Don's Openings Pt. 2

[lescor]

Added a dozen new stocks last week and am up to 70 now. Average fill rate is 8.5%.
Always scale out of winners, will dump the whole position on a loser, depending on the tape.
Win rate about 65%, but trending up. Avg winner about 2 times larger than average loser.
I adust share size and envelope per stock based on share price and volatility. Most stocks are 1% and 1000 shares.

 

[mjt]

I visited the Bright office in my city a few weeks ago, and one of the big whigs was there. He showed us a spreadsheet with all the statistics of the traders in his firm for openings. I can't remember the exact numbers, but there were some traders trading an unbelievable amount of shares on openings.

So my question is, once you become proficient at this strategy, is there any real limit to the number of stocks you can trade with this strategy? Don was saying that 2000 seems to be the max you should trade with any given stock. But could you eventually be doing a couple hundred stocks, and then just dump the losers when they first become losers, or put in a trailing stop, or something? Or does the strategy become much less effective when you trade too many stocks, because you should be reading the tape with each stock?

 

[Gansoro]

Originally posted by mjt
So my question is, once you become proficient at this strategy, is there any real limit to the number of stocks you can trade with this strategy? Don was saying that 2000 seems to be the max you should trade with any given stock. But could you eventually be doing a couple hundred stocks, and then just dump the losers when they first become losers, or put in a trailing stop, or something? Or does the strategy become much less effective when you trade too many stocks, because you should be reading the tape with each stock?

I suppose this stategy might work with a shot gun approach, like the one you are suggesting. I have heard of traders doing exactly what you are suggesting and exiting thier positions based on their real-time P&L. They never even look at the tape.

As for me, that's not my style. I believe successful trading is about putting the odds heavily in your favor... only making the very high probability plays. Some stocks perform better than others on opening orders. I prefer to only play those stocks that have a proven winning track record. Some of the stocks I have tested have very poor win rates (winning trades/losing trades), as low as 25%. Naturally, I take them off my watch list and add/test others. It is a constant sifting process. Personally, I only submit opening orders for stocks that have a very high win rate. I'm very selective.

 

[Don Bright]

Originally posted by mjt
I visited the Bright office in my city a few weeks ago, and one of the big whigs was there. He showed us a spreadsheet with all the statistics of the traders in his firm for openings. I can't remember the exact numbers, but there were some traders trading an unbelievable amount of shares on openings.

So my question is, once you become proficient at this strategy, is there any real limit to the number of stocks you can trade with this strategy? Don was saying that 2000 seems to be the max you should trade with any given stock. But could you eventually be doing a couple hundred stocks, and then just dump the losers when they first become losers, or put in a trailing stop, or something? Or does the strategy become much less effective when you trade too many stocks, because you should be reading the tape with each stock?

I'm glad you had a chance to visit an office, and I hope all went well there.

Regarding the "more is better" approach, let me give you a couple of real examples. When we first "reactivated" this technique a couple of years ago (in our never-ending quest to make new traders profitable enough to make it through their "learning curve"), we wanted to simply have them focus on a few stocks, perhaps get 1 or 2 fills each day....to get them "on their game" ...and make a few bucks. Well things went real well, and we had a group in one of our Southern California locations take the idea to a whole new extreme...automating about 1000 or more orders, with scaling (so maybe only using 300 stocks), with a "semi-automated" exit method. Well, this worked well for a while, and some are still doing that many and making good money.

What happens is when there is any type of glitch, it can be costly (I know some of you expect to hear nothing but "rosy" outcomes from me, but I try to be as honest as I can)...and they started to scale down, narrowing the envelopes (this was a now-fixed software concern when we overloaded the network)...and the three major groups that have continued to do well are these:

1. New traders, 5 or 6 stocks, 1 or 2 fills...learning the game, 500 shares or so during their learning curve.

2. What I do, use a relatively narrow envelope for around 20 stocks, and trade 2000 shares hoping for 3-5 fills each morning. Many have adapted this range of trading.

3. More automated approaches for exits, using 500 -1000 orders, with a dedicated network (to avoid the glitches above), and they are doing well....but, they are much more discerning now, and will get rid of stocks they are having trouble with.

This is where most of our people stand in the equation, at least for now!

Don

 

[Don Bright]

Originally posted by Gansoro



Don,

My numbers are very close to yours:

1. Currently placing opening orders on 11 stocks. Currently watching/testing 87 stocks.
2. Yes, I adjust the number of shares for each stock based on it's price and my money management parameters.
3. Average 10% - 15% fill rate.
4. Average approximately 75% profitable trades.

Great, have you raised the number of shares traded as you have continuing success?

Don

 

[Gansoro]

Originally posted by Don Bright


Great, have you raised the number of shares traded as you have continuing success?

Don

Yes. I have programed a system which automatically calculates the number of shares I trade in each stock. The system adjusts my position size in each stock according to the equity in my account, my money management parameters, and the liquidity of the stock. I trade more than 1,000 shares in some of the stocks on my list and a few hundred shares in others. As my equity flucuates or the average daily volume of the stock changes, my system automatically makes adjustments to my position size in each stock every day. Even though opening orders is a profitable strategy for me, I am still careful about my position size.