I adjust for beta when I put in my OPG order...but don't evaluate it on a long term vs short term basis. To be honest..I am not sure if there is any gains to had from doing this...I think a better approach is to just eliminate all stocks with news hitting the tape, either after the close or this morning!
Don's openings and more for 2005
- Thread starter Don Bright
- Start date
snowwy66, go to don bright's earliest posts on opening orders, and you'll get the jist of it.
Mschey, I understand that no news is good news on OPG, otherwise the news will skew the FV of the stock. It seems as though there is statistical probabilities (reversion to the mean) combined with knowing the stock you are trading and what it may do after the open.
A couple of guys in my office only trade OPG on a few stocks that they trade often because they say "they know the stocks they trade."
Is this kind of what you're getting at?
thanks
Mschey, I understand that no news is good news on OPG, otherwise the news will skew the FV of the stock. It seems as though there is statistical probabilities (reversion to the mean) combined with knowing the stock you are trading and what it may do after the open.
A couple of guys in my office only trade OPG on a few stocks that they trade often because they say "they know the stocks they trade."
Is this kind of what you're getting at?
thanks
I started trading openings 3 years ago with a 1% envelope (that's 1% above and 1% below fair value). Very gradually over that time period it's come down to .7% as volatility has shrunk. On some stocks I tighten a bit more, very low volatility stocks or >$80/share in price. Over all that time my fill rate has remained very steady in the 8-10% range as an average.
There are several variations to trading opening orders, and the envelope you use is one variable that will affect the results and how you need to trade them quite a bit. Obviously the tighter your envelope, the more fills you will get. But the flip side is that there is less potential profit between the stock's opening price and fair value, so you have to take smaller and often quicker profits. As another variation, the smaller the profits you are looking at, the higher your win rate.
I do not know at what point your envelope is so tight that you are in the range of market noise. I can't see how a .2% envelope is giving you much of an edge. This is where good record keeping will help. Calculate your overall fill rate, win rate, expectancy, etc and see how results change as your envelope moves. Personally I prefer to get more fills by adding more stocks to the list.
Here's a simple example, and how you need to think about the numbers.
A trader uses a .4% envelope and historically gets filled on 30% of the 30 stocks on his list. He takes quick profits so his average win is 5 cents and his win rate is 80%. Average loss is 10 cents.
Expectancy is calculated as (win rate * avg win size) - (loss rate * avg loss size)
Dan's expectancy is (.8 * .05) - (.2 * .10) = .02 This is what he expects to make on average for each trade. Since he gets an average of 9 fills a day (.3 *30), he expects to average 18 cents a day in profits, total. At 2,000 shares per stock thats $360/day minus commissions. (BTW, this is an example, don't think I'm implying that these numbers are what would be reflected in real trading.)
Now take that formula and plug in different numbers and scenarios. I've recorded that data for every trade I've made over the last 3 years and it helps tremendously in several ways.
Corey
So,
Assume .0075 per share commission and no scaling out. That is $15 (2000 x .0075) per side on each of the nine fills on 2000 shares. $15 * 9 fills = $135 comish getting in. $135 * 2 (exit) = $270 total in round-trip commissions.
$360 - $270 = $90 real profit (then you get taxed), or 1.3 cents profit per penny spent. Seems tight to me.
I like to use a measure of how expensive trading is by calculating the profit to comission ratio. In this case it is $90/$270 =.33. If it is below .75 I see warning signs.
Notice what a huge difference going to .005 per share makes:
Comission now = $10 * 9 * 2 = $180. $360 - $180 = $180, or 1:1. A third lower the comission doubles the profit.
nitro