The SECRET trading strategy of BlackRock & Co.

The top three strategies at the Wall Street. Just imagine an insider tells you how trading really works there and which strategy they use to get an edge in the markets. It is so powerful and if you can read it, use it and understand it for yourself, you will be able to follow the big money. Today's session will be super exciting for you. We will talk about how traders work at the Wall street, what tools they use, and what kind of us retail traders use to earn a lot of money. I created this video together with my friend and colleague Serge Hoffman, an ex Wall street scalper and we translated this video with AI because my English is not perfect. Stay tuned.

So a wonderful good day to everyone today. Once again Here from the podcast studio in Larnaca in my wonderful office with my dear colleague Sergey Hoffman, our former, well, we always say Wall street trader and he simply brings an incredible amount of expertise. Today we want to talk about the top three strategies currently present on Wall street and how we as retail traders have the opportunity to participate. Which tools we really need, what strategies those guys can implement where we do not stand a chance, but also what advantages are possible for us as a result. Welcome Serge, and tell us about the top three strategies.

So the top three strategies that I personally know are first of all, market making, which used to be done by professionals who would handle prices from point A to point. Of course, nowadays high frequency trading is involved and many companies and even retail have taken this over. It's now done algorithmically, not manually anymore. But that's one of my favorite strategies, HFTs, because you can actually not all of them, but certain types you can recognize quite well. For example by looking at the order book or the price ladder, what they're thinking or what strategy they're currently using. For example, whether there's absorption happening or if the market is just moving.

Now I'm being mean. I'm going to interrupt dear Serge, for a moment. Some people don't know what HFT is or what algo trading is, or what absorption means. First give me a summary or some context about it. What is hft?

High Frequency trading. That means that nowadays financial transactions are carried out in mere nanoseconds, and this is mostly reflected in the highly dynamic stock markets. Future markets also operate in a matter of seconds, but the underlying process is a bit different. Basically, trading now happens in nanoseconds, where orders are almost instantaneously executed in nano. I'm not entirely sure if there are even micro or theta seconds yet, but the orders are executed much, much faster than any human could possibly do. Certain sophisticated strategies are utilized for this, like market making, which is currently the primary component of Wall Street's high frequency trading. So everything is essentially computer controlled.

So what opportunities do we retail traders have to participate in this strategy? How can we follow in the footsteps of these HFT players? Do we benefit from it at all? What would you say?

Yes, in a certain way we can. It's not always possible, but you can recognize and observe certain strategies, for example, in how they execute trades. And sometimes they also have big problems. It's not like they're always making money. They also face difficulties and losses. Don't think that hedge funds always win, they lose too. And the interesting thing is when something goes wrong with such an algorithm, after all, it's a computer running the whole thing. It's possible that something goes wrong in the markets and we can spot that, for example, through the order flow or the order book. In a way we can take advantage of that. For instance, there are situations where we see someone accumulating a large amount of liquidity and we can recognize that and use it for ourselves in the moment to trade. So you, you can spot them. There are certain strategies like flipping and so on that now happen so quickly. You need to have an incredibly sharp eye. It's almost impossible to trade them. But if you can spot them, you can use certain indications for yourself and say, okay, now it's likely to go in a certain direction. There are even specialists out there who now say that the big players are focusing on news and events and you should read bank statistics to see where things are headed. But I wonder what use that is for day trading if you know where the banks are positioning themselves long term.

Well, there are tons of superheroes. We know that from comic series and there are also a lot of comedians like that. I do think it's not a bad thing to be aware and to understand who moves the markets and how, like BlackRock, what they have in their books and so on. But for us, in order flow scalping or short term day trading, what's really important is just knowing when exactly something happens, where it happens, and as you just mentioned, being able to recognize when something big is going on and being able to latch onto it. Tell me a bit more in detail. When you're looking at the order book and you see something like that, when such an absorption happens in the books, what do you do then?

What I do then is I take the opportunity and hit the button.

Great. That's exactly how I hoped you would present it to us. What Is the indication for you to recognize, for example, that the market is now giving you a counter trade, a counter setup. What do you see there? What are the big players doing?

