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 |
TRADING NEWS
There are a couple of news scenarios for which I would like your input. If a stock you play regularly has announced earnings since the last trading session, will you play it on the opening? If so, do you adjust the envelope for this symbol? What about earnings "guidance" and other significant news? Also, what about when there is no news on the symbol, but there is significant news or earnings on a stock in the same industry group or on the industry group itself?
I understand that news is subjective and varies on a case-by-case basis. However, are there any rules of thumb that you follow? Thanks in advance -KnowFear
Good questions! What we look for is the preopening indication, which will give us an idea of where the stock is going to open. This information is put out by the NYSE specialist whenever the stock is going to open any distance away from the prior day's closing price. This is more important than the earnings or the news. We have all seen "better than Street" earnings cause a stock to fall, and vice versa. I adjust the actual bid or offer so that they fit into the bottom third of the indication. Let me explain: If my bid price was $22.00 based on our fair value calculations, but the opening indication was a $17 bid/$18 offer, then I would adjust my bid (only - not the ask) to around $17.30 or so. I don't want to buy a down stock near the upper end of its indication. We are usually glad to be "in" when the stocks open far away from the previous close. It's the old adage, "Buy the rumor, sell the news" - and the reverse.
We try to always be aware of significant news and other factors within the sectors that we trade. I try to make sure my "boot-campers" are working together to follow the premarket news. I share what I can, but I want them to become self-sufficient and be able to understand the concepts involved prior to heading out on their own. Mid-trading day, we like to be flat when earnings are coming out. We generally have a good idea of the earnings based on the movement of the stock, but we often have surprises, as any trader understands.
WINNIG PERCENTAGE
For every 10 trades a person makes, what would you consider to be a good winning percentage? -Tim McIntyre
We look for about a 70% batting average. It is also extremely important to be sure that your winning trades are at least as good as your losing trades. You cannot allow your losers to eat up your winners (that sounds so obvious, but it can be hard for novices).
GETTING STARTED
Can you give some suggestions to a guy who dreams of becoming an equity trader? I have a very limited amount of capital, but I have a passion for financial markets and a willingness to commit 100%. I have been told you are the godfather of trading, and I'd appreciate any advice from you. - David
Check the colleges and universities near where you live to see if they offer any serious trading classes. There are some here in the Las Vegas area, and I know there are some good ones in the Boston and Washington, DC, areas. In addition, internship programs are available at various universities around the country. Decide if you want to trade as a career, or simply as a way to (hopefully) make some extra money.
Some firms may allow new traders to start with little or no capital, which is fine for some people just getting started. Be sure to check all the fees involved and the profit split. At Bright Trading we look at this a little differently: We look for those who think of trading as starting their own business, and who have a little capital to invest in their new venture. We provide the actual trading money, and share the risk with our traders.
FOLLOWING STANDARD & POOR'S
I know you're a big believer in the method of finding a Standard & Poor's 500 stock with decent volume and liquidity. You choose two or three and become a specialist in those stocks, trading them on a regular basis. I wanted to find out how that kind of trading has been going the last few months.
This was my style of trading when I traded Nasdaq stocks, and it was how I traded NYSE when I switched over in the middle of last year. However, I have not had much success with this method for several months. It seems that so many stocks are not moving with the futures, or even when they do, it can be unpredictable when they will move and when they won't. Can you give me any insight on how this style of trading has been working for traders at your firm lately? -Bob
We still encourage the specialization technique, but have added the constant enveloping of bid/ask - even layering at times to take advantage of "trade-throughs" (price improvement on large-block trades). Decimalization has been the driving force in altering our time-proven strategies. As always, we have to constantly adapt to whatever the market throws at us. Following S&P stocks works both ways - as you notice a variance (counter-movement), then you look for other stocks in the sector to see if there may be a reason for the anomaly. Relative strength within the sector helps a lot with tape-reading. We are also big fans of intraday pairs trading.
Emailyour questions for Bright to Editor@Traders.com, with the subject line directed to"Don Bright Question," or post on question on our Message-Boards.
Originally published in the August 2003 issue of Technical Analysis of STOCKS & COMMODITIES magazine. All rights reserved. © Copyright 2003, Technical Analysis, Inc.
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