Phantom of the Pits

By Arthur L. Simpson.

When Futures magazine started the "Futures Talk" forum on its web site in the middle of 1996, it attracted some good interest initially -- nothing too spectacular but just traders talking to other traders about markets and comparing notes. But beginning in the Spring of 1997, it became increasingly clear that one participant had unusual trading wisdom and insight and experience, although he sometimes wrote in a vague, mystical way that forced other traders to really think to get his point.
His posts became so popular and attracted so many responses and followup questions that separate threads were set up just for his comments. He was willing to share what he knew about trading exclusively on the Futures magazine forum, yet he did not want his identity known under any circumstances and he did not want the money or accolades that he might have gotten from revealing his ideas. Thus was born the "Phantom of the Pits." 
From his participation in the forum and the acceptance of his ideas by a growing number of loyal followers came this "book" summarizing some of his thoughts. "Phantom's Gift" is not a print book in the traditional sense but is actually a work in a progress, continually being updated or added to online as a result of interchanges among the Phantom, associate Art Simpson and forum participants. A new chapter may be added to the middle of the book to expound on Rule 1 at any time, for example, so the "book" you see today may not be the same tomorrow. 
The book is presented as a conversation between the Phantom and Art Simpson and is "printed" here essentially as it appeared over a period of weeks on the Futures Talk forum, with some comments from other forum participants included. The unique process for writing this "book" means thoughts or ideas may be restated, they may seem a little disorganized in places or they may even appear mysterious at times. Some chapters may be more rambling or personal than will appeal to many traders. 
But most traders will find some real nuggets throughout these chapters. Accept the Phantom's gift for what you can glean from it that will make you a better trader. And, better yet, participate in the Futures Talk forum yourself and share your questions and ideas so everyone can learn more about trading.
P.S. We still don't know who the Phantom is.  

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Quote Setting and Price Formation in an Order Driven Market

By Puneet Handa, Robert Schwartz and Ashish Tiwari.

This paper models quote setting and price formation in a non-intermediated, order driven
market where trading occurs because investors differ in their share valuations and the
advent of news that is not common knowledge, and tests the model using transaction data
on individual stocks in the ParisBourse CAC40 index.  As an extension of Foucault
(1999), we show that the size of the spread is a function of the differences in valuation
among investors and of adverse selection.  Both GMM estimation of the model
parameters and empirical evidence on spread behavior as the relative proportion of
buyers and sellers in the market changes, provide strong support for the model.  Our
analysis yields further insight into the dynamic process of price formation and into the

market clearing process in an order driven market. 

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Market Profile Basics

By Jayanthi Gopalakrishnan.
Every off-floor trader would like to get a feel for how things really are on the exchange floor. Mastering Market Profile may help you get it.  Read more >>

Reminiscences of a Stock Operator

By Edwin Lefevre.

I WENT to work when I was just out of grammar school. I got a job as quotation-board boy in a stock-brokerage office. I was quick at figures. At school I did three years of arithmetic in
one. I was particularly good at mental arithmetic. As quotation-board boy I posted the numbers on the big board in the customers' room. One of the customers usually sat by the ticker and called out the prices. They couldn't come too fast for me. I have always remembered figures. No trouble at all.

There were plenty of other employes in that office. Of course I made friends with the other fellows, but the work I did, if the market was active, kept me too busy from ten A.M. to
three P.m. to let me do much talking. I don't care for it, anyhow, during business hours.
But a busy market did not keep me from thinking about the work. Those quotations did not represent prices of stocks to' me, so many dollars per share. They were numbers. Of course,
they meant something. They were always changing. It was all I had to be interested in the changes. Why did they change? I didn't know. I didn't care. I didn't think about that. I simply
saw that they changed. That was all I had to think about five hours every day and two on Saturdays: that they were always changing.
That is how I first came to be interested in the behaviour of prices. I had a very good memory for figures. I could remember in detail how the prices had acted on the previous day, just before they went up or down. My fondness for mental arithmetic came in very handy.
I noticed that in advances as well as declines, stock prices were apt to show certain habits, so to speak. There was no end of parallel cases and these made precedents to guide me.
I was only fourteen, but after I had taken hundreds of observations in my mind I found myself testing their accuracy, comparing the behaviour of stocks today with other days. It was not long before I was anticipating movements in prices. My only guide, as I say, was their past performances. I carried the "dope sheets" in my mind. I looked for stock prices to run on form. I had "clocked" them. You know what I mean.

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