Q&A
Since You Asked
| 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
|
OPENING ORDERS
I have a question about stocks with news out pre-opening. Some
say to avoid any stocks with news out; others say it depends what the news
is. Regarding, say, earnings guidance announcements, I've seen times when
a stock opens down two points on negative news - and that's the high trade
of the day. Then it goes down two more points. Other times a stock opens
down two and then shoots right back up. These are dramatically different
results, if you buy on the opening, and you obviously don't know in advance
which of these scenarios will occur. How does this issue relate to the
opening order strategy? - Oz Cillator
This is a very subjective question. I am not overly concerned when I
see an imbalanced number (pre-open indication), but adjust my bid/offer
accordingly. This is a game of consistency, and since we put in 20 orders
every morning, keeping or deleting one due to news shouldn't make a big
difference.
These sort of situations can cause us all to say to ourselves, "If
I only woulda stayed in, I woulda made money," or "I knew the
earnings were out, how could I be so stupid?" There isn't really much
useful advice I can give you there. I, personally, keep most of the orders
in, and just adjust prices.
FOLLOWUP TO OPENING ORDERS
Thanks for your comments. Here's another problem I see: Say you're
executed on an order and are now long a stock that opened down $1. The
stock immediately trades 30 cents lower with nary an uptick. Now I've read
your posts before where you warn about "shakeout"" and suggest
hanging on for the rebound. But without a crystal ball, how can you know
when it's a shakeout and when the selling is real and serious (like points
more to go on the downside)? At other times you seem to recommend cutting
your losses and "getting back in the trade at a better price."
Could you please address what seems to be a contradiction? Thanks -Oz Cillator
The primary thing to remember when doing these opening-only orders is
that the NYSE specialist will be on the same side as you. This generally
means that we should be able to get out with a profit. Sometimes, we can
get stuck. Then we have to "tape-read" the overall market, sector,
stock itself, and the size of the trades taking place (to figure out who
is selling and who is buying).
At this point, we have to make our best educated guess whether we can
get back in at a better price, bite the bullet, close, and be prepared
to actually get back in. We're shooting for an 80% batting average here,
not 100% - right?
Again, I wish there was a definitive answer, but as in all of trading,
there isn't.
NYSE OPEN PRINT
I remember reading somewhere that someone was able to get filled
on an opening order entered seconds after the NYSE open print. Please correct
me if I am wrong. Thanks -Anonymous
By definition, the opening only order means the opening print. There
are only two times during the day there is a single stock price on the
NYSE: the open and the close (market on close orders).
You can, however, place an opening order after the overall market has
opened, but your specific stock has not. Perhaps that is what you are thinking
about.
WEEKLY CHARTS
A trading week is made up of five days. If the week is shortened
to one day for whatever reason, should that one day be taken as a whole
week when plotting data for a weekly chart? Thank you and regards -Syed
Rehan Ali
As with most analysis, you can get as specific as you like. Since we
use end-of-day data, you would probably have a slightly different number
if you used every five days instead of every Friday so as to not skew the
data based on other influences (as seasonality and the like). My personal
feeling is that there will always be some slippage anyway, so don't get
too bogged down in the minutiae. Good luck!
FAIR VALUE
I have been out of commission for a while and I am now seeing
something I don't quite understand. Regarding Standard & Poor's fair
values as found at ProgramTrading.com, did something change in how this
number is calculated? I have been seeing negative numbers recently. I thought
this wasn't possible. I also checked past values at AllStocks.com and saw
values in past years much higher (as high as $17/18) than I was accustomed
to seeing. Are the numbers I'm seeing correct? Does it have something to
do with the decline in interest rates over time? Could you please enlighten
me? Thanks -MGB
In this time of extremely low interest rates, we must remember the other
part of the fair value equation: dividends. If the dividends outweigh the
interest, then fair value can go to a negative.
E-mail your questions for Bright to Editor@Traders.com, with the
subject line direct to "Don Bright Question."
Originally published in the September 2003 issue of Technical
Analysis of STOCKS & COMMODITIES magazine. All rights reserved. ©
Copyright 2003, Technical Analysis, Inc.
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