So it's always kind of like I always give an example from real life. So it's kind of like, let's say, for example, you're driving on the autobahn, the German Autobahn. That's everyone's favorite, right? Everyone wants to be on the German Autobahn. Why? Because there, with their high horsepower cars, let's call that liquidity, horsepower units, say 300, 400, 500 horsepower, and they want to really put all of that into the market. And of course, they step on the gas and when they accelerate, the, the road is basically clear. And in a way with reversals, if you look at it, you can transfer that to the market. When the market is a bit clear, meaning there's no resistance, the price gets pushed very strongly and very quickly in one direction. And if you recognize that, you can in a way trade certain strategies, like breakouts, for example. But if you're looking for a reversal, it's like this. If you ever notice with your Porsche GT or GT rs, you often go full throttle and then suddenly you realize, oh crap, there's a traffic jam up ahead. What do you do with the Porsche? Do you keep accelerating or do you hit the brakes?

I'm keeping my foot all the way on the gas.

If you stay on the gas, well, do that and you'll see what happens. Game over, you'll fly out of the market. So in a way, you start to brake and you can see this situation in the market as well. When the market starts to slow down and in a way congestion forms, for example, through absorption, the. The market can first move back. In a counter move, a reversal can form or sometimes a correction. And that's how you can use the whole thing for yourself in day trading. That's a principle that most algorithms use and also other traders who in a way use this and trade accordingly and profit from it.

And looking back to that particular time when you were still comfortably sitting there in the United States and you guys were actively trading stocks and so on, what exactly is significantly different today?

Quite simply, it's the incredible speed. The advanced technology, modern technology has profoundly changed, and that's really the one significant advantage Wall street truly has. They simply possess in a very certain way the cutting edge technology and of course, the substantial capital to meticulously figure things out in mere nanoseconds that we use to painstakingly do manually, for example, Moving the price up by a certain specific number of cents. I'm not even entirely sure if I'm genuinely allowed to mention this particular detail. I honestly don't know if it's completely legal. But let's just say we deliberately tried to move the price up by a certain precise amount so that someone else could significantly benefit. That's all completely in the past now. So basically we effectively served someone and then we carefully closed our position and they ultimately profited. That was precisely the kind of intricate strategy we used to run. You could also accurately call it something like liquidity hunting. We would actively try to move certain specific stocks out of a range phase in a very certain way to a particular target price so that someone else could genuinely benefit. That's about all I can truthfully say. I'm not entirely sure if that's fully allowed.

Yeah, it's all cool. But to sum it all up, strategy number one is that you have to be able to recognize when large market participants are supporting market making with their algorithms basically constantly working the books in the bid and ask and their orders are executed before hours even get there. That's high frequency trading and it's crazy. It's also insane how much it costs. When you think about it, there are now entire football fields full of servers that you have to rent just to be as close as possible to the cable directly connected to the exchange. No joke.

Every meter costs a ton money.

Yeah, 500,000. And those were the numbers I had years ago. It's probably even more expensive now. But to keep it short, strategy one for you is simply to recognize market making in short term trading. And then you go and follow the direction where you see the speed picking up and the liquidity moving accordingly.

Exactly. It slows down there. Of course, there are other strategies as well, but the most common strategy is to track the speed and in a way see where the liquidity is being absorbed, so to speak. Then you trade with the liquidity or against it, depending on the situation. That's the most common strategy. But then there's a second strategy which is arbitrage, that's mostly used in stocks rather than in the future markets where there are certain discrepancies between marketplaces or routings that you can trade on. This still exists and nowadays it's mostly handled algorithmically. But these strategies are still around. That's one of the most commonly used ones, though I'm not really an expert in that area. But I do know about it.

I know these kinds of strategies in the crypto markets and There you can just arbitrage really well between different crypto exchanges. And it's actually pretty safe. Well, relatively. And with that, of course you can. Basically, it's the same principle as what happens in the big markets.

Crypto crypto still works really well for front running in certain cases.

That's illegal, isn't it?

Front running? No front running. No, no front running is allowed. You're not allowed to spoof and things like that. Although I think on crypto exchanges, since they're not regulated, you can do anything. We could definitely run certain strategies there as well. But for example, you can do front running there and it works really well if you see a large order liquidity in the book and it turns out to be real. So as I said, you can recognize it. And if you see certain interactions, a slowdown, you can position yourself ahead of it because you know that if someone actually buys with a market order in crypto, that gives the market a push. It doesn't take much to move a market there. Which is why for certain assets in the crypto markets, front running works very well.

