Since You Asked
| Confused about some aspect of trading? Professional trader Don Bright of Bright Trading (www.stocktrading.com), an equity trading corporation, answers a few of your questions. | 
Don Bright of Bright Trading |
MESQUITE RETREAT
A note from Don Bright:My request is for some informal presentations from traders -- just a few minutes from a few traders of varied amounts of experience telling their trading stories. Not just stories about their best or worst trades, but about the business of trading. Bottom line, just how did you grow your trading business? One example comes to mind. Don, you said a while back that one trader had made several hundred thousand dollars doing just "opening-only" orders. I would like to hear more about that.Hello, STOCKS & COMMODITIES readers! Bright Trading recently held one of our retreats for our traders in Mesquite, NV. We had approximately 70 attendees, including some "non-Bright" traders, who seemed to find the weekend both educational and entertaining. Traders asking other traders questions is always interesting and of great value to the whole group, including the Bright family. I'm going to paraphrase some requests and questions, along with a variety of answers.
Without giving away any secrets, I'll do my best to give two differing examples of how our top traders are making so much on this strategy. One longtime trader places "opening-only" orders, with an auto-entry Excel worksheet, on hundreds of stocks and multiple-pricing layers (limit orders, of course). He may get filled on 50 or more stocks that have gapped up or down more than his expected criteria, thus entering with a high probability of success.
This trader then scales out of these stocks with help from a family member who is tracking the results. He is obviously using a great deal of our capital to perform this technique, but since the win/loss percentage has always been positive with these openings, we not only allow it, we encourage it. He has had several gigantic days, with the best in 2007 making over $400,000 on a single morning. He has never had relative significant losses. His "feel" for the market is excellent, and he knows how to take a loss. This is one major key to the strategy, knowing when to take your losses. He is generally out of all positions within a half hour after the opening NYSE bell.
Another trader was struggling for a couple of years, and then finally decided to focus almost exclusively on this opening strategy. He has researched hundreds of stocks and their daily movements after a gap-up or gap-down opening price. He has spent a ton of time determining which stocks show a pattern, time of day-related, of making the maximum price retracement. He uses this information to hold some stocks for hours, or even until end of day. He took time to explain to some of our traders, in a previous training session, what he researched, but not the results. It's amazing how the traders who work harder seem to make more money!
We have many traders, including myself, who use an automated program that enters orders on around 50 stocks, two or three price layers. The program computes bid and ask prices based on current futures prices (premarket) and that day's fair value. When any order is filled, the program will automatically send a retracement order, in my case for half my open position, just a dime or so away from the opening price. We prefer at that point to watch the market and decide when to close the remaining shares.
CONTINUING FROM THE RETREAT
Here's a list of random questions to the experienced traders with short answers:How many years have you traded?
The answers to this question ranged from a couple of months to 30 years.
How do you define success? Is there a specific goal?
The consensus answer to this was that traders tend to "dial up" their share size after they feel confident in their trading, and to take what the market will give them on any particular day. Most felt that limiting themselves to a specific dollar amount is not a good idea. Those who set specific dollar amounts tend to stop trading on good trading days and continue to trade too long (and lose more than their profit target) on "bad" trading days.
Do you focus on one strategy or many?
A full range of answers to this question. A handful focused on the openings. A group expressed how they like to trade the same two or three stocks, day in and day out. This is what we call being a surrogate specialist (without the obligations of a NYSE specialist). Some actually choose to trade only one stock. Several choose to do their homework, define stocks that they feel will be moving the next day, and focus on them. Again, working a bit harder.
The largest group of our overall traders tend to combine a few things. Do opening-only orders the first 15 minutes of the day, focus on market-on-close imbalances the last 20 minutes of each day, and spend the bulk of their day concentrating on their own group of stocks.
A great number focus on trading the correlated pairs strategy. This market-neutral strategy has proven to be of great value, again to those who do their homework (combining technical analysis, fundamentals, and market timing to make money). There are several variables in the pair trading technique, from daytrading to longer-term portfolio management (which my brother Bill engages in, trading hundreds of the pairs), trading in and out at predetermined levels based (again) on a lot of research. And we still have some pretty good, basic daytraders.
What did you learn from your mistakes and your victories?
Many similar responses to this question. You must learn from your mistakes, take full responsibility for any losses incurred (beyond just the financial loss). Some traders tend to blame everything else except themselves when they lose money (decimals, program trading, equipment malfunction, distraction, market manipulation, and so on). The better traders tend to keep journals and work to correct anything that might occur in the future. We can't fix everything, but we can always have a contingency plan in place for possible glitches or market events.
We have many more questions and answers and may address them in the
near future. In the meantime, keep your questions coming.
E-mail your questions for Bright to Editor@Traders.com, with the subject line direct to "Don Bright Question."
Originally published in the February 2008 issue of Technical Analysis
of STOCKS & COMMODITIES magazine. All rights reserved. © Copyright
2008, Technical Analysis, Inc.
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