Don's Openings, Part 6 2003

[lescor]

If a stock is looking ugly right off the open, I'll usually try to get out part of my position to recuce my risk. It depends on the stock and what kind of sector news might be out that day, but the first couple minutes is when you are going to get the shakeout moves. However, it might not be a shakeout and could be the start of something really bad, so I worry about the downside first and try to get out something. If it looks like it was a shakeout or the spoos are moving hard in the right direction, then I might try to get back in.

Sometimes I've been caught holding a loser way too long, waiting for the bounce. Usually I'm down to maybe 1/4 my original size by then, and then there will be the sign of the end of the move- specialist widens the spread way out and does a big print. Then I'd probably average down. But that's bad trading and is usually me trying to scratch back from some losses I shouldn't have had.

Adding to losers is almost always a bad idea, but if you know the stocks you're trading and have support from the futures and other stocks in the same sector look good, I don't have a problem trying it. But I play it tight and don't let it go against me a second time.

I get back into a stock I've exited for a loss or a win quite often if it looks like a good trade again.

 

[mdl060374]

Quote from WarEagle:

The only time I haven't had a short filled was when it opened a penny above me. Anything wider than that I have gotten.

Still, by law (assumming you are using the proper exchange, not an ECN) they MUST fill you.. no?

 

[Oz Cillator]

Quote from Don Bright:



No, I teach our people to get past that "adding to a loser" thinking by doing this:
I show them that "adding to a loser" is the single biggest cause of failure.

Instead of adding to the loser, cover your trade, and then you can get back in at a much better price, thus avoiding the bigger trap.
In addition, I try a different approach to help get past the fear of "covering at the top/bottom"...and the "it can't go any lower/higher"

Simply, "get out, if you think you can get back in at a better price".....This seems to take a few weeks in boot camp to get through (via many real examples)...but it does eventually get through.

Don

so you won't add to an opening position that has gone against you but you also won't necessarily blow it out either as this may be a shakeout you often speak of. Is that correct?

 

[Don Bright]

Quote from mdl060374:



Still, by law (assumming you are using the proper exchange, not an ECN) they MUST fill you.. no?

If the short is a legal uptick, based on current rules. And.....the order was in at least 2 minutes before the bell.

Don

 

[Don Bright]

Quote from Oz Cillator:

so you won't add to an opening position that has gone against you but you also won't necessarily blow it out either as this may be a shakeout you often speak of. Is that correct?

I will "blow it out" if I think I can "get back in" at a better price.

i.e. If buy TWX at 15.25 on the open, but it looks bad, I will sell it at 15.20 IF I think I can buy it back at 15.15 or so. I don't necessarily actually buy it back, but use the "mental game" to allay any "fears" of covering at the low. When mastered, this simple tactic is of great value.

Don

 

[WarEagle]

Quote from mdl060374:



Still, by law (assumming you are using the proper exchange, not an ECN) they MUST fill you.. no?

Well it only happened once, and the stock took off to the upside, so I wasn't calling anyone about it.

 

[Oz Cillator]

Quote from Don Bright:



I will "blow it out" if I think I can "get back in" at a better price.

i.e. If buy TWX at 15.25 on the open, but it looks bad, I will sell it at 15.20 IF I think I can buy it back at 15.15 or so. I don't necessarily actually buy it back, but use the "mental game" to allay any "fears" of covering at the low. When mastered, this simple tactic is of great value.

Don

Your experience and expertise notwithstanding what makes you "think" you'll be able to buy it back at 15.15. You, yourself, may very well have been the victim of the shakeout you warn against at 15.20. Is it just a matter of using your "tape-reading" skills to make the best possible decision/guess? I'm not trying to be a smartass here but this is exactly my point...you can't possibly know before the fact whether the initial post-opening negative moves against your position is merely a shakeout or the continuation of a bigger move in the same direction. To me it's like people who use technical analysis (20/20 hindsight I like to call it) who show me a chart of a stock today and tell me why todays price makes perfect sense (and how they saw it coming) based on how the chart looked a month ago. But tell me TODAY if the stock will be higher or lower ONE MONTH FROM NOW based on how the chart looks. If you can do that with any degree certainty bottle it...you'll make a fortune.

 

[Don Bright]

Quote from Oz Cillator:

Your experience and expertise notwithstanding what makes you "think" you'll be able to buy it back at 15.15. You, yourself, may very well have been the victim of the shakeout you warn against at 15.20. Is it just a matter of using your "tape-reading" skills to make the best possible decision/guess? I'm not trying to be a smartass here but this is exactly my point...you can't possibly know before the fact whether the initial post-opening negative moves against your position is merely a shakeout or the continuation of a bigger move in the same direction. To me it's like people who use technical analysis (20/20 hindsight I like to call it) who show me a chart of a stock today and tell me why todays price makes perfect sense (and how they saw it coming) based on how the chart looked a month ago. But tell me TODAY if the stock will be higher or lower ONE MONTH FROM NOW based on how the chart looks. If you can do that with any degree certainty bottle it...you'll make a fortune.

We are in agreement about the "20/20" hindsight...so let me explain.

Newer traders who are still developing their tape reading skills are likely to be afraid to cover a losing trade...and will sit and watch it go against them way (way) too far....for fear of "covering at the bottom/top"...So, I try to overcome this fear by getting them to only "think" they can "get back in at a better price" as opposed to "Close the position at a loss"....If they think they are "closing the position" (at a loss) that causes more hesitation, and more losses.

To me it makes more sense to cover, wait a minute, get back in vs. add to the losing trade....this way, at least you save the $$ between the price you covered and the price you get back in.

We (always) expeect to be right only 70% or so of the time, so this is not perfect, but works real well.

Don
By "tricking themselves" by covering with the idea that they can "get back in" they aren't "closing out at a loss" (at least in their mind's eye).

More often than not, when a stock is going against you, it will at least continue against you a few pennies (thus allowing the possibility of "getting back in" at a better price).

It's not the easiest job in the World, trying to teach trading (more art than science), psychology, order entry, and all the rest at once....so I have experiemented with many different approaches (over the years) to overcome all the bad habits traders try to develop (or come in with).

 

[TonySanDiego]

Fresh air at last..!!

Sea breeze has kicked up and driven out most of the smoke..

 

[Oz Cillator]

Quote from Don Bright:



We are in agreement about the "20/20" hindsight...so let me explain.

Newer traders who are still developing their tape reading skills are likely to be afraid to cover a losing trade...and will sit and watch it go against them way (way) too far....for fear of "covering at the bottom/top"...So, I try to overcome this fear by getting them to only "think" they can "get back in at a better price" as opposed to "Close the position at a loss"....If they think they are "closing the position" (at a loss) that causes more hesitation, and more losses.

To me it makes more sense to cover, wait a minute, get back in vs. add to the losing trade....this way, at least you save the $$ between the price you covered and the price you get back in.

We (always) expeect to be right only 70% or so of the time, so this is not perfect, but works real well.

Don
By "tricking themselves" by covering with the idea that they can "get back in" they aren't "closing out at a loss" (at least in their mind's eye).

More often than not, when a stock is going against you, it will at least continue against you a few pennies (thus allowing the possibility of "getting back in" at a better price).

It's not the easiest job in the World, trying to teach trading (more art than science), psychology, order entry, and all the rest at once....so I have experiemented with many different approaches (over the years) to overcome all the bad habits traders try to develop (or come in with).

so just to put the issue to rest, do these decisions simply come down to your skill as a tape-reader. Or can you make any general assumptions such as "shakeouts occur within the first few minutes or trades after the opening so give it a few minutes before you blow out a loser".