And I can read all of that on a four minute chart with a macd or.

No, you can't. Charts. I'll show you. It's not that people on Wall street don't believe in chart analysis or technical analysis, but that's not really what they trade. It's not like they say, yes, based on the past, we can project everything technically into the future. That's just not the case. They do use charts, but only to see what happened in the past. But they don't necessarily base all their trades on charts. That's just not how it is.

All right, then we've understood that the second strategy is to recognize where arbitrage is happening. How can I even spot something like that?

For that you have to follow certain markets, certain exchanges, and also notice differences where there are price discrepancies. Then of course you can buy accordingly and sell again elsewhere.

Can you do that manually or.

It used to be done manually, but nowadays it's done electronically as well.

Okay. And in the future markets that's not really feasible anyway. Not feasible. It's difficult.

It's more difficult. Exactly.

So option two, what's going on? There is something we can't really use for ourselves in the current market segment, but in crypto it's just an awesome thing where you can make really cool money through this kind of arbitrage.

In the beginning it worked with crypto too, but I don't know if it's still possible.

There are models where the whole thing works. I have colleagues who have focused and specialized in that area.

Yeah.

And those are big players. It's really fascinating what they do. So what is option three?

And that's the most common option at the moment when people talk about it. And that's micro scalping or order flow scanning. It's really about certain back and forth movements where specific events are being targeted. It's kind of like market making. But there are also very specific strategies that are actively scalped. And those particular strategies are then executed by algorithms such as flipping, which used to be done manually by human traders, but now, due to technological advancements, simply cannot be done in that way anymore. There are certain strategies where for whatever reason you might act in a particular direction. Like for example, when news events occur. That's also a bit of a myth. That news moves the markets. No, it's not the news itself. It's the event and the decision that follows which actually move the market, so to speak. And that can also be algorithmic, where the market drops very quickly and certain patterns form in the order book, which are then executed extremely fast, so fast that our eyes can't even catch it anymore. There trades are executed extremely quickly, especially in very illiquid markets where trading can also happen at a very rapid pace, depending on which algorithm is at play. This can also be handled algorithmically in thick liquid markets. If we can spot it, we can trade it too, because we can recognize when an algorithm is operating, for example, through absorption. Otherwise it's just micro scalping where the market trades back and forth at every price level. And that's the strategy being used.

I have no idea what's going on, but apparently that's just how it is in this world. Give me a really simple, plausible example. What do you gain from being able to spot something like that?

I use this for myself, for example, in micro so order flow scalping, where I can see even the smallest movements. For instance, if I notice that an algorithm is going crazy and it's jumping between bid and ask. So bid and ask are simply the buy limit and sell limit orders being filled at certain prices. And then the algorithm starts acting up. Something wild is happening and for maybe a minute it's filling orders on both bid and ask. If I spot that, I just place buy and sell limit orders back and forth, regardless of whether it's on the bid or ask side. And you can make money from that. It's basically like free money because you can see in real time that an algo is Going nuts. And you can use that for yourself. In a way, you profit from both bid and ask. Of course, you don't always get filled every time, but if you're lucky in a thin market like let's say 6e, this happens quite often, or sometimes in crude oil as well. But mostly I see this a lot in currency futures. I don't know why there are so many algos there acting so crazy. But two or three times a month a situation like this comes up. And if you spot it, you can take advantage of it.

How exactly do you notice that?

By having the order books open for the markets. I trade just like that.

So it's really visual for you. You're sitting at your setup. Right.

You have to be a bit crazy for that or. Well, a little crazy. But I'd also say even if you're not a scalper, you like to use it because it provides certain information. That's where you should just take a look and consider it for yourself. And if you're trading three or four markets, instead of having three or four charts open, you have three or four order books open. And then you can see all the situations to some extent. That's basically the principle. These are the strategies that are most commonly traded. High frequency trading, market making. Basically what the professionals used to do on the stock exchanges. Now the algorithms do that. Arbitrage and pure order flow scalping, and.

All of that is still happening today.

