Q&A

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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.

Don Bright of Bright Trading

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MARKET MOVEMENTS

Lately, when I place trades, I have noticed a market moving favorably in my direction before my stop is placed in the emini NASDAQ. After I place my stop, almost immediately, prices reverse to where I placed the stop. Sometimes they go further -- I feel justified! More often than not, prices reverse on me again after I am out of position, continuing in the direction I was originally. When this happens several consecutive times, I step aside, often missing a big move. Can my opponents see my stop when trading Globex eminis?--Mh

No, but most traders rarely use hard stops, preferring to use alerts to check market conditions before closing a trade. Stops are designed more for those who cannot engage themselves in watching their positions intraday. However, in the case of retail brokers, they may hold the stop order in-house (especially on equities), and that can be problematic.

SECTOR PLAYS

I recall reading what you do once you're done with opening-only plays (OPGs) for the day, that you like to make sector plays in your "children" stocks for the mid-morning. However, I can't dig up any more details. Any chance you could outline the basics of what you are doing with this strategy?--CBuster

Sure, glad to refresh your memory. After we play the opening-only strategy, we teach to look at the "peers" of the "children" stocks to quickly evaluate the relative strength within the group.

Let's back up a second first. On the opening, let's say I got filled on a pharmaceutical stock, a home stock, and a food stock. After my automated program sends retracement orders for half the shares (allowing me to tape-read the market before exiting the balance), I pull up a couple of peers for each stock. This way, I can quickly see if the stock I have a position in is stronger or weaker than its peers. Rather than just pull up an index, I prefer seeing the most similar within the group.

Now, after I am done trading the actual opening only, and sometimes even during that initial time frame, I will check for stock-specific and sector-specific news that might affect one or all of the stocks. At this point I can easily determine the relative strength of each stock to each other, the sector, and the overall market. Once I have that determined, I can look for good entry points based on my other criteria (pivot points on futures, Prem/Disc to fair value, depth of book, volatility "Bright" bands, and general market conditions. Long or short, it's always better to be long the stronger stocks, and to short the weaker stocks as the market dictates.

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E-mail your questions for Bright to Editor@Traders.com, with the subject line direct to "Don Bright Question."

Originally published in the July 2008 issue of Technical Analysis of STOCKS & COMMODITIES magazine. All rights reserved. © Copyright 2008, Technical Analysis, Inc.

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