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Don's openings and more for 2005
- Thread starter Don Bright
- Start date
I don't think he's holding or trading 300 pairs, in fact, I am certain of that, just a week ago or so he said he was trading 13 or so. As for returns, It is simply a matter of making money.
The one underlying problem that remains with pairs, the one that doesn't come back, takes most of your profits, If you get two around the same time, you are out of the pair business. Once again, it comes down to having a superior trading strategy and a good risk management plan. I have yet to see any automated pair trading program that provides superior pair trading results, or even produce consistent profitable results. The current thinking out there, is increment in and trade out. Layer in and layer out. This sounds good in theory, but just doesn't work very well in reality. You will have a couple of good months, and then you get wacked by a spread that blows out 15 points and there goes your account, because yo don't have the financing to continue to hold those positions. You need a lot of money for that strategy to pay off, a trader with 25 or 50k will most likely go broke before he doubles his trading account.
As for the openings, it will be interesting to see how the market is affected by the new SS rules. I expect to see more size moved on the opening print as short sellers will be able to hit that bid and get short the open. Why not follow up the opening print with another short sale hitting the bid again and supporting your original position. I can foresee harder squeezes off the open in both directions, I will be adjusting my trade size accordingly.
Good trading to all!
Mike
The one underlying problem that remains with pairs, the one that doesn't come back, takes most of your profits, If you get two around the same time, you are out of the pair business. Once again, it comes down to having a superior trading strategy and a good risk management plan. I have yet to see any automated pair trading program that provides superior pair trading results, or even produce consistent profitable results. The current thinking out there, is increment in and trade out. Layer in and layer out. This sounds good in theory, but just doesn't work very well in reality. You will have a couple of good months, and then you get wacked by a spread that blows out 15 points and there goes your account, because yo don't have the financing to continue to hold those positions. You need a lot of money for that strategy to pay off, a trader with 25 or 50k will most likely go broke before he doubles his trading account.
As for the openings, it will be interesting to see how the market is affected by the new SS rules. I expect to see more size moved on the opening print as short sellers will be able to hit that bid and get short the open. Why not follow up the opening print with another short sale hitting the bid again and supporting your original position. I can foresee harder squeezes off the open in both directions, I will be adjusting my trade size accordingly.
Good trading to all!
Mike
I am currently trading fewer than 20 pairs, but our local group has around 300-400 pairs, and we trade them daily, maybe several times, and we keep them overnight based on bias calculations, etc.
Opening today, about $360 up.
Don
Opening today, about $360 up.
Don
Only $230 today on opening, pairs coming in nicely, able to close down a bit, yea!!
Don
Don
Hi:
I have been on the sidelines for a while for OPG (trying hard to refrain from sending orders in the morning).
I have a question regarding this strategy, if the edge as DOn said that we are on the same side as the specialist, why do shakeout/fakeout still oftentimes happen? I saw many stock just went straight in out favour but manytimes it will go against first and then go to our direction. For those guys with good number of shares, this is kind of tricky sinceyou are never sure if it is a shakeout or real move (I know that you guys keep good record of individual stocks). IN the past, there are fewer shakeouts. WIth the current market situation, is it better to start with smaller scale and add later. Of course, there are situations where the spec wont let us add at an advantegous price, but al least it will reduce the risk of going all positions at once.
Thansk
I have been on the sidelines for a while for OPG (trying hard to refrain from sending orders in the morning).
I have a question regarding this strategy, if the edge as DOn said that we are on the same side as the specialist, why do shakeout/fakeout still oftentimes happen? I saw many stock just went straight in out favour but manytimes it will go against first and then go to our direction. For those guys with good number of shares, this is kind of tricky sinceyou are never sure if it is a shakeout or real move (I know that you guys keep good record of individual stocks). IN the past, there are fewer shakeouts. WIth the current market situation, is it better to start with smaller scale and add later. Of course, there are situations where the spec wont let us add at an advantegous price, but al least it will reduce the risk of going all positions at once.
Thansk
Quote from danjos:
Hi:
I have been on the sidelines for a while for OPG (trying hard to refrain from sending orders in the morning).
I have a question regarding this strategy, if the edge as DOn said that we are on the same side as the specialist, why do shakeout/fakeout still oftentimes happen? I saw many stock just went straight in out favour but manytimes it will go against first and then go to our direction. For those guys with good number of shares, this is kind of tricky sinceyou are never sure if it is a shakeout or real move (I know that you guys keep good record of individual stocks). IN the past, there are fewer shakeouts. WIth the current market situation, is it better to start with smaller scale and add later. Of course, there are situations where the spec wont let us add at an advantegous price, but al least it will reduce the risk of going all positions at once.
Thansk
This is a probability game, and yes, most of the time the Specialist will make money, and so will we. Shakeouts 'happen' sometimes when the Specialist is literally trying to (buy or sell) execute more shares at a better price. He may buy some down $1.00, and more down $1.10 or so. And sometimes (yes, it happens), he just gets overwhelmed with legitimate orders in the same direction. Sometimes he is closing open positions from the night before.
We adjust our envelopes for specific stocks based on how the Specialist responds to gaps.
Again, we just play the high probability of success, and it works.
All the best,
Don
higher volatility is positively correlated to percentage of gap opens being the hi/lo of the day. the lower the overall volatility in the market the higher the percentage of 'shakeouts' because the specialist is not participating at all , or very minimally, in the opening print. the specialist knows the book, the order flow, and at what price the stock is trading premarket. he is NOT going to participate in the open and then take the stock against his position if he can help it. in other words, if there is a shakeout you are on your own, not 'on the side of the specialist'.
Interesting information keafan, do you have data to back this theory, or is based sole upon your experience? Today, WEN was a shakeout, I covered some for a small profit, then took a squeeze on the position for .25 or so, then when he rolled over, I was able to make a solid .15 on the trade.
How do you know the difference between a shakeout and a true momo move, well, there are some clues. It comes down to tape reading. I have been writing an article on the art of tape reading and may post it here.
Good trading to you!
Mike
How do you know the difference between a shakeout and a true momo move, well, there are some clues. It comes down to tape reading. I have been writing an article on the art of tape reading and may post it here.
Good trading to you!
Mike
Interesting and insightfull insight . Thanks Dan and keafan and mschey.
Oftentimes, right after getting filled on long position, immediately the bid/ask become 10 *240 and our filled price is in between bid and ask. (short would be similar but opposite cases).
I understand that Don would immediately try to dump your positions. But I notice that sometimes the offer got taken.
Why would specialist shows this big imbalance in bid/ask size right after the first print? Is he allowed to make up this quotes? (for example so that he can buy more at lower prices)
Oftentimes, right after getting filled on long position, immediately the bid/ask become 10 *240 and our filled price is in between bid and ask. (short would be similar but opposite cases).
I understand that Don would immediately try to dump your positions. But I notice that sometimes the offer got taken.
Why would specialist shows this big imbalance in bid/ask size right after the first print? Is he allowed to make up this quotes? (for example so that he can buy more at lower prices)