Yeah, people say over there, they say scalping doesn't work anymore because the algorithms have taken over everything. That's not true, not entirely, because not all of the techniques actually work. But it still does work.

You just have to keep up with the times. That's how it is in trading. Even with normal day trading approaches. I think there are just a lot of things that don't work anymore.

They still work, just not with human execution. You have to realize that the strategy itself works, but we're too slow for it. So now the algorithms handle everything. Yeah.

And there are always so many people who say things like Blackrock with Aladdin and so on. They move everything.

Yeah, yeah, I know that by now. I hear that all the time. I get contacted a lot these days. And there are always some young, experienced traders, very young and supposedly experienced, who.

Have 30 years of market experience.

Exactly, something like that. And now they're talking about some statistics saying that the banks are already priced in and they use bank reports so they can trade currency pairs intraday. Because that's supposedly so crucial for the day.

It just makes you want to throw.

Up a little bit. Yes, because you should definitely deal with macroeconomics, but not to the extent of saying, I read that they've now bought into the Swiss franc, so today the Swiss franc should go up.

But maybe that's just a way to tell people another story about how the markets work so that they feel they absolutely have to learn it.

Yes, that's it. The problem is simply that people out there love simple stories. And that's where the problem lies, because then they just repeat them. You just read it in a bank report and then you think you know where the markets are headed today. But that's not how it works. Of course. You can just trade simply. The simpler you trade, the easier it is to make money. I was always told you can make money in two ways, the easy way or the complicated way. Both work. You just have to decide which one you want to take.

You chose the complicated way.

I find it really easy. I find it quite easy for me personally, sure, very easy. So accordingly, that is precisely the whole entire thing.

But let's be honest, my way of trading with the breakout, pullback patterns and so on is actually much easier for you.

Yes, exactly.

And that's exactly the message I want to get across. Everyone has to find their own way what suits them. And yes, to bring it back to Wall street, one has to say clearly that the way those guys work is definitely adaptable for us retail traders, if we can read those traces correctly. But the market movements and so on, we can also project those further for ourselves and simply use the methods you use in order flow scalping. Only at price levels, for example, where it's interesting. That's how I do it. I just look, is there a breakout coming? I look at the order book and see, yes, something is probably about to happen. And then I have this double confirmation. How do you see that? Do you like that?

Of course. And that's what makes sense when you combine certain things in a particular way. For example, if you read some statistics, bank reports or figures, but they aren't reflected in what's actually happening. Say BlackRock is supposedly buying into Swiss francs and you look into it and see that not much is really happening, well, then they're just not there yet. In a way you get this perspective and then you trade based on that. You trade what you see, not what you think. If you think it's totally simple, well, maybe it is for you. You always trade in a certain way. There's this factor. I don't want to go into it now. Maybe we'll make it a topic sometime. But you always trade in two ways, the subjective opinion and the objective opinion. And you have to combine both. If I say I've read a bank report that Blackrock is buying Swiss francs, that's initially just a subjective opinion because you can't see if they're actually doing it right now. But if you see that someone is making big purchases in Swiss francs, then you know, oh, that could be Blackrock, because I read that Blackrock is buying or whatever. And most of the time with all these bank reports, news or figures, the facts only come out after it's already happened. That's the problem. So in a way, you need to have your visual confirmation, and you usually find that through certain patterns, or if you really want to be precise, you look a bit deeper into the order book and then you see for that day, if there are any patterns or movements that suggest the market is going long today, then in a way, you trade long. If the market is dead at the moment, then just keep your feet still. Even if the market is moving up, just keep your feet still. No liquidity, no trading. And then in a way, you have that kind of confirmation and you trade accordingly, objectively.

You didn't want to explain that.

No, but we just did it anyway. Yeah.

All right, Serge, thank you so much. I always love hearing your stories. They've helped me tremendously for many years to understand more deeply what's actually going on. I've also gotten to know the world, but in a completely different segment. The world, as you've experienced it, is high frequency, sequential, and that really helps us to bring much more depth into the whole thing. So thank you again for that. And maybe one last sentence from your side for everyone. What should they do? One thing. What should they do to gain more objectivity in the markets?

Read less, observe more. Yes.

Thank you very much.

Thank you.