Opening Orders - 2008

Quote from jodistrict:

I am a newbie at this. The one thing that concerns me about this strategy is the money management aspect. Because of the nature of the openings, every once in a while you could end up with a really big loss. Mechanical stops don’t work well because of the volatility. One disaster scenario is you get 3 or 4 fills all buys on a down day opening expecting your exit limit orders to get filled on the bounce, but none of them get filled and the market keeps going down. You can stop out taking a big loss or wait a half hour to see if the market reverses in which case your losses could be even greater. What to do? For traders that have been doing this for a long time, have you encountered this large loss day?
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If you do this strategy long enough, you are going to encounter a day in which you get spanked. It is unavoidable and just the nature of the beast. However those days are very rare if you are diligent in pulling stocks for news and you only trade stocks whose volatility you can handle. But you can never eliminate the possibility since sometimes a stock will crush you with no news on it whatsoever. You just have to prepare yourself mentally for the possibility.

What to do? It's been said many times within these threads that once you are filled its just trading 101. If you find you are in a bad trade, you do what you can to try to keep the loss to a minimum. Sometimes the minimum will still sting.
 
Quote from trader#21:

there isn't open auction on nasdaq stocks. I need to talk how I choose a postion:
1. A stock is at a imp level. (suppose it goes to a imp resistance with yesterday's up day, but today the futures indicate a weak open, so i'll consider it lucky to get a short near that level.)
2. The market seem to take a clear direction just after open... I take a position in QQQQ

an open auction helps gets the best price for trading stocks as in first case. But if there isn't, why miss the opportunity? there was almost a 2$ clean move in case of BIIB. both GM and BIIB were good candidates for mean reversion. Some days earlier got a very good trade in DRYS .



See there are always two possibilities... 1. markets indicate open with a gap 2. markets indicate a flat open.

For the latter case I usually dont take positions at open. If DOW opens with a gap of something like 100 points there can be two possibilities... it continues in the direction of gap after first few minutes or it retraces some amount before indicating a trend for the rest of day(if at all it does). The latter happens more often. Somewhere mentioned in previous post that take a position in QQQQ 5-10 minutes before market open. I find it better because to take premarket position to avoid slippage which come as wild swings just after open. The target is usually from 20-30 cents with a stop under 10 cents.

Well, trade differently thats why dont post my P/L in terms of cents either. Actually I doubt whether participate in thread or observe silently.
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Ummm... yeah, you're not trading opening orders.
 
Quote from jodistrict:

I am a newbie at this. The one thing that concerns me about this strategy is the money management aspect. Because of the nature of the openings, every once in a while you could end up with a really big loss. correct

Mechanical stops don’t work well because of the volatility. correct

One disaster scenario is you get 3 or 4 fills all buys on a down day opening expecting your exit limit orders to get filled on the bounce, but none of them get filled and the market keeps going down.
yes, and it can be on a higher fill rate than you're used to also. If you are used to 3 or 4, you can still get 8 or 10 on that day

You can stop out taking a big loss or wait a half hour to see if the market reverses in which case your losses could be even greater.
correct again

What to do? For traders that have been doing this for a long time, have you encountered this large loss day? It happens regularly. You can't do anything to avoid it. Sometimes you did nothing wrong, sometimes you just screwed up. What you do is estimate the worst case scenario, how much you think you'd lose on a "really bad day". Then double that amount. Determine your share size based on that and make sure you're ok with that much potential red some day.

Oh yeah, and make sure you know how to trade. Deer in the headlights only makes it worse.
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Lescor wrote:

<b>"What you do is estimate the worst case scenario, how much you think you'd lose on a "really bad day". Then double that amount. Determine your share size based on that and make sure you're ok with that much potential red some day."</b>

Then copy these words to a word document, make the font real big, bold the font, and put it next to your computer. :)
 
I estimate that "really bad day" to be 20x my average day.

Think I'm overboard? It's just a number in my head I'm OK with losing if everything goes wrong a couple of times each year (or should I think more often?)
 
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