't even tell you how many emails I got. It was a flood and you just saw everybody throwing in the towel.
Dupe: That 's funny.
Oz: Once I was giving a presentation in front of 400 people. Everyone wanted to become a daytrader. I asked, "How many
of you are bullish?" About 90% raised their hands. When I then asked how many were bearish, there were only four hands
in the air, other than mine. Everybody asked, "Why are you bearish?" I said, "Because look at what's happening out there,
all of you are wanting to buy and come into the market. I'll have to be the contrarian here." The Monday following that
meeting was when the Internet index peaked and then went on a freefall, falling 40% to 50%.
Dupe: That was right around April 14, 1999.
Oz: Right. I did take short positions there. But more importantly, I got rid of my longs.
Dupe: Are there any other indicators you use?
Oz: I try and use psychology. I'm married to a psychologist. And I can look at the ticker and sense it, I don't know how to
explain it. I can look at a chart, I can sense it. I don't know if it's intuition, but my ability to call the market has been pretty
good, a very high percentage over the last couple of years. Just feeling that psychology.
I also look at the charts and get a feel from the chart. I mean the chart is talking to me...the momentum and the ticks, what
happens on the tape. I can see the psychology swings taking place. If you look at my dual-monitor-screen setup, you can
see that I'm monitoring the composite and the Dow and the S&P futures. And if I'm trading a fast mover, than I have my
fast mover screen where I'm looking at more detail, watching what these markets are doing tick by tick.
I've learned to look at the big picture, although some would look at it as micro-trading. One small pullback on the S&P
futures isn't going to make me lose my position.