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.
POSITION SIZING IN STOCK TRADING
How do you position size in your stock trading? I buy strong stocks above the intraday breakout with close stops. My problem is I feel that my initial price is important, and once I add shares, it changes the whole dynamic of the trade. I know that position sizing is very important (cutting losses, adding to winners), and being that my good trades last three to four hours, it’s something I should be doing. Thank you.
A couple of things come to mind. First, the actual intraday breakout price may or may not be a good entry. You really need to take a few more things into consideration. Where are the futures trading? Where are the “peers” trading, sector and otherwise? Basing entry points just on breakouts can be very costly in this day of high-speed algorithmic trading. Entry and exit points must be clear before you address any concern about trade size.
Now to trade size. As traders, we tend to either fade the market move or go along with a trending market. What you should do is determine how many shares (capital used) should be moved based on stock price and your account size. What I personally do, especially on the days I fade the market, is to enter with either half or even a fourth of my normal position size. For example, if I trade 2,000-share lots for my opening-only, pairs, and Moc (market on close) strategies, I may short 500 to 1,000 shares first. This leaves room for adding an additional layer if the stock does not retrace within a reasonable time/price frame. I can basically improve my entry price level and adjust profit targets as needed.
Then there’s size in relation to stock movement. If you’re willing to take a 25-cent profit, then you should limit losses to less than that. Determine how many shares x movement would not adversely affect your buying power. It’s the old “don’t put too many eggs in same basket” theory. You will be wrong some times. So, you may want to layer in. Don’t be stubborn; only add a layer when the overall market is starting to turn in your favor. Good luck!
ON CLOSING IMBALANCE
Does your firm teach students how to trade on closing imbalances? — Trend2009
Absolutely — and there have been so many changes in how we address the Moc imbalances. We use two columns on our Redi platform, one with the “regulatory imbalances” (3:40 and 3:50 dissemination), next to another column with 30-second updates of share imbalances. We have spreadsheets to pop up numbers based on percentage of average daily trading volume, and so on; auto execution if you want it, even. We try to trade in and out during the first 10-minute time frame, readjust at that time. Then, based on what we see, we either take profits before the bell, or place an offsetting Moc order at that time.
First and last hours are very important to our traders.
ABOUT TRADING GROUPS
You’ve mentioned Bright Trading Groups. What type of groups are you referring to? —EL
We have several — some are private, and some are available to other Bright traders. Clifford Family Group (private, mostly mergers and pairs) has two locations and about 25 traders, while Team Friesen (which is open) has mostly openings and pairs/mergers too. There’s generally around 50 to 60 in this group. Zoe Group (also open) is for automation on openings and pairs and scalping pairs and other special programs. This team has been with us more than 10 years, and it has developed some great programs. Then there’s Bright Team Mentoring, which is divided into several subgroups, from basics to advanced. There’s also a couple of Las Vegas groups, which are private. Then there’s the Boston/Blue Hill group. And there’s a new group down in Miami.
But please understand, all Bright traders are connected every second of the trading day with their direct manager/mentor/team leader. I personally have more than 300 on my Yahoo Messenger.