Q&A
Since You Asked
with Don Bright
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).
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