Q&A
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.
Other opening strategies?
Are there similar strategies to the opening-only strategy for the close of the market each day? Anyone care to share the idea behind them or give me a place to research if you don’t care to share? Thanks. —taclander
First off, let’s discuss market mechanics at the end of the trading day. All-day-long orders are submitted to the New York Stock Exchange (Nyse) marked as “market on close” (Moc). These orders will be given the last trade price of the day. These orders to buy or to sell are matched with each other until the 3:40 pm cutoff for this type of order. At 3:40, the Nyse publishes the Moc imbalances, which are the excess buy or sell number of shares with this order designation. If there were one million shares to buy GE market on close and three million shares to sell Moc, there would be a negative two million excess number of shares to sell at the last price of the day. The Nyse will only accept offsetting orders after 3:40 to help cover the excess imbalance. The Nyse will republish the adjusted imbalance number at 3:50. This may bring the number down to one million or so to sell, or even reverse to an excess to buy.
This information is extremely valuable to our traders. We can go with the imbalance immediately at 3:40 to make money on the immediate move that often takes place, and cover within a few minutes (or place the offsetting order as Moc). We often make several trades on stocks that have unusually high imbalance amounts and activity. We have developed several black and gray boxes to help automate order entry as well.
This strategy has gotten easier and safer since July 2008, when they started to update the imbalances every 20 seconds or so (on our trading platform). You may want to take a look at the Moc from the published imbalances (available on various news sources).
On the right path?
Sorry if all this has been covered, but I need to ask again. I have approximately 30 stocks on my list, all high-volume names. I am enveloping based on fair value. I am using no-stop, basically stopping manually, crutching or trading out of losers, but I have a 25-cent stop in my head (adjustments for some stocks, plus or minus 25 cents). For retracements, I use six cents for 50% of the position and 25 cents for the second 50% (some adjustments based on stocks). I have, at times, used a hard 25-cent stop as well.
Am I at least on the right track? Should I expect to make money using this (as I get better and continue to adjust)? What should an “opens” trader need as a win rate, win % vs. loss % to be successful? I bet many beginners get shaken out with the “up one day, down two, up three, down three” swings. Is this expected? Any help for a newbie is greatly appreciated! —VinMan
One major change we’ve made over the last few years (due primarily to the higher volatility) is that we will place only buys (or sells) when the market is opening down considerably (or up considerably for sell short orders). This way, we don’t end up buying a weak stock, slightly up from the previous closing price (when the general market is opening way up), expecting a pullback. If we’re opening up some (say, five to eight S&P points), then we use a narrow sell envelope and a much wider buy envelope to ensure that our bid is well below previous closing price.
The retracement numbers are similar to what I use. New traders tend to run 70/30 win-loss ratio, and it goes up from there. We like the “up one day, down the next” for gap openings. This strategy is everyday, day in and day out; consistency is what we’re looking for.
What about those mocs?
If I had a 20-second update on the Moc imbalances, then last Friday I wouldn’t have sent my Moc orders for Psa and Met, which killed me on the prints for $1,000 and $500. Those were my losers for the day. Can I ask what trading platform you use to get the 20-second updates? Maybe I can come to the training camp next time. —ericyyy
Having the updates during the last 20 minutes of the day (every 20 seconds or so) has helped considerably. We see how the flow of the Moc orders go, even to the point of reversing at 3:50 pm (this is really helpful). The regulatory entering of actual Moc orders is based on the 3:40 and 3:50 published numbers, even if they reverse, but the flow of shares helps a lot.
We use the Goldman Sachs RediPlus platform, which has been excellent (especially since GS took over a few years ago).
And feel free to come by, for formal training or just to see how all this works.
What about premarket trading?
I have been doing a lot of premarket trading lately and have had mixed results. What do you guys think about premarket trading? I trade the stocks that have the most volume that morning, so they are earnings or big-news plays. Do you guys trade the stocks with big news/earnings or are they too wild and not worth the risk?—Gimp570
It’s pretty tough to make money premarket. Often, you’ll see a stock trading up or down, just to open unchanged on Nyse or Nasdaq. And those who might actually know something about a particular stock, versus the the rest of us, tend to have an advantage. Lack of liquidity can add to the problem as well. Another concern are the automated programs that some employ that will display the same pennies, but a different whole-dollar amount, to trap unsuspecting traders (this happens more than you